Hello, in this post we will discuss about the Capital Gains Tax. We will cover the following:
- Meaning of Capital Gains
- Types of Capital gains
- Tax rate chart
- Calculation of Income tax from Capital Gain
What is a capital gain?
Capital gain refers to any profit or gains arising from the sale of a capital asset.
Types of Capital gain
- Long term capital gain – If the taxpayer holds the asset for a period of 36 months from the date of acquisition before the sale, then profit arising from the sale will be treated as a long-term capital gain.
For example, if you sell a house in FY 2018-19 after a period of 24 months from the date of acquisition, then profit arising will be termed as long term capital gain.
- Short term capital gain – If the asset is sold within a period of 36 months from the date of acquisition, then it is called a short term capital Gain.
For instance, if you sell a house in FY 2018-19 within a period of 24 months from the date of acquisition, then profit arising will be termed as short term capital gain.
However, the classification of Long term and Short term Capital gain is different in the case of Shares / Mutual funds. In case of Listed Shares and Equity Oriented Mutual Funds, Long term capital gain arises if they are sold after holding it for a period of 1 year only and Short term capital gain if sold within 1 year.
Subtypes of Short term and long term capital gains
| Securities | Non-securities | Deemed capital | Exempt | |
|---|---|---|---|---|
| Applicable for Short term | Yes | Yes | Yes | No |
| Applicable for Long term | Yes | Yes | Yes | Yes |
| Examples for Short term and long term | Equity shares, debentures, zero coupons etc., | Residential property, commercial property, land, Jewellery | – | Specified equity shares unit of business trust |
Tax Rate Chart for the Income on Sale of Assets
| Assets | Short term | Long term | ||
|---|---|---|---|---|
| Duration of Asset | Tax rate | Duration of Asset | Tax rate | |
| Securities | < 1 year | 15% | > 1 year | 20% with Indexation |
| Non-securities | < 3years | Income tax slab rate | > 3 years | 10% without indexation |
| Exempt | Not applicable | Not Applicable | > 1 year | Exempt |
Calculation of Income Tax from Capital Gain
Given: Income from the sale of land:
- Purchase Value -1,00,000; Year – 2001-02; Indexation Factor – 100
- Sale Value – 5,50,000; Year – 2017-18; Indexation Factor – 280
Solution: The sale of the land period is more than 3 years so it is a long term capital gain. The calculation will be done according to the Index factor.
Indexation Value = Purchase Value x Indexation Factor of Sale Year / Indexation Factor of Purchase Year
= 1,00,000 x 272 / 100
Index value = 2,72,000
Therefore, Profit = Sale Value – Index Value
= 5,50,000 – 2,72,000
Profit = 2,78,000
Applying 20% with indexation:
= 2,78000 x 20 / 100
Capital Gain = 55,600
This ends the post on Capital gains tax. Let us know your opinion by commenting below.
Hello Team
Really helpful information. thanks for it.