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Capital Gains Tax –”What is Capital Gain Tax In India?” & Types of Capital Gain Tax

What is Capital Gain Tax in India? And Different Types of Capital Gain Tax in India

Introduction

Section 54 Capital Gains Exemption Amendments By investing in two residences, taxpayers can now get a Long-term Capital Gains exemption on the sale of a house (upper limit of INR 2 crore). Previously, the exemption was only available for single property investments. In this article information such as Long term Capital Gain Tax, Tax on short-term capital gain, and other information on Capital Gain Tax is discussed.

 

One of the most sought-after investments is purchasing a home. The primary motivation is to buy a house, while others invest to benefit from the sale of the immovable property. For Income Tax purposes, a dwelling property is a capital asset. The gain or loss on the sale of a dwelling property is either taxable or deductible on your tax return. Different types of assets also result in capital gains or losses.

What is Capital Gain Tax in India?

A capital gain is any profit or gain gained from the sale of a “Capital Asset”. You must pay tax on this gain or profit in the year in which the capital asset is transferred because it falls within the category of “Income.” Capital Gain Tax is the phrase for this, and it can be either short-term or long-term. Capital gains are not applicable to an inherited property because there is no sale and only a transfer of ownership. Assets obtained as gifts using inheritance or will are specifically exempted under the Income Tax Act.

Different Types of Capital Gain in India

  • Long Term Capital Gain

A capital asset that has been held for longer than 36 months is referred to be a long-term capital asset. Short-term capital assets are assets that are retained for less than a year. This regulation applies if the transfer date is after July 10, 2014. (irrespective of what the date of purchase is). The following are the assets:

  1. Equity or preference shares in a company that is listed on an Indian stock exchange.

  2. Securities (such as debentures, bonds, and government securities) are listed on the Indian stock market.

  3. UTI units, whether or not quoted.

  4. Equity-oriented mutual fund units, whether or not they are quoted.

  5. Zero-coupon bonds, whether or not they are quoted.

When the above-mentioned assets are retained for longer than a year, they are referred to as long-term capital assets.

  • Short Term Capital Gain

When assets are held for a period shorter than 36 months at that time it is termed as Short Term Capital Assets. From FY 2017-18, the 36-month requirement for immovable items such as land, buildings, and houses has been decreased to 24 months.

 

When evaluating whether an asset was obtained by will, succession, inheritance or gift the previous owner’s holding duration is also taken into account when determining whether the asset is a short-term or long-term capital asset. The holding period for bonus shares or rights shares begins on the date the bonus shares or rights shares are allotted, accordingly.

Information on different types of Capital Gain Tax Rate

  • Tax on Short Term Capital Gain

When there is no Securities Transaction Tax, the short-term capital gain is applied to your tax return and the taxpayer is taxed according to the Income Tax Slab.

 

The short-term Capital Gain Tax rate is 15% when there is a security transaction that comes under Tax applicability criteria.

  • Long Term Capital Gain Tax 

Except when selling equity shares or units of an equity-oriented fund, the long-term capital gain is taxed at a rate of 20%.

 

The tax rate on Long Term Capital Gains (LTCG) on the sale of equity shares/units of equities-oriented funds is 10% over and above INR 1 lakh.

Capital Gain Calculation

Assets that are held for a longer period as compared to a shorter period are calculated differently. Below is the calculation for short-term capital gain and long-term capital gain.

Short Term Capital Gain Calculation

  • Begin with the complete consideration value.

  • Subtract the following from the total:

    1. Expenses incurred solely for making such a transfer

    2. Acquisition costs

    3. Improvement costs

  • Short Term Capital Gain = Consideration Value minus Expenses incurred solely for making such a transfer / Improvement costs / Acquisition costs.

Long Term Capital Gain Calculation

The following is the technique for calculating long-term capital gains:

  • First, the individual must analyze the asset’s whole worth.

  • The individual must next make the following deductions:

    1. The costs incurred due to the transfer of LTCG.

    2. The total sum of money spent on the purchase.

    3. The amount of money spent on enhancements.

  • The individual must reduce any exclusions allowed under Section 54F, Section 54B, Section 54, and Section 54EC from the number calculated by completing the above steps in the procedure.

FAQs on Capital Gain Tax

1. Should I pay tax on any profits I make if I sell a house I bought four years ago?

When you sell a house, it falls under the category of long-term capital assets. As a result, any profit earned is taxable under the Capital Gains Act.

2. Is it possible to deduct a short-term capital loss from my capital gains?

Yes, a short-term capital loss can be deducted from either a short-term or long-term capital gain. Long-term capital loss, on the other hand, can only be offset by long-term capital gains.

3. How long does it take for debt mutual funds to be classified as long-term?

If you hold a debt mutual fund for more than 36 months, you can claim long-term gains.

4. What is the difference between long-term and short-term capital gains?

The amount of tax that must be paid varies depending on the type of the gain. Capital gains are divided into long-term and short-term capital gains to determine the amount of tax that must be paid. As a result, the calculating process for short-term and long-term capital gains differs.

5. Is it possible to escape capital gains taxes by relocating to another country?

No, it is unavoidable. Regardless of a person’s residency status, Capital Gain Tax must be paid.

Categories: Income tax
Zarana Mehta: Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.
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