Capital Gains is the profit that an investor receives on the sale of an asset. This profit is taxable under the Capital Gains Tax Act, if there is a capital asset, transfer of the said asset and there is a profit made on the transfer. The transfer of the capital asset must take place in the preceding year.
Capital gains tax is a tax that is levied by the government on the profits that are made on the sale of the capital asset. There are two types of capital gains; Long-Term and Short-Term Capital Assets.
Short Term capital asset: The profit made on the sale of an asset which was held for less than the period of 36 months is the Short-Term capital asset.
Long Term capital asset: The profit made on the sale of an asset that was acquired for more than 36 months is called long-term capital gain. For the fiscal year 2017-18, this period has been decreased to 24 months, subjected under the condition that the property is sold after March 31st, 2017. This is not applicable for assets such as jewellery, mutual funds etc.
Capital gain does not include the sale of acquired assets like the following:
In India, the tax is not imposed on the long-term capital gains of stocks and equity mutual funds. But, 15% tax is levied on the short-term gains. Both short and long-term capital gains are taxed in the case of debt mutual funds. While the long-term gains on debt mutual funds are taxed at 20% with indexation and 10% without indexation, the short-term gains are added to the individual’s salary and taxed in accordance with his/her income tax slab. Indexation decreases gains and increases the purchase cost.
Capital Gains can be calculated by the following method:
Where X is equal to Cost of Improvement + Cost of Acquisition + Cost of Transfer
Where Y is equal to Indexed Cost of Improvement + Indexed Cost of Acquisition + Cost of Transfer
Indexed cost of acquisition = (CII of the year of transfer/CII of the year of acquisition) x Cost of Acquisition
Indexed cost of improvement = (CII of the year of transfer/CII of the year of acquisition) x Cost of Acquisition
The cost of transfer is the amount paid for brokering or arranging the deal, advertising cost or legal expenses etc.
Capital Gain Tax on property is charged by the government on the profit made from the sale of a property. If the property is sold before three years, the capital gain earned on it is called short-term gains. If the property is sold after 3 years the gains are called long-term capital gains.
While short-term gains are taxed as per your income slab, which accounts for approximately 20%. Long-term gains are exempted from taxation under Section 54, and 54F, if the gains are invested in the purchase or construction of a house under specific conditions.
The advance paid for the sale of the property is taxable. This amount will be later secured by the individual if the deal does not go through. The amount will be taxed under Income from Other Sources in that year. This amount is to be subtracted from the cost of acquisition of the property in the year of sale of the capital asset while determining capital gains.
It must be noted that an individual can only make an investment in one new asset to claim a deduction on tax. Even if more than one property is sold, the capitals gains can be invested in a single asset only.
An individual taxpayer can claim tax exemption on the capital gains earned from the sale of long-term assets by investing them in bonds issued by National Highway Authority of India or by the Rural Electrification Corporation Ltd. under Section 54EC. This investment should be done within six months period. A maximum amount of Rupees 50 Lakhs can be invested in these bonds. Though guaranteed rate can be earned on the investment, it will not be redeemable before 3 years. This investment is not available for short term gain assets.
To compute your CGT you have to fill the following details.
In this page, you need to provide following details:
As mentioned above no tax is levied on the long-term capital gains invested in stocks and equity mutual funds while 15% tax is imposed on the investment of short-term capital gains.
Capital Gain Tax (CGT) can be exempted in the following cases: