Capital gain tax, as the name suggest is the tax on capital gain. It basically refers to profit earned by selling non-inventory asset like shares, mutual funds units etc. In India, capital gain tax basically comes into the picture for those who deal in shares, mutual funds, bonds, real estate etc. There are different capital gain tax on short term and long term assets. In India, The tax rate on long-term capital gains is 20.6% of the profit after indexation of cost and if a stock is sold within one year from the date of purchase, then capital gain tax is applied on that on a different rate.
Capital gain tax can be saved by investing in certain capital gain tax saving instruments and schemes like capital gain tax saving bonds which are issued by NHAI and REC. Capital gain tax in stocks is simple but in case of real estate transactions, it gets a bit complicated.
As per the income tax India’s websites, here are important details about capital gains;
Capital Asset -Capital assets mean properties of any kind held by a person whether or not connected with his business or profession. Certain properties are, however, excluded from the definition of capital asset.
Tenure-
| Capital assets are classified as Long Term or Short Term with reference to the period of holding of the assets till it is transferred. The classification is made on the following basis :- | |||||||||
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Capital gain Tax computation
| Subject to certain exceptions, capital gain is computed in the following manner :- |
| Capital Gain = ( Full value of consideration received or accrued on transfer of capital asset) – ( Cost of acquisition of capital assets + Cost of improvement of capital assets + Expenditure incurred wholly and exclusively in connection with the transfer of capital asset such as stamp duty, registration charges, legal fees, brokerage etc.)
Capital gain tax on bonus shares;
The cost of bonus shares is to be taken as Nil and the net sale proceeds of the bonus shares is to be treated as the capital gains. The period of holding of the bonus shares will be counted from the date of the allotment of bonus issue.
Exemptions from Capital gain tax;
Depending upon the nature of the capital asset and the manner of utilisation of the consideration received on transfer, various exemptions are available. For full details, Sections 54, 54B, 54D, 54EA, 54EB,54EC, 54F, 54G and 54H of the Income-tax Act may please be referred. The provision of 54EA and 54EB has been withdrawn with effect from 1.4.2000 and new section 54 EC has been inserted. |
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