Know about Capital Gains Tax in India

Know about Capital Gains Tax in India

Capital gain is profit earned on sale of capital asset, it is price consideration more than the cost of asset.There are assets as per income tax act which are known as capital assets. On sale of this asset money earned is taxed. The tax amount can be saved by investing in capital gain tax saving methods.

1)In capital gains, there should be a capital asset and there should be transfer of the capital asset.

Capital asset means any asset except the following;

  • Stock in trade.
  • Consumable stores or raw materials held for the purpose of business or profession.
  • Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
  • Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
  • 6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
  • Gold Deposit bonds under Gold Deposit Scheme.

2) The above capital asset  there are two types Short term Capital Asset; It is an asset which holds for a period less than 24 months, and 12 months for shares and Long term Capital Asset is an asset which holds for period more than 24 months.

3)Current tax laws state LTCG arising on the sale of listed equity shares or equity oriented mutual funds are exempt from tax if you have paid Securities Transaction Tax (STT) on the sale transaction. STCG from such shares and funds is also taxable at a flat 15 per cent (plus surcharge and cess). The short-term capital loss from financial assets can be set off against any other capital gain.

4) The Long term capital asset is charged to normal rate if held for less than 24 months, otherwise @20% for period more than 24 months. But Long term gains on equities is exempt from capital gain tax, this is motivate investment in the market.

5)For short term capital gain only cast is allowed to deduct from the money received, while in long term capital gain indexed cost of acquisition/indexed cost of acquisition  is to be deducted.

6)The long-term gain arising from the sale of a capital asset is exempt under Section 54 and 54F if invested in purchase or construction of a house property subject to certain conditions. To get the exemption, the taxpayer has to purchase the residential house within a period of 1 year before or 2 years after the transfer of the original house.Under construction properties must be completed within 3 years from the date of transfer of the original house. The investment on the house property must be situated in India.

7)Any  agricultural land in rural India is not considered as capital asset hence there is no capital gain tax.

8) Suppose there is a sale of property for a consideration and if period of holding is less than 24 months then it is short term capital gain if for a period greater than 24 months then long term capital gains. 

9)The long term capital gain tax can be avoided by investing in assets or  in manner prescribed from sec 54 to 54F. Also the investment can be done u/s 54EC, As per Section 54EC, one can claim tax relief by investing the capital gains earned from long-term capital assets in bonds issued by National Highway Authority of India or by the Rural Electrification Corporation Limited. The investment in bonds must be done within a period of 6 months. These will not be redeemable before 3 years. You can earn a guaranteed rate of interest on the bond. The maximum amount that can be invested in capital gain bonds is Rs.50,00,000 during a financial year. This benefit cannot be availed for a short-term capital gain.

Conclusion: Thus if  there is any asset long term or short term if any gain arises then it can taxed or tax can be avoided by certain investments, we @ Filing mantra will help you sought out the complexity of such situations with our expert know how, so please free feel to contact us and help us making you right and smart decisions.