Capital Gains are the gain that arises from the sale of any capital asset like House, Car, and Investment Bonds etc. The Profit earned from the selling of the assets is considered as an Income and hence is subject to the Tax. This Tax is called Capital Gain Tax which is divided into two categories-
- Short-term Capital Gain
- Long-term Capital Gain
Short-term Capital Gain
Asset held for more than 36 month period or less is called Short-term Capital Gain. In the case of immovable property like land, building etc the time period is 24 months.
Short-term Capital Gain
If security Taxation is applicable- In this case, the short-term capital gain is taxed at the rate of 15%
If security Taxation is not applicable- In this case, the short-term capital gain is added to the ITR and then the income will be taxed according to the income slab.
Long-term Capital Gain
An asset kept for more than 36 month period and then sold, the profit earned from this is called Long-term Capital Gain. Following are the list of product which is considered to be a long-term if held for more than 12 months-
- Equity or Shares of a company
- Securities listed in the stock exchange
- Units of UTI
- Mutual Funds
- Zero Coupon bond
Tax on Long-term Capital Gain
The Long-term Capital gain is taxed at the rate of 20 %.
Calculate the Capital Gain
Formula for Capital Gain is computed as follows-
Short-term Capital Gain:- Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)
Long-term Capital Gain:- Full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer).
Indexed cost of acquisition = Cost of acquisition X cost inflation index of the year of transfer/ cost inflation index of the year of acquisition
Indexed cost of improvement = cost of improvement X cost inflation index of the year of transfer /cost inflation index of the year of improvement
Cost of transfer= Blockage
For Example- Rakesh a residential individual is selling his property for 25 lakhs in February of 2018 which was bought for 15 lakhs in the year 2011. During these periods, Rakesh has spent 3 Lakhs as the cost of acquisition. On calculating the Capital Gain tax computed as a long term capital gain amount as-
Long term Capital Gain= Full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer).
Indexed cost of acquisition = 15 lakhs X 852/711= 16,35,000
Indexed cost of improvement = 3 Lakhs X 852/785= 3,25,000
Long Term Capital Gain= 25 Lakhs- (16,35,000+3,25,000+50,000)=25,00,000-20,10,000= 4,90,000/-
Tax on Capital Gain will be at 20% which is 9,80,000/-
Exemption on Capital Gain
Tax Exemption is provided under the following situations-
- Agricultural land on the rural areas is not considered as the capital asset and therefore is exempt from any Tax.
- The capital gain when inverted in purchasing 1 or 2 properties then the capital gain will not be taxed.
- Or investing in the Capital Gain Account Scheme for a specified period of time as per the bank directions. If the amount is bailed out before the required period then the tax will be imposed.
FAQ on Capital Gain
How much tax should an NRI pay on the gains made for selling a property in India?
NRI will be subject to tax as a non-NRI is taxed on the capital gains on the long term and short term bases. It is important to note that the NRI is taxed for the Capital Gain and not on sales proceeds. To access the Taxation on the capital Gain a professional help of a CA can be used.
What is rate of Tax for Long-term Capital Gain
Long term Capital Gain is taxed at the rate of 20% on the capital gain amount.
What is rate of Tax for Short-term Capital Gain
Short-term capital gain is calculated at the rate of 15 % if the security taxation is applicable but if not, then the gains will be added to the income and will be taxed as per the income slab.
Can I set off the Capital Loss with any other income head?
No, you cannot set off the Capital Loss against any other Income head, however, for short term you can set off the capital loss against the capital gains and for the long-term capital loss, it can only be set off against Long-term Capital gain.