[ecis2016.org] When the owner sells a property within a short period of its acquisition and still manages to generate a profit on the transaction, the differential money is known as short-term capital gains
Indian tax laws make it incumbent upon the person generating an income in this country, to pay taxes. The same holds true for profits earned by offloading movable and immovable assets, such as properties. While the profit generated by way of selling one’s asset is known as capital gains, they are divided into two categories, to fix tax liability.
You are reading: All about short-term capital gains
Types of capitals gains
Short-term capital gains
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When the owner sells a property within a short period of its acquisition and still manages to generate a profit on the transaction, the differential money is known as short-term capital gains (STCG). Under the existing Indian laws, if the owner purchases a property and sells it within two years of its acquisition, the profit generated would be taxed as STCG.
Long-term capital gains
When a realty asset is sold after 24 months of its acquisition, resulting in profit generation, the income thus earned will be treated as long-term capital gains (LTCG) and taxed accordingly.
Rate of tax on short-term capital gains
In case of STCG, the profit is added to the tax payer’s income and the entire amount is taxed according to the income tax (IT) slab that one falls under.
IT slabs under the new tax regime for FY 2020-21
Assessment year 2021-22
| Income slab | Tax rate |
| Up to Rs 2.5 lakhs | None |
| Rs 2.5 lakhs to Rs 5 lakhs | 5% (Tax rebate of Rs 12,500 available under section 87A) |
| Rs 5 lakhs to Rs 7.5 lakhs | 10% |
| Rs 7.5 lakhs to Rs 10 lakhs | 15% |
| Rs 10 lakhs to Rs 12.5 lakhs | 20% |
| Rs 12.5 lakhs to Rs 15 lakhs | 25% |
| Rs 15 lakhs and above | 30% |
Read also : Capital gains computation for encroached/litigated properties
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How to calculate STCG?
To arrive at the amount that will be added to your overall income for tax purposes, you have to deduct the cost of acquisition and expenses incurred in improvement of the property, from the cost at which you sold the property. Suppose, you bought a property for Rs 50 lakhs and used another Rs 10 lakhs to make improvements. In a matter of 15 months, you decide to sell the property for Rs 70 lakhs. Thus, the STCG will be of Rs 10 lakhs. This amount will be added to your income for that year and a rate of tax will be charged, based on your tax slab.
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FAQs
When is STCG applicable on property sale?
STCG is applicable if a property is sold within two years of its acquisition.
When is LTCG applicable on property sale?
LTCG is applicable if a property is sold after two years of its acquisition.
What is the tax rate on LTCG on property sale?
20% of the profit has to be paid as tax on LTCG, in a property sale.
Source: https://ecis2016.org/.
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Source: https://ecis2016.org
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