Capital Gains Tax
The Punjab Government collects capital gains tax on gains arising from the acquisition and sale of immovable properties. The effective date of collection is from July 01, 2013.
What is Capital Gain?
In very simple sense, a capital gain arises when you acquire an immovable property at a lower price and sell it at a higher price, the gain being the difference in the prices. Suppose you bought a house for Rs 1,400,000 and sold it for Rs 2,500,000. There is a gain of Rs 1,100,000.Technically, capital gain is an increase in the value of a capital asset, e.g., real estate, that makes its selling price higher than its purchase price. The gain is not readily realizable; it is only realized when the capital asset is sold.
Certainly, the capital gain arises over some period. The period of the capital gain is important for taxation purposes, because shorter periods are taxed more than longer periods. The logic is simple: a gain of Rs 100,000 in six months in better than the same gain of Rs 100,000 over a period of one year. Generally, the period of capital gain is classified as short term or long term. Short-term capital gain is a capital gain arising within one year of the acquisition of the immovable property.
Mode of acquisition for Capital Gains Tax?
Acquisition means acquiring or getting the immovable property by some means. For the purpose of capital gains tax, acquisition includes all of the following:Transfer
Transfer means transfer of the title of a property from one person to another person. The most common method of property transfer is sale. A sale is usually negotiated through a “sale deed”; however, there may be other methods of property transfer, e.g., a sales letter from a competent authority.There are two parties involved in the process of sale, and the seller gets the capital gain. It is not very difficult to assign a value to the property acquired, because sale value is available on the sale deed or other sales document.
Gift
Acquisition of property as a gift occurs when a person gives another person a property as a present. The person who gets the present is the acquirer of the property. This type of property acquisition is carried out through a “gift deed”.In the case of a gift, the valuation for the purpose of capital gain is not as easy, because the cost of acquiring the property is not available on the gift deed.
Bequest and Will
Acquisition by bequest and will occurs when a person gives another person a property after the first person dies through a legal document called a will. The valuation for the purpose of capital gain is likewise not easy in the case of a will, because the cost of acquiring the property is not available in the will.Succession and Inheritance
Succession is the process by which one person get a property after another as the next person in a series of persons. It is like getting a kingship after the death of a king. The legal document to negotiate a succession is called a “succession certificate”.Inheritance is a similar process. In inheritance, a person receives property from his or her parents or from people who lived before him or her.
Inheritance is carried out through entry of legal heirs of a deceased person in ownership records maintained by the revenue department and any other authority.
Succession and inheritance also make the valuation for the purpose of capital gain less easy.
Rates of Capital Gains Tax
Sr. No.
|
Holding Period (period from acquisition to sale)
|
Rate
|
1.
|
One year or less
|
Higher of:
(i) 5% of the capital gain, or (i) 2% of the recorded value at the time of sale |
2.
|
More than 1 year but less than 2 years
|
4% of capital gain
|
3.
|
More than 2 years but less than 3 years
|
3% of capital gain
|
4.
|
More than 3 years but less than 4 years
|
2% of capital gain
|
5.
|
More than 4 years and less than or equal to 5 years
|
1% of capital gain
|
6.
|
More than 5 years
|
No tax
|
The federal government also levies tax on income from capital gains. Income from capital gains is a separate head of income. Since immovable properties and real estate also generate capital gains, they also fall within the scope of taxation for income tax assessment.
You may also like to read:
