Capital Gains Tax - The short and long term of it and calculation

Hello, in this post we will discuss about the Capital Gains Tax. We will cover the following:

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.

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