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Income Tax efiling in India for FY 2023-24 (AY 2024-25)

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Capital Gains Tax

Capital Gains Tax- Types, Indexation, Tax Rate & Calculation

Capital gains tax or CGT is a tax levied on corporations, individuals, and investors for holding assets such as bonds, stocks, shares, real estate, and property. There are two types of capital gains tax 1. Long-term capital gains 2. Short-term capital gains. Capital gain is referred to as a gain or profit that the individuals acquire from the sale of a capital asset, it can be stocks, property, bonds, or real estate. The profit or any gain that is acquired from the sale of the capital asset is taxed under the head of income from capital gain. The profit is earned when an individual sells his/her capital asset at a higher price than the bought price. Capital gains tax is not relevant to the familial property, as there is only a transfer of ownership and no sale. Regardless, capital gains tax will be pertinent if the individual who inherits the asset decides to sell it.

Types of Capital Gains

There are two types of capital gains long-term capital assets and short-term capital assets. Both are discussed below in detail- Long-term Capital Asset Long-term capital assets are assessed as an asset that is held for more than one year, such as your car, investment, or house. Long-term capital assets are referred to as an asset which is owned by the taxpayers/individuals and investors for a time of more than 36 months before the transfer of the asset. In a situation, where the asset is held for a time of more than 12 months then the asset will be considered a long-term capital asset. Short-term capital asset Short-term capital assets are considered assets that are held by the taxpayers for 36 months or less from the date of their transfer. Some of the short-term capital assets are held for 12 months or less. This is only applicable if the transfer date of the asset is after 10th July 2014 (irrespective of the date of purchase). These assets are Equity shares in an acknowledged stock exchange company registered in India. Securities such as debentures, government securities, bonds, etc. UTI units are of the equity-oriented mutual fund, whether quoted or not. Zero coupon bond.

Tax rates for long-capital gains and short-term capital gains

Tax Applicable Condition Tax Type 20% Except on sale of equity instructed fund units/ equity shares Long-term capital gains tax 10% over and above Rs.1,00,000 on the sale of equity-oriented fund units/ equity shares Long-term capital gains tax The short-term capital gain tax is introduced to the ITR of the taxpayer and the individual is taxed as per his income tax slab. When securities transaction tax is not applicable Short-Term capital gains tax 15% When securities transaction tax is applicable Short-Term capital gains tax

Calculation of short-term and long-term capital gains

tax calculation of long-term capital gains Following are the steps to calculate the tax on long-term capital gains. The tax on long-term capital gains is computed at the rate of 20% and 20.8% including health and education cess. An individual has to multiply the tax rate of 20% or 20.8% If ( including health and education cess) with the indexation of the capital gain value. Indexation - Indexation is an efficient way of adjusting the price of investments and reducing tax liability. Indexation provides many benefits for Long-term capital gains. Long-term capital gains are computed in the same manner as short-term capital gains are calculated. Moreover, the purchase cost of the asset and cost of the improvement is substituted with the indexed cost of accession and indexed cost of the refinement in long-term capital gains. Sale contemplation—The indexed cost of accession—The indexed cost of refinement—Expenses incurred solely for the sale of the Asset—Exemption under section 54, 54F, 54EC if any availed = Long Term Capital Gain You can calculate indexed cost by using the formula given below: Indexed Cost of accession= Cost of accession* Cost Inflation index of the year of sale. Indexed Cost of Refinement= Cost of improvement * Cost inflation index of the year in which refinement occurred. while selling a residential property, an individual or Hindu undivided Family (HUF) can avail of tax exemptions from capital gains “as per Section 54 of the Income Tax Act” if the same is imbued for the acquisition or construction of the residential property.

Capital gains calculation on Sale of shares

Short-term capital gains tax Short-term capital gain will be taxable at 15% (including health and education cess) on listed shares/equity-oriented mutual funds (if sold within one year from acquisition). Short-term capital gain (STCG) tax is assessed as per the income tax slab rates regarding the sale of unlisted shares. Capital gains tax calculation on the sale of jewellery Gains from the sale of jewelry is considered long-term capital gains when the jwellery is sold after three years of purchasing. Otherwise, this is treated as a short-term capital gain. As per the income tax act,1961 jewellery is assessed as a capital asset, and gain from the sale of a capital asset is taxable as a capital gain. It depends on the period for which the jewellery is held, it can be taxed as both short-term capital gains or long-term capital gains. After applying indexation long-term capital gains from jewellery are taxable at a flat rate of 20%.

Frequently asked questions

There are two types of capital gains one is short-term capital gains and the second is long-term capital gains. A long-term capital asset is assessed as an asset that is held for more than one year, such as your car, investment, or house. And short-term capital gains are assessed when such assets are held for less than 36 months.

A capital gain “in simple terms” refers to the assets that are held for a particular period and sold at a more price than the bought price. Capital gains are simply a growth in the value of the asset.

You can avoid the capital gains tax on a property only if your property is a foremost place of residency and you have spent a minimum of 2 years living there.

Any earnings which are acquired by the sale of a capital asset during a financial year will be taxable. This includes both short-term gains and long-term gains. The nature of the tax depends on the duration for which the asset is held.

Yes. Any gains earned from its sale are taxable under capital gains.

Profit and earnings from the sale of mutual fund investments are considered capital gains. It depends on the investment period and how long an individual holds it. The capital gains on mutual funds in India are taxable both as short-term capital gains and long-term capital gains.

Krishna Gopal Varshney

Krishna Gopal Varshney co-founder & CEO of Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

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