A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.
CGT is the tax that will topple the market. Not the Advance tax for increased DC rate nor the increase in registry etc. There are two opinions about this tax:
1. Govt has announced that it will be 10% of market value of property
2. Principally and logically it should be applicable to the profit proceeds on sale of property (cost of buying – sale price = profit)
However either ways, its a complete disaster.
For sale of a Kanal plot in DHA from Phase 1 to 8 which was bought and registered in last 5 years, with a current average market value of 2 Crore Rs, seller will be paying Capital Gain tax as below:
1. If 10% of market value then CGT levied alone on this plot is 20 lac Rs !!! So sell the plot of worth 2 crore and pay 20 lac as Capital Gain Tax !!!
2. A slightly lesser but equally devastating option would be to compute CGT on the actual gain (cost – profit basis) by below formula:
CGT = 10% of (MVP (Market Value of Plot) – DVP (Declared Value of plot at the time of purchase))
DVP (Declared Value of Plot declared at the time of property purchase in last 5 years) = DC Rate Value at the time of purchase = approx 70 Lac/Kanal (Average DC Rate for DHA Phase 1-5 for last 5 years)
So CGT would become = 10% of (MVP (2 Crore) – DVP (70 Lac)) = 13 lac Rs