How to calculate Capital Gain ?

Before calculating Capital gains following terms must be know:

1. Sale Consideration - Consideration received or to be received by the seller as a result of transfer of his capital assets. Capital gains are chargeable to tax in the year of transfer, even if no consideration has been received.

2. Cost of Acquisition - The value for which the capital asset was acquired by the seller.

3. Cost of Improvement - Expenses of a capital nature incurred in making any additions or alterations to the capital asset by the seller.

4. Indexed Cost of Acquisition and Improvement - The cost of acquisition and improvement is indexed by applying CII (cost inflation index). It is done to adjust for inflation over the years of holding the asset.Please refer the article https://www.taxcomply.in/post/capital-gain-tax-rates to know about applicablity of indexation on different category of assets.

   1. Indexed Cost of Acquisition = Cost of acquisition X (CII of the year in which the asset is transferred) divided by (CII of the year in which the asset was first held by the seller or FY 2001-02, whichever is later )

   2. Indexed Cost of Improvement = Cost of Improvement X CII (year of asset transfer) divided by CII (year of asset improvement). Improvements made before 1st April 2001, should not be considered.

Following are steps for calculation for capital Gain

Step 1: Start with sale value of consideration

Step 2 : Deduct -

a. Expenditure incurred wholly and exclusively in connection with such transfer

b. Cost of Acquisition or Indexed Cost of Acquisition

c Cost of Improvement or Indexed Cost of Acquisition

Step 3 : From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, and 54B

Step 4 :Capital Gain/Loss

Deductible Expenses -

A. Sale of house property: These expenses are deductible from the total sale price:

• Brokerage or commission paid for securing a purchaser

• Cost of stamp papers

• Travelling expenses in connection with the transfer – these may be incurred after the transfer has been affected

• Where property has been inherited, expenditure incurred with respect to procedures associated with the will and inheritance, obtaining succession certificate, costs of the executor, may also be allowed in some cases

B. Sale of shares: You may be allowed to deduct these expenses:

• a. Broker’s commission related to the shares sold

• STT or securities transaction tax is not allowed as a deductible expense

C. Where jewellery is sold: In case of sale of broker’s jewellery and where a broker’s services were involved in securing a buyer, the cost of these services can be deducted.

Note, that expenses deducted from the sale price of assets for calculating capital gains are not allowed as a deduction under any other head of income, and you can claim them only once.