For taxpayers, calculating profits from asset sales can pose challenges. If you're considering selling property shortly after acquiring it and are unsure about potential tax consequences, understanding the concept of 'amount deemed to be short-term capital gains' is vital. Having a clear grasp of this concept is crucial for accurately determining your tax obligations. This article explores the definition and importance of the term 'amount deemed to be short-term capital gains'.
What are short-term capital gains?
Short-term capital gains on property pertain to the profit derived from the sale of a property held for up to two years. The gain is computed by deducting the property’s purchase value and related expenses from the selling price. Short-term capital gains are taxable and typically incur higher tax rates compared to long-term gains, which involve holding the property for more than two years.
Amount deemed to be short-term capital gains: Meaning
The term ‘amount deemed to be short-term capital gains’ denotes the calculated profit from the sale of an asset held for one year or less. In such instances, tax authorities may consider the gain as short-term, leading to higher tax rates and different taxation rules. For instance, if an individual sells a property after holding it for 11 months, the gain would be categorized as short-term capital gains under normal circumstances due to the holding period being less than a year.
Also Read: Everything you need to know about GST in the real estate sector.
Amount deemed to be short-term capital gains: How to calculate?
To calculate the short-term capital gain, the following formula is applied:
Final sale price − cost of acquisition − improvement cost of assets − transfer expenses = amount deemed to be short-term capital gains
For example, if the final sale price of an asset is Rs 1 Lakh, the cost of acquisition is Rs 20,000, the cost of improvement is Rs 15,000 and the transfer expenses are Rs 5,000, the calculation for the amount deemed to be short-term capital gains is as follows:
Final sale price of the asset (Rs 1,00,000) – (Rs 20,000) – (Rs 15,000) – Rs (5,000) = Amount deemed to be short-term capital gains.
In this case, the amount deemed to be short-term capital gains would be Rs 60,000.
Amount deemed to be short-term capital gains: Examples
The basic exemption limit in India is as follow:
- For individuals under the age of 60 years, this limit stands at Rs 2.5 Lakh.
- For senior citizens (aged 60 or more but less than 80), the limit is Rs 3 Lakh.
- For super-senior citizens (aged 80 and above), it is Rs 5 Lakh.
Income within these specified thresholds is not taxed, resulting in a nil tax rate for individuals within these limits.
Also Read: Gift Deed: Registration, Format, and Everything You Should Be Aware Of
Ans 1. Short-term capital gains on property refers to the profit earned from the sale of a property held for up to two years. This gain is calculated by deducting the property's purchase value and associated expenses from the selling price. Short-term capital gains are taxable, often incurring higher tax rates compared to long-term gains, where the property is held for more than two years.
Ans 2. The term 'amount deemed to be short-term capital gains' denotes the calculated profit from the sale of an asset held for one year or less. In certain cases, tax authorities may categorize the gain as short-term, subjecting it to higher tax rates and different taxation rules. For instance, selling a property after holding it for 11 months may lead to the gain being considered short-term capital gains.
Ans 3. To calculate the short-term capital gain, use the following formula: Final sale price − cost of acquisition − improvement cost of assets − transfer expenses = amount deemed to be short-term capital gains.
Ans 4. The basic exemption limits in India are as follow: For individuals under 60 years: Rs 2.5 Lakh. For senior citizens (60 to 80 years): Rs 3 Lakh. For super-senior citizens (80 and above): Rs 5 Lakh.
Ans 5. Understanding this concept is crucial for accurately calculating tax liabilities, especially when contemplating the sale of a property within a year of acquisition. It helps taxpayers navigate potential tax implications and make informed decisions regarding their assets and taxation.