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Capital Gains

Updated on March 31, 2020 , 1604 views

What is Capital Gain?

The capital gain is a profit that you earn in your asset. In other words, it is a rise in the value of a capital asset that gives it a higher worth than the purchase price. Capital assets can be an investment or real estate. etc. The capital gain is not realized until the asset is sold.

A capital gain may be short-term or a long-term gain. Any capital asset that is held by an assessee for less than a year is considered under short-term gains. Whereas, any asset held for more than a year is termed under long-term gains. Capital gains must be claimed on income taxes.


Criteria for Income to be Considered Capital Gain

  • There will not be any capital gains applicable when an asset is inherited. This is because there is no actual ‘sale’, it is only a transfer.

  • If this asset is sold by the person who inherits it, capital gains tax will be applicable on account of actual ‘sale’.

  • The Income Tax act has explicitly exempted assets received as gifts by means of inheritance or will.

  • Capital gains are chargeable to tax in the year in which the transfer or sale of the capital asset takes place.

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Tax of Capital Gains in India

The tax rate of capital gains is divided into the short-term capital gains tax and long-term capital gains tax. They are such as-

Tax Rate on Short Term Capital Gains

The short-term capital gain is taxable at the rate of 15 percent +surcharge and education cess. In case of debt mutual fund, STCG is taxed as per individual's tax slab.

Tax Rate on Long Term Capital Gains

As per Union Budget 2018, long-term capital gains exceeding INR 1 lakh arising from the redemption of Mutual Fund units or equities on or after 1st April 2018, will be taxed at 10 percent (plus cess) or at 10.4 percent. Long-term capital gains till INR 1 lakh will be exempt.

For example, if you earn INR 3 lakhs in combined long-term capital gains from stocks or Mutual Fund investments in a financial year. The taxable LTCGs will be INR 2 lakh (INR 3 lakh - 1 lakh) and tax liability will be INR 20,000(10 per cent of INR 2 lakh).

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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