In order to compute the capital gains on the sale of a house, the following conditions should be taken into consideration:
- Short Term Capital Gains – If you have sold your house within a three year period from the time you purchased it, then the profits from the sale are considered to be a short-term capital gain. These gains become a part of your total income and will be taxed as per the existing slab tax rates.
- Long Term Capital Gains – If your have sold your house after a three year period from the time of purchase, then any profits from the sale is considered to be a long-term capital gain. Following indexation, this gain will incur a tax of 20%. However, tax exemptions can be claimed in this case unlike in the case of short term capital gains.
- Home Loan – If you have purchased a house after taking out a home loan, and consequently sold the house within a period of five years, then there will be a reversal of any tax benefits that you have claimed under Section 80C. All tax deductions that you claimed under Section 80C in the previous years will become a part of your total income in the year of the sale of the house.
Formula to calculate Capital Gain on Sale of a House:
- Short Term Capital Gain is calculated by deducting the sum of the following costs form the final sale price of the house:
- Acquisition Cost
- House Improvement Cost
- Transfer Cost
- Long Term Capital Gain is calculated by deducting the sum of the following costs from the final sale price of the house:
- Indexed Acquisition Cost
- Indexed House Improvement Cost
- Transfer Cost
How to calculate Capital Gain Tax on Sale of a House?
Calculating capital gain tax on the sale of a house can be done in the following ways:
- Calculation of Short Term Capital Gain Tax on Sale of a House:
Short term capital gains are ascertained by calculating the difference between the price of acquisition of the house and the sale price of the house, provided that the sale has taken place less than three years after the date of purchase of the house. The tax that will be levied on these gains entirely depends on which slab the individual falls under ie: 10%, 20% or 30%
Short term capital gains on the sale of a house can be calculated as follows:
| Particulars | Amount in Rupees |
| Sale price of the house | XXXXXX |
| Less: Any transfer expenses such as brokerage, commission etc | XXXXXX |
| Net Sale Consideration | XXXXXX |
| Less: Acquisition price of the house | XXXXXX |
| Less: House improvement costs | XXXXXX |
| Short Term Capital Gain | XXXXXX |
- Calculation of Long Term Capital Gain Tax on Sale of a House:
Long term capital gains can be determined by calculating the difference between the sale price of the house and the indexed acquisition cost of the house, provided the sale of the house has taken place after three years from the date of purchase of the house.
The indexation factor can be calculated by dividing the Sale Year’s Cost Inflation Index by the Purchase Year Cost Inflation Index. Once this has been determined, the indexed acquisition cost of the house can be calculated by multiplying the initial purchase price of the house and the indexation factor.
Long term capital gains on the sale of a house can be calculated as follows:
| Particulars | Amount in Rupees |
| Sale price of the house | XXXXXX |
| Less: Any transfer expenses such as brokerage, commission etc | XXXXXX |
| Net Sale Consideration | XXXXXX |
| Less: Indexed acquisition cost of the house | XXXXXX |
| Less: Indexed house improvement costs | XXXXXX |
| Gross Long Term Capital Gain | XXXXXX |
| Less: Any exemptions available under sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G | XXXXXX |
| Net Long Term Capital Gain | XXXXXX |
Illustrative Example for Long Term Capital Gain Tax on Sale of a House:
Mr. Joshi purchased a house for Rs 45,00,000 on January 16th 2010. He then sold the house for Rs 95,00,000 in September 2015. His brokerage costs amounted to Rs 1,00,000 and the costs he incurred on the improvement of the house in 2010 amounted to Rs 5,00,000. Since the sale of the house took place after three years from the date he purchased it, his long-term capital gain can be calculated as follows:
Step 1: Calculate the Indexation Factor:
The cost inflation index for the purchase year 2010 is 711 and the cost inflation index for the sale year 2015 is 1081.
Therefore the indexation factor is 1081 divided by 711, which is 1.52.
Step 2: Calculate the Indexed Acquisition Cost:
This can be calculated by multiplying the purchase price of the house, which is Rs 45,00,000 with the indexation factor of 1.52.
Therefore the Indexed Acquisition Cost is 45,00,000 X 1.52 = 68,40,000
Step 3: Calculate the Indexed Home Improvement Cost:
This can be calculated by multiplying the home improvement costs, which amounts to Rs 5,00,000 with the indexation factor of 1.52.
Therefore the Indexed Home Improvement Cost is 5,00,000 X 1.52 = 7,60,000
Step 4: Calculate the Long Term Capital Gain on the sale of the house:
| Particulars | Amount in Rupees |
| Sale price of the house | 95,00,000 |
| Less: Any transfer expenses such as brokerage, commission etc | 1,00,000 |
| Net Sale Consideration | 94,00,000 |
| Less: Indexed acquisition cost of the house | 68,40,000 |
| Less: Indexed house improvement costs | 7,60,000 |
| Gross Long Term Capital Gain | 18,00,000 |
| Less: Any exemptions available under sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G if applicable | Nil |
| Net Long Term Capital Gain | 18,00,000 |