Understanding Capital Gain In India Article

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Understanding Capital Gain in India

Income from capital gain is a very profitable investment and generally gives you maximum profit. The best thing is that there are a lot of tax exemptions on the income earned as capital gain.

Author: Yash Saxena

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Introduction:

Capital Gain is profit that results from money invested in capital assets. Capital assets include stocks, real estate etc, the value of which increases more that the purchase price gradually depending on various factors. The tax levied on such profit is known as Capital Gain Tax. In most of the scenarios, long term benefits have less tax rate as compared to the short term gains. Capital gains can also be referred to as ‘investment income’. Shares, stocks, intangible assets like goodwill, all come under the capital gain category.

Calculation of Capital Gain tax:

Capital gain tax is calculated depending on whether the asset is long term or short term.

Short-term CGT: Deduct the acquisition and maintenance cost from the full value of the asset. Also deduct the expenses that were incurred while transferring the asset. Deduct specific exemptions, if any on the asset; the end result would be the short-term Capital Gain Tax amount.

Long-term CGT: Deduct the expenditure on the asset; then the indexed cost incurred while acquiring and enhancement of the asset.. Also deduct the transfer expenses. This will give you the long term CGT amount.

Exemptions on Capital Gains Tax

Investment in certain types of assets can be eligible for exemption from taxes. Some of them are provided below:

Selling a residential property and then investing the money in acquiring more residential property can relieve you from CGT. This property should be chargeable under the head ‘income of the family’. The condition for this type of exemption is that the residential property should be a long term asset.

There is no tax levied on the purchasing cost or the construction expenses a new residential property.

The amount invested in business assets, or personal property is also exempt from CGT.

If in a scenario, the net consideration of transfer of property is left not utilized when a new property is purchased, This amount can be exempt from capital gain tax if the amount in deposited in a public sector bank or in an institution recognized by Capital Gains Amount Scheme (CGAS). However, this investment has a condition wherein the amount invested should be utilized to purchase a new house within two years of the date of transfer.

Investing in capital assets is very useful as it always gives a profit and the taxes levied on such profit is also not exorbitant.

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The aforesaid information will prove to be very useful if you are thinking of investing in such assets.

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Understanding Capital Gain in India