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Tax on Capital Gains

In simple words any profit or gain on sale of a Capital Asset is Capital Gain. The quesion here is what are capital assets?
House Property, Land, Shares and Mutual Funds are the most commonly held Capital Assets and hence any gain or profit on sale of these will be capital gain. Gold Bonds, Gold ETF & Jewellery are another example of capital asset. There are some assets which are not treated as capital assets like Agricultural land.
What are capital assets? Read in detail...
Capital Gains are either Short Term Capital Gains or Long Term Capital Gains. Type of gain depends on the holding period of a capital asset.
The Holding/Owning period of Capital Asset
Ignoring the technical cases, the period in months/years till an asset was your property, is called as period of holding of that asset. Holding period of a capital asset is the deciding factor in taxability of capital gains. 

For Example:
Rashmi purchased a house on 1st January 2019. Now she plans to sell the house in September 2020, what will be tax implication?

Here we can see, house is a capital asset so any profit/loss on its sale is a capital gain/loss. Now we need to find out if it will be Short Term or Long Term Capital Gain.

A house if held for more then 24 months is a long term capital asset.

Here the house if sold in september 2020 will be held just for 19 months and will result in short term capital gain. But if Rashmi sells the house in January 2021 the gain will be long term capital gain as the holding period will be more then 24 months.




Short Term Capital Asset
  • A general rule is that when a capital asset is held for 36 months or less, its a short term capital asset.
  • In case of securities like equity shares, equity mutual funds, Zero Coupon Bonds holding period is 12 months or less to make them short term capital assets.
  • Land, House & unlisted shares are short term capital assets if held for 24 months or less.
Gain on sale of a Short Term Capital Asset is called Short Term Capital Gain(STCG) and loss will be called as Short Term Capital Loss.
Tax on Short Term Capital Gains
  • Short Term Capital Gains(except STCG on shares & equity mutual funds) are added to your income & taxed as per your slab rate.
  • Short Term Capital Gain on sale of Shares & Equity mutual funds are taxed at a flat rate of 15%
Short Term Capital Gain on Shares & Mutual Funds-How to Calculate?
Tax on Short Term Capital Gain on Shares & Mutual Funds
Long Term Capital Asset
  • As a general rule an asset which is not a short term capital asset is a long term capital asset.
  • Jewellery, Gold Bonds, Gold ETFs & Debt Mutual Funds if held for more then 36 months are long term capital asset.
  • Equity shares, equity mutual funds, Zero Coupon Bonds held for more then 12 months are long term capital assets.
  • Land, House & unlisted shares are long term capital assets if held for more then 24 months.
Gain on sale of a Long Term Capital Asset will be Long Term Capital Gain(LTCG) and loss will be called as Long Term Capital Loss.

Tax on Long Term Capital Gains

  • Long Term Capital Gains on shares & equity mutual funds are exempt upto Rs. 1 lac and amount exceeding Rs. 1.00 lac will be taxable @10 %.
  • Long Term Capital Gain on sale of any other asset are taxed @ 20%. Indexation Benefit on cost of Acquisition of the capital asset is also available.
What is indexed cost of Acquisition? How to calculate Indexed Cost of Acquisition & LTCG?
  • LTCG on listed securities & Zero coupon bonds can be taxed @10% without availing indexation benefit
  • There are many exemptions from Long Term Capital Gains by investing in specified assets.

Cost inflation index for calculating long term capital gains
 
Nomination in  Bank Accounts, lockers, PPF, NPS, LIC & Mutual Funds

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Investment in NPS - Additional deduction of 50000 u/s 80CCD

Deduction for mediclaim/health insurance premium-Section 80D

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Deduction for Interest on Education Loan u/s 80E

Deduction U/s 80U to the Differently Abled

Deduction for Savings Bank Interest 10000 u/s 80TTA

Deduction for Interest for Senior Citizens 50000 u/s 80TTB

How to Donate to PMNRF(Prime Minister Relief Fund)-Deduction u/s 80G

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Check your Tax credit-26AS

Which Tax Regime to opt for? New vs Old Tax Regime applicable from the Year 2020-21!!

Investment in NPS - Additional deduction of 50000 u/s 80CCD

Deduction for mediclaim/health insurance premium-Section 80D

Deduction for maintenace of a differently abled dependent-Section 80DD

Deduction for Interest on Education Loan u/s 80E

Deduction U/s 80U to the Differently Abled

Deduction for Savings Bank Interest 10000 u/s 80TTA

Deduction for Interest for Senior Citizens 50000 u/s 80TTB

How to Donate to PMNRF(Prime Minister Relief Fund)-Deduction u/s 80G

Deduction for rent paid u/s 80GG
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