Updated Feb 09, 2022

What is Capital Gain Tax?

Introduction

On the sale of equities valued at more than Rs.1 lakh, long-term capital gains (LTCG) are taxed at 10%, while short-term capital gains (STCG) are taxed at 15%. (STCG). Debt mutual funds are also subject to capital gains tax, both long and short term. Taxes on total and protracted capital gains on investments are 20% with annual increases or 10% without adjustment, based on a taxpayer's Individual Taxpayer Identification Number (ITIN). The practice of modifying prices to take shifts in the overall level of prices is referred to as "indexation". Inflation raises the cost of goods, which reduces profit margins for businesses.

What is Capital Gain Tax?

The term "capital gain" refers to a person's profit or gain from selling a financial asset. It is taxed as "Income from Capital Gains" on the profit from the sale of the capital asset. Selling the item for a greater price than what you paid for it is how you make a profit. Because there is no sale of the inherited property, it is exempt from capital gains tax. The Online Income Tax Act of 1961 does not apply to any assets inherited as a bequest or inheritance. However, CGT will be applied if the person who inherits the asset chooses to sell it.

Types of CGT

1. Capital Invested for the Long Term

Income tax on capital gains is a taxable income levied on the sale of capital assets. Short-range and long capital assets are the two most common types.

2. Capital Invested for the Short Term

Taxpayers may only keep short-term capital assets for a maximum of 36 months after they are transferred. Short-term capital assets are kept for less than a year. Assets transferred after July 10, 2014, are eligible for this benefit.

CGT on Property

Investment income tax is charged on the purchase of assets, although only a portion of the revenue is taxed. Within three years after purchase, short tax capital gains at the taxpayer's tax bracket. Short-term capital gains are taxed at a rate of 20%.

Investing in residential real estate for building or buying a home does not trigger long-term capital gains tax consequences under IT Act sections 54 and 54F. Buying a home within two years of or one year before the transfer of the original residence qualifies as an exchange for tax purposes. Any properties still under development must be completed within three years after the transfer of the original property. It's critical to remember that any money invested in real estate in India should stay in India.

If you sell your house and avoid paying capital gains tax, you may invest in a single new asset to reduce your taxable gain rather than a portfolio of various assets. Only one property may be used to invest a person's accumulated capital gain by selling several properties.

CGT on Bonds

For six months after the property has been sold, an investor may also use Section 54EC of the IT Act to purchase bonds issued by the NHAI or Rural Electrification Ltd. After three years; capital gains don't redeem. The bond has a set interest rate that the owner can count on. A maximum of Rs.50,00,000 may be invested in capital gain bonds in a financial year. Long-term capital bonds are the only ones eligible for this perk.

Conclusion

If lower, capital gain tax is imposed on the discrepancy between the sale or repurchase value of a share (or another asset). It is paid just once per disposal, unlike income tax, at the time of sale or repurchase. If held for a certain amount of time, it is possible to avoid paying capital gains tax on some assets, such as fixed-income securities. Profits on other commodities may sometimes offset investment losses. The capital gains tax is unjust unless it is "indexed" to inflation, in which case it taxes both actual and "paper" profits, resulting in double taxation.