Capital gain

In case you sell a house, you will earn capital gains in case the sale amount is higher than the cost of the property. Capital gains tax is leviable on sale or transfer of a house. Capital gain tax is computed on the indexed cost of the asset purchased, which is deducted from the consideration received or receivable.Step I: Take the exact sale amount Step II: Deduct the allowed expenses EXPENSES THAT CAN BE DEDUCTED: Expenditure incurred wholly and exclusively in connection with the transfer Indexed cost of the acquisition for the seller Indexed cost incurred on any improvement of the property by the seller From the resulting amount deduct: Exemptions provided by Sections 54, 54B, 54D, 54EC, 54ED, 54F and 54G. The balance amount is the long-term capital gains. COST OF ACQUISITION The cost of acquisition of an asset is the value for which it was acquired. Expenses of a capital nature towards acquiring the title to the property may be included in the cost of acquisition. The indexed cost is computed according to the indexation rates notified by the Income Tax Department for each year. You can reduce the capital gains tax by complying with the IT provisions. The benefit is available only to individuals and a Hindu Undivided Family (HUF).The asset transferred should include a building or land attached to it, and it should be a house. The income from that house should be chargeable to tax under the head ‘Income from House Property ‘. The house must be held for a period of more than 36 months before the date of sale or transfer. It may be selfoccupied or rented out. Other immovable properties, although owned by an individual, are not eligible for this exemption. The capital gains should arise from the transfer of such a long-term capital asset. In order to reduce the capital gains tax, should have either purchased a house within a period of one year before or should do so two years after the date on which the transfer took place, or construct a house within a period of three years. PROVISION I: In case the amount of capital gains is greater than the cost of the house purchased or constructed, the difference between the amount of the capital gains and the cost of the new house will be charged as income of the previous year. In case a new house is sold within a period of three years of its purchase or construction, for the purpose of computing capital gains in respect of the new asset, the cost will be nil. PROVISION II: In case the amount of the capital gains is equal to or less than the cost of the new asset, it will not be charged to tax at all. In case the new house is sold within a period of three years of its purchase or construction, for the purpose of computing capital gains in respect of the new asset, the cost will be reduced by the amount of the capital gains. The amount of the capital gains which was not appropriated by an assessee towards the purchase of a new house within one year before the date of transfer of the original house, or which is not used by him for purchase or construction of a new house before the date of furnishing the returns of income should be deposited in specified bank accounts. The amount should be invested in a ‘Capital Gains Account Scheme’. This account can be opened with any nationalised bank. The scheme is applicable to all assessees having capital gains. The deposits may be made in one lump sum or in instalments at any time .