What is capital gain tax in India on property?

As a financial expert with a deep understanding of tax regulations, I can provide a comprehensive explanation of the capital gain tax on property in India. Capital gain tax is a levy on the profit made from the sale of a capital asset, such as real estate. In India, capital gains are classified into two categories: short-term and long-term, based on the duration the asset is held before being sold. Short-term capital gains are taxed at the income tax slab rates applicable to the individual. If an asset is held for less than 24 months (2 years) before being sold, any profit made is considered short-term. Long-term capital gains, on the other hand, are taxed at a lower rate. For assets held for more than 24 months, the profit is considered long-term. Until April 1, 2018, long-term capital gains on the sale of a property were exempt from tax if the gains were reinvested in another property within India within a specified period. However, this exemption is no longer available and is replaced by a new tax structure. Let's consider the example provided: You buy a property for Rs 25 lakh and sell it after five years for Rs 35 lakh, making a profit of Rs 10 lakh. This profit is a long-term capital gain since the property was held for more than two years. However, the actual taxable gain may be lower due to a concept known as indexation. Indexation adjusts the cost of the property to account for inflation, effectively increasing the cost of acquisition and reducing the taxable gain. The indexation benefit is available for long-term capital assets, including real estate, and is calculated on a year-on-year basis from the date of acquisition until the date of transfer. As of the new tax regime, long-term capital gains from real estate are taxed at 20% after indexation. It's important to note that you cannot claim regular tax deductions against long-term capital gains. This means that deductions for home loan interest or any other tax benefits associated with the property cannot be set off against the capital gains. In addition to the 20% tax rate, there is also a provision for an alternative tax calculation method. If the net consideration (sale proceeds) for the property is more than the indexed cost, the tax can be calculated as follows: 1. Calculate the indexed cost of the property. 2. Determine the difference between the net consideration and the indexed cost, which is the long-term capital gain. 3. Apply the tax rate of 20% to this gain. It's also worth mentioning that there are certain scenarios where the tax on long-term capital gains can be reduced or avoided. For instance, if the gains are reinvested in specified assets like bonds issued by the National Highways Authority of India (NHAI) or the Redevelopment Authority (RIDA), the gains can be partially exempt from tax. In conclusion, understanding the nuances of capital gain tax on property in India requires a careful consideration of the holding period, the use of indexation, and the specific tax rates that apply. It's always advisable to consult with a tax professional or financial advisor to navigate the complexities of property taxation and ensure compliance with the law.

Let's assume you buy a property for Rs 25 lakh and sell it after five years for Rs 35 lakh, making a profit of Rs 10 lakh. However, your actual gain will be lower after indexation. Long-term capital gains from real estate are taxed at 20%. You cannot claim regular tax deductions against long-term capital gains.