Capital Gains Tax on the Sale of Property and Jewellery

Every individual owns some asset be it in the form of any property, gold, jewellery or shares. One must be aware of tax implications on the gain/loss arising from the sale of such assets. Tax liability on the Sale of property, shares, and jewellery depends on the holding period of the asset and is calculated under the head ‘Capital Gains’.

What is Capital Gains?

Profit or gain arising from the sale of assets such as property, gold, jewellery or shares is called a Capital gain. Capital Gains are divided into two categories:

Long-term Capital Gain

If you sell the asset after holding it for more than 12/24/36 months(varies from asset to asset- see image below), then the profit arising on sale will be termed as LTCG. 

For instance, if you sell a house property after 24 months, it will considered as Long-term capital gain, and in the case of listed equity shares, it will be considered as long-term after 12 months of holding period.

Short-term Capital Gain

If the asset is sold within a certain holding period from its acquisition, then it is called a short-term capital gain (STCG). 

1. Sale of Immovable Property and unlisted equity share: If you sell a house within 24 months of acquiring it, then the gains arising will be termed as STCG. 
2. Listed shares and equity-oriented mutual funds: If they are sold within one year, it is taxed under the short-term capital gain. 
3. Any other capital assets: The holding period should be less than 3 years to consider it as short-term.

Now, let’s analyse the tax rate applicable to income from these assets, such as property, gold, jewellery, shares, etc., based on the duration for which they are held.

Tax Rate Chart for Income on Sale of Assets

(Tax rates mentioned above exclude surcharge at 10% on income between Rs 50 lakh and Rs 1 crore and 15% on income above Rs 1 crore) 
* Applicable only for the shares sold through the stock exchanges in India on which a security transaction tax (STT) has been paid.

**Amendment in Finance Act 2023 - Non-equity mutual funds to be taxed at Slab rate irrespective of holding Period

In Finance Act 2023 changes were made in respect of non-equity funds taxation. Any non-equity funds purchased after 1st April 2023 and subsequently sold will be considered as Short-term irrespective of holding period and respective slab rate will be applicable. This affects not only your debt mutual funds but also other funds like Gold funds and international funds. 

It is also important to note that for any non-equity funds bought before 31st Mar 2023, old provisions of long-term and short-term will continue to be applicable.

Calculation of Tax on Short-term and Long-term gains from the sale of assets

Short-term Capital Gain/Loss

Short-term capital gains are taxed as per the income tax slab rates applicable to the individual. For instance, if the short-term capital gain is Rs 6 lakh and the person falls in the 30% tax bracket, then he/she has to pay 31.20% on Rs 6 lakh, i.e. Rs 1,87,200. Gain/loss from the sale of the asset is calculated by deducting the cost of purchase, cost incurred for improvement of the asset and expenses incurred exclusively in connection with the sale from the sale proceeds of the asset.

Short Term capital gain computation:

Exception:

In the case of a short-term capital gain on listed shares/equity-oriented mutual funds (if sold within a period of one year), it will be taxable at the rate of 15.60% (including health and education cess @4%). But in case of the sale of unlisted shares, i.e. sales not made through the Indian stock exchange, will be subject to tax as per the income tax slab rate applicable to the individual.

Long-Term Capital Gain/Loss

Long-term capital gains are taxed at the rate of 20.8% (rate including health and education cess @ 4%) with indexation. Indexation is a technique to adjust the cost of the asset according to the inflation index. It will increase your cost and reduce your gains and thereby, tax liability. So, under long-term capital asset, the benefit of indexation is available, plus the person who falls in the tax bracket of 30% also gets the advantage of paying the lower tax rate of 20%. Long-term capital gains are calculated in the same way as short-term capital gains, but the purchase cost and cost of improvement are replaced with the indexed cost of acquisition and indexed cost of the improvement.

The calculation of Indexed cost can be done with the help of the following formula:

Indexed Cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year of sale / CII of the year in which the property was first held or FY 2001-2002, whichever is later.

CII Index data for every year since FY 2001-02 till date is available here.

Note: 
If the property was acquired before 1st April 2001, in that case, the actual cost of the property or the FMV of the property as of 1st April 2001, as opted by the taxpayer, should be deemed to be the cost of acquisition.

Tax planning tip:  If the immovable property was acquired before 1st April 2001, then property valuation as of 1st April 2001 needs to be obtained from a registered valuer, enabling you to increase your cost of acquisition, thereby reducing the capital gain.

Indexed Cost of Improvement=Cost of improvement * CII of the year or sale / CII of the year in which improvement took place

Note: Improvement costs incurred before FY 2001-02 should not be considered.

Example: Mr A bought a residential apartment on 1st Jan 2017 for Rs 20,00,000. He further spent Rs 200,000 on 1st May 2020 towards interiors. Now on 1st Mar 2024, he is planning to sell the property for Rs 60,00,000. Calculate the capital gain on the same.

Answer: 

1. Holding Period: Since the immovable property is held for more than 2 years it will be classified as long-term capital gain.
2. Long-term capital gain computation as follows

Exception

Before, In the case of Listed Shares/ Equity oriented Mutual funds, long-term capital gain (if sold after a period of one year) was exempt. However, it was applicable only for the shares listed on the Indian Stock Exchange, whether it is an Indian company or a foreign company. And the shares must be sold through the Indian stock exchange platform only.