Capital Gain

CAPITAL GAIN

TO KNOW CAPITAL GAINS LET US FIRST UNDERSTAND WHAT ARE CAPITAL ASSETS…?

Capital Assets can be land, house property, building, trademark, leasehold rights, machinery, patents and jewellery.

FOLLOWING THINGS ARE NOT INCLUDED IN CAPITAL ASSETS…,

  • Agricultural land in a rural area in India.
  • Stock on trade.
  • Personal used items such as wearing apparels and furniture.
  • Raw material and consumable stores held for the purpose of Profession or Business.
  • Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.
  • Special Bearer Bonds, 1991, issued by the Central Government.
  • 6.5% Gold Bond, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government.
  • Deposit Certificates issued under the Gold Monetisation Scheme, 2015.

WHAT DOES TERM ‘LONG-TERM CAPITAL ASSET’ MEANS?

  • Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset.
  • In respect of certain assets like shares which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months.
  • In case of unlisted shares, the period of holding to be considered is 24 months instead of 36 months.
  • With effect from Assessment Year 2018-19, the period of holding of immovable property (being land or building or both), shall be considered to be 24 months instead of 36 months.

Capital Gain refers to profit that is earned by individual from the sale of a Capital Asset. The profits arising from the sales of the Capital Asset is taxed under the head “Income from Capital Gain”.

DO YOU KNOW…?

  • Capital Gain Tax is not applicable to the Inherited Property, as there is an only transfer of ownership and no actual sales.
  • Any asset which is received by way of Will or Inheritance is totally exempt from the Income Tax Act, 1961.
  • Capital Gain Tax will be applicable if the individual who inherit the asset decides to sell it.

WHAT IS LONG-TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN..?

  • ​​Gain arising on transfer of long-term capital asset is termed as long-term capital gain.
  • Gain arising on transfer of short-term capital asset is termed as short-term capital gain.
  • However, there are a few exceptions to this rule, like gain on depreciable asset is always taxed as short-term capital gain.

CAPITAL GAIN TAX SLAB

Asset Asset Duration Short Term Tax Rate Short Term Asset Duration Long Term Tax Rate Long Term
Immovable Property like House Less than 2 Years As per IT Slab More than 2 Years 20% with Indexation
Movable Property like  Gold/Jewellery Less than 3 Years As per IT Slab More than 3 Years 20% with Indexation
Listed Shares Less than 1 Years 15% More than 1 Years 10% Over and above Rs.100000/-
Unlisted Shares Less than 2 Years As per IT Slab More than 2 Years 20% with Indexation
Equity Oriented Mutual Funds Less than 1 Years 15%

 

More than 1 Years 10% Over and above Rs.100000/-
Debt Oriented Mutual Fund Less than 3 Years As per IT Slab More than 3 Years 20%

HOW TO CALCULATE LONG TERM CAPITAL GAINS ON SALE OF HOUSE…?

To consider long term capital gains we need to first calculate Indexed cost of acquisition and Indexed cost of improvement.

Indexed cost of acquisition =

Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition

Indexed cost of improvement =

Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement

EXAMPLE OF LONG TERM CAPITAL GAIN..

On 01st April, 2010, Mr. A bought a house worth INR 50 lakhs. He spent INR 3.0 lakhs on improving the house and he sold it in September 2019 for INR 95 lakhs. His agent charged him INR 95,000. The cost of inflation index for purchase that was made in 2010 was 167 whereas, in the year of sale the cost inflation index was 289.

Particulars Amount in INR
Full value of Sales consideration of asset ₹ 95,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.)  

₹      95,000

Net sale consideration ₹ 94,05,000
Less: Indexed cost of acquisition (5000000 * 289/167)   ₹ 86,52,694
Less: Indexed cost of improvement, if any (300000 * 289/167)    ₹   5,19,161
Long-Term Capital Gain ₹   2,33,145

Maximum up to ₹ 50 Lakhs can be invested in 54EC Capital Gain Bonds in a Financial Year to reduce further tax. i.e. in the above example if the entire long-term capital gain amount is invested in 54EC Capital Gain Bonds then there won’t be any tax payable.

EXAMPLE OF SHORT TERM CAPITAL GAIN..

On 01st April, 2010, Mr. A bought a house worth INR 50 lakhs. He spent INR 3.0 lakhs on improving the house and he sold it in December 2011 for INR 60 lakhs. His agent charged him INR 60,000. The cost of inflation index for purchase that was made in 2010 was 167 whereas, in the year of sale the cost inflation index was 184.

​Particulars Amount in INR
Full value of consideration (i.e., Sales value of the asset) ₹ 60,00,000
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.) ₹      60,000
Net Sale Consideration ₹ 59,40,000
Less: Cost of acquisition (i.e., the purchase price of the capital asset) ₹ 50,00,000
Less: Cost of improvement (i.e., post purchase capital expenses incurred on addition / improvement to the capital asset) ₹   3,00,000

 

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Users are deemed to have irrevocably waived any claims against the Midas Touch Investments for any loss or damage suffered as a result of any access to or interaction with any other websites via this website. In the event that you may wish to access any services through this website, you are advised that any transactions over the Internet carry certain special risks. By agreeing to enter this website, visitors to this website expressly accept that Midas Touch Investments will not and cannot be held liable (in all forms of legal liability) for any transactions that are processed over the internet. Online transactions may be subject to but not limited to, interruption, transmission, blackout, delayed transmission due to Internet traffic, or incorrect data transmission due to the public nature of the Internet. All information contained in this website is general information only. While special care has been taken in preparing the information and materials contained in this website, such information and materials are provided to users on an “as is” basis and carry no warranty or representation of any kind, express or implied. In particular, no warranty or representation is given for information and materials regarding non-infringement, security, accuracy, suitability for a particular purpose, or freedom from computer virus, Trojan horses, worms, software bombs or similar items. Moreover, the information contained in this website may be changed at any time without prior notice. Visitors to this website may print out items of interest for their own personal use only. Copyright notices and other identifying information must be removed from such printouts. The content of this or of any linked website must not be reproduced in any manner for any other purposes. 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Disclaimer:

Midas Touch Investments, disclaims responsibility and legal liability for any loss, harm, or damage, however caused, resulting from accessing any section of this website. Visitors to this website also consent to waive the right, by entering this website, to seek any form of restitution, damages, or remedy, monetary or otherwise, for any loss, harm, or damage, however caused, resulting from accessing this website. Midas Touch makes every effort to avoid making incorrect misrepresentations or misleading statements, and in no way encourages unconscionable or deceptive conduct in the providing of its services. By entering this website, you expressly accept that Midas Touch will not and cannot be held liable (in all forms of legal liability) for; and that Midas Touch does not warrant, guarantee, or represent (expressly or impliedly), that; information, opinion, commentary, data, or any other content in this website is accurate, valid, complete, legal, and current. The information in this website is obtained and compiled from various sources we believe to be reliable, but Midas Touch does not expressly or by implication guarantee its reliability. Nothing in this website constitutes an offer or solicitation of financial product, advice, recommendation and are not intended to constitute provision of investment, legal, tax, or other professional or financial advice. Such content therefore should not be relied upon for the making of any personal financial and investment decisions. Persons accessing this information are strongly encouraged to obtain appropriate professional advice from registered investment advisors before making any investment or financial decision. By entering, visitors to this website expressly accept that Midas Touch does not warrant, guarantee, or represent (expressly or impliedly) that the website is free from technical malfunction or human error, or that any services obtained through this website are of fitting quality and suitable for any particular purpose, and you expressly accept that Midas Touch will not and cannot be held liable (in all forms of legal liability) for any errors, inaccuracies or omissions (including any third party) and any loss or damages, whether incidental, consequential, or otherwise, resulting from its use or inability to use by any party, or in connection with any error, interruption, delay in operation or incomplete transmission, or line or system failure. Use of hyperlinks to or from other internet sites or resources are the users own risk. The content, accuracy, opinion expressed, and other external links provided at these sites are not investigated, verified, modified, or endorsed by Midas Touch. Midas Touch disclaim any responsibility for the accuracy, contents, availability, or inclusion or omission of information found on sites that link to or from this website. Visitors to this website are solely responsible for making all enquiries and investigation before proceeding with any online or offline access or transaction with any of these third parties. Midas Touch emphasises that all activities conducted by users at or via this website are at their own risk. Midas Touch does not warrant the security of any information users may forward, or be requested to provide, to any third parties. Users are deemed to have irrevocably waived any claims against the Midas Touch for any loss or damage suffered as a result of any access to or interaction with any other websites via this website. In the event that you may wish to access any services through this website, you are advised that any transactions over the Internet carry certain special risks. By agreeing to enter this website, visitors to this website expressly accept that Wealth Man will not and cannot be held liable (in all forms of legal liability) for any transactions that are processed over the internet. Online transactions may be subject to but not limited to, interruption, transmission, blackout, delayed transmission due to Internet traffic, or incorrect data transmission due to the public nature of the Internet. All information contained in this website is general information only. While special care has been taken in preparing the information and materials contained in this website, such information and materials are provided to users on an “as is” basis and carry no warranty or representation of any kind, express or implied. In particular, no warranty or representation is given for information and materials regarding non-infringement, security, accuracy, suitability for a particular purpose, or freedom from computer virus, Trojan horses, worms, software bombs or similar items. Moreover, the information contained in this website may be changed at any time without prior notice. Visitors to this website may print out items of interest for their own personal use only. Copyright notices and other identifying information must be removed from such printouts. The content of this or of any linked website must not be reproduced in any manner for any other purposes. Midas Touch reserves the right to pursue any necessary legal action for any copyright infringement. Midas Touch accepts no liability whatsoever for any loss or damage, or otherwise as stipulated in this legal disclaimer, arising from the use of any section of this website, whether or not such loss or damage is caused by reason of negligence, or otherwise on the part of Midas Touch. The users assume all risks associated with the use of this website including, but not limited to, all terms and conditions mentioned in this legal disclaimer.

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