Income-tax act, 1961 consists of Section 45 to 55A for capital gains. All of these sections give information related to the profits, gains and other related information. Below mentioned are some of the requirements of income tax charge as per the capital gains:

  • There should be any capital asset
  • There has to be a capital asset transfer
  • The transfer should have been in effects since previous year
  • The person responsible should have gains from this type of transfer of capital asset

There are mainly two types of capital gain as elaborate below:

Short-term gains / long term gains

The capital gains which are received after selling the capital assets help for over three years which also includes 1 year for mutual funds and listed securities can be considered to be long-term gains and these types of gains get taxed at lower rates as compared to short-term gains.

The improvement costs and cost of acquisition are associated with cost inflation index at the time of calculating these taxable long-term capital gains. It results in the deduction of indexed acquisition costs from considering the sale gains.

For long-term gains, tax rate is imposed at 20% flat rate for foreign companies as well as individuals. The rate for any domestic company is 30%. It has been observed that the long-term capital gains on shares/ bonds transferred and issues in foreign currency are taxed at 10% which has been notified by Indian Government.

What is capital Gain?

This is a form of an income which is earned by selling the property or any investment. This income can be represented including a farm, house, work of art or a family business. It is a well known fact that if a buyer buys the property at lower rates and sells at higher rates, then the buyer makes profits. The capital asset sale and the profit hence made will be considered as a capital gain. It is also noticed that this is a profit for one time and cannot be considered as a regular source of income including house rent or monthly salary. This is one of the reasons that it is not considered to be recurring type income source for individuals or group of bodies.

What are capital assets?

All kinds of properties including immovable, movable, intangible and tangible which are owned by an assessee is known as a capital asset. It may or may not be associated with his profession or the business. Below mentioned are some of the assets which are not considered as capital asset:

  • Consumable stores, Trading stock and raw materials which are stored for a business or professional purposes
  • Costly stones, jewelry, gold and silver
  • Gold Deposit Bonds
  • Land for agriculture in any state in India
  • Special bearer bond or specified gold bonds

Before filing for capital gain tax, you need to be aware of the documents which you need to produce. You must take advice from a tax consultant.

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