Capital Gains Tax

What is Capital Gains Tax?

The taxation system in India is intricate and many a time complex to understand. Capital Gains Tax is an important aspect in Taxation. Here we go through an important part of Indian taxation system on the capital gains. Let us first understand what capital gains is and what the different implications of a tax on it are.

Firstly, Capital Gains is the profit which one earns during the sale of the capital asset. So, Capital gains tax is the tax levied on the profit after the sale of the asset. Capital gains tax is levied in the same year in which the transfer of capital assets takes place.

Capital gains tax is not applicable on assets which are inherited. As per the Income Tax Act of India, assets which are exempted from tax slab include gifts which are inherited or are transferred via will.

What all comes under capital asset?

Some of the common inclusions in the list of capital assets include the following:

  • Land
  • House
  • Building
  • Machinery
  • Jewelry
  • Trademarks 
  • Vehicles
  • Patent
  • Leasehold rights

The following assets do not fall into the category of capital assets:

  • Any kind of stocks, raw material or consumables which are held for business purpose or profession.
  • Agricultural land in rural area
  • Personal goods like furniture, clothes etc. which are held for personal usage
  • The following are not considered capital assets:
  • Gold bonds
  • Special Bearer Bonds 1991
  • Gold Deposit Bond issued under the Gold Deposit Scheme, 1999

What is the difference between long term and short term asset in  capital gain taxation. Long-term capital assets are those which are held for a period longer than 36 months whereas the short-term capital assets are held for 36 months or less.

Another important point of consideration that one need to take care of is the holding period which is applicable to the particular assets held by the person. In certain assets, the holding period is more than 12 months but still, they are considered as part of the long-term asset.  This rule comes into picture if the asset has been transferred after 10th July 2014 (date of purchase stands irrelevant).

The following assets when held for a period more than 12 months are considered to be long term capital assets:

  • Equity or preference share (of company sites in stock exchange of India)
  • Units of UTI
  • Securities like bonds, government securities, debentures etc.
  • Zero coupon code
  • Units of equity oriented mutual funds

Calculation of Capital Gains:

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Tax on long-term capital gain: It is taxable at 20% + surcharge and education cess.

Tax on short-term capital gain: In the case of securities, transaction tax is applicable, then tax applicable is at the rate of 15%+surcharge and education cess.

Calculation of Capital Gains:

Short-term capital gain = Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)

Long-term capital gain = Full value of the consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer). Where;

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

The cost of transfer is a brokerage paid for arranging the deal, legal expenses incurred, the cost of advertising, etc.

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Capital gains tax. Do not miss this.

Advantages of capital gain tax

  • The tax payments differ till the time assets are sold. Security investor doesn’t have to pay tax on profits earned from bonds and stocks till the time he/she sells the assets.
  • Tax rates on long-term capital gains are lesser than normal income tax rate.
  • Capital gains rate does not apply to inventory, even if this asset is held by you for more than one year.
  • As per the Section 54 and Section 54F of the Income Tax Act, there is a provision wherein long-term capital gains can be used to construct or acquire resin details house property if, conditions like time frame within which the gain must be invested for buying or constructing property, then the person is exempted from capital gain tax.

Loanyantra stands with you if you look for investing your capital gains in a property. It helps you for a easy and hassle-free home loan process and management.

It is always advisable to take expert advice how to invest and where to invest before selling the assets.

Snippets On Home Loan Tax Benefits!

Must know things about home loan tax benefits!

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Home loan tax  benefit classes 🙂
  • Home loan borrowers are entitled to tax benefits under Section 80C and Section 24 of the Income Tax Act. These can be claimed by the property’s owner.
  • In the case of co-owners, all are entitled to tax benefits provided they are co-borrowers for the home loan too. The limit applies to each co-owner.
  • A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits. Which means, to claim tax on property, the person should be both co-borrower and co-owner.
  • The tax benefit is shared by each joint owner in proportion to his share in the home loan. It’s important to establish the share for each co-borrower to claim tax benefits. 
  • The certificate issued by the housing loan company, showing the split between principal and interest for the EMIs paid, is required for claiming tax benefits. 

If You Work for a company –

  • Submit your home loan interest certificate to your employer for him to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.

If You Are Self-employed and a Freelancer –

  • You don’t have to submit these documents anywhere, not even to the I-T Department. You’ll need them to calculate your advance tax liability for every quarter. You must keep them safely to answer queries that may arise from the I-T Department and for your own records.

If you have another property along with your self-occupied house, and if you let-out that property, you can claim tax deduction for the entire interest amount on the let-out home’s loan. So, the income from that property is calculated from deducting the property tax, standard tax deduction (30%), interest on the let-out property home loan from the annual rental value of the let-out property.

For the first time home buyers, the government provides up to Rs 50,000 tax benefit on loan up to Rs 35 lakh taken for residential house.

There are more tax planning benefits by different investment opportunities. Explore and take expert’s advice for the best decision and for saving more.