TYPES OF CAPITAL GAIN
Short term capital gain: If an asset is sold within 36 months of acquisition, then the profits earned from it is known as short term capital gain.
Long term capital gain: The profit earned by selling an asset that is in holding for more than 36 months is known as long-term capital gain.
Always render more and better service than is expected of you, no matter what your ask may be.
Capital gain is denoted as the net profit that an investor makes after selling a capital asset exceeding the price of purchase. Financial gains against a sale of an asset are not applicable to inherited property. It is considered only in case of transfer of ownership. The common examples of capital assets include bonds, mutual funds, jewellery, patents, or trademarks. However, furniture and clothes for personal use, rural agricultural land are not capital assets. In certain cases where the capital asset becomes the property of the taxpayer otherwise than by an outright purchase by the taxpayer, the cost of acquisition and cost of improvement incurred by the previous owner would also be included.
STEPS FOR CALCULATING CAPITAL GAIN
Full value of consideration: Firstly, full value of consideration is calculated. It is the consideration that is received by a seller in return for a capital asset.
Deduction: Then, the following amounts are deducted from the full value of consideration.
Capital gain: The resulting amount is your capital gain.
TAX EXEMPTIONS ON CAPITAL GAIN
Tax exemptions can be claimed under the following sections on the profit earned against assets:
Section 54: If the amount earned by selling a residential property is invested to purchase another property, then the capital gain earned by transferring the ownership of a property is tax exempted. However, deductions can be claimed only if the following conditions are met:
Section 54F: Individuals can claim tax exemptions under this section, if the capital gains statements are submitted for investments into specific bonds with the amount earned by selling a property.
The long-term capital gain tax on property sale is 20%.
Capital losses can be set off only against capital gains. Accordingly, short term capital losses can be set off against any income under capital gains be it short term or long term. However, long term capital losses can be set off only against long term capital gains.
Capital Gains Is Determined By Reducing The Purchase Price From The Sale Price. However, For An Asset That Has Been Held For A Long Time, It Would Not Be Appropriate To Determine Gains By Merely Reducing Purchase Price From Sale Price Without Giving Any Effect To The Inflation. Hence, The Concept Of Indexing The Purchase Price Has Been Brought In. This Way, The Indexed Purchase Price Can Be Reduced From Sale Price To Determine Gains. So, Indexation Applies Only To Assets Held For Long-Term.