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A guidebook on income from Capital Gains India

Published On: Nov. 27, 2017 By:
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A guidebook on income from Capital Gains India

Concept of Capital Gain

The profit earned from the selling of a capital asset is referred to as the capital gain. The profit earned from the transaction is charged to income tax for the specific year when the transmission of the capital asset took place. However, in case of capital gains, which are not acquired by selling of asset, but is inherited, then the above clause is not applicable. When an asset is sold by the entity who inherited, in that case, capital gains tax will be pertinent. According to the Income Tax Act, assets obtained as offerings by means of inheritance or will is excused from the income tax clause.

What is a Capital Asset?

Capital assets can be referred as any of the followings:-Furthermore, the above mentioned must possess rights or relative to an Indian corporation. It will also comprise of rights of administration or jurisdiction or any other authorized entitlement.

  1. Land
  2. Building
  3. House property
  4. Vehicles
  5. Patents
  6. Trademarks
  7. Leasehold rights
  8. Machinery
  9. Jewellery

However, the list of items mentioned below is not considered as capital assets:

  1. Several stockpile, consumables or raw material apprehended for the objective of conducting business or for any other profession.
  2. Private merchandise, namely clothes and furniture apprehended for individual use.
  3. Agricultural property located in rural India.
  4. 6½% gold bonds in 1977; 7% gold bonds in 1980; national defense gold bonds in 1980 as sanctioned by the central government.
  5. Special bearer bonds in 1991.
  6. As per the gold deposit scheme introduced in 1999, Gold deposit bond.

Definition of Long-Term and Short-Term Capital Assets

The short-term capital asset is referred to the asset, which is apprehended for not more than 36 months and not less than that duration of time. The long-term capital asset is referred to the asset, which is apprehended for an interval beyond 36 months. However, from the Financial Year 2017-18 onwards, the condition of 36 months was decreased to 24 months for immovable property such as land, building, and house property. Under any circumstances, when an individual sells a residential property after possessing it for an interval of 24 months, thereafter the returns acquired from the property will be considered as a long-term capital gain, only if the property is sold post 31st March 2017. However, the above condition is not applicable to the movable property, for instance, jewelry, debt-oriented mutual funds and so on. Such property will be classified as a long-term capital asset when possessed beyond 36 months. Furthermore, a few assets are categorized as short-term capital assets when owned for 12 months or less. The above rule is valid only if the date of transmission is set to post 10th July 2014. This rule is fixed and is not connected to the date of purchase. The assets can be classified as-In addition, in case the above-mentioned assets are owned for an interval beyond 12 months, thereafter those assets are termed as a long-term capital asset. The interval of time for which an asset was owned by the previous owner when an asset is attained by gift, will, succession or inheritance, is also incorporated when shaping the decision whether it’s a short-term asset or a long-term capital asset. However, for bonus shares and/ or rights shares, the episode of owning an asset is computed from the date of allocation of bonus shares or rights shares, which are acquired correspondingly.

  1. The preference shares or equity listed on an established stock exchange in India of a company.
  2. Securities such as debentures, bonds, government securities and more listed on a well-known stock exchange in India
  3. Quoted or not quoted, units of UTI,
  4. Quoted or not quoted ,units of equity oriented mutual fund
  5. Quoted or not quoted ,zero coupon bonds.

Tax imposed on the basis of Short-Term and Long-Term Capital Gains

The tax imposed on long-term capital gain: In case of long-term capital gains, 20% plus surcharge and education duty is imposed on long-term capital assets. When the securities transaction tax is not pertinent, the short-term capital profit is supplementary to the income tax return. In addition, the taxpayer is liable to pay tax as per as the income tax slab. The securities transaction tax is applicable when the short-term capital gain is taxable at the tariff of fifteen percent plus surcharge and education duty.

Tax applicable to Equity and Debt Mutual Funds

Profits acquired after selling of debt funds and equity funds are regarded in a different way. Money endowed heftily in equities, beyond sixty-five percent of their total file, is referred to as the equity fund.

From 11 July 2014, the tax imposed on debt funds were fixed at tax slab rates of the individual for short-term gains. In case of equity funds, the tax rate is 15%. For long-term gains, the tax imposed on debt funds is 20% and for equity funds tax is nil. On or before 10 July 2014, the tax imposed on debt funds were fixed at tax slab rates of the individual for short-term gains. In case of equity funds, the tax rate is 15%. For long-term gains, 10% without indexation or 20% with indexation whichever is lower is imposed on debt funds and for equity funds tax is nil.

Modification of Tax Rules for Debt Mutual Funds

As per the rules, Debt mutual funds have to be possessed beyond 36 months to be eligible as a long-term capital asset. The above modification was introduced in the last year’s Budget. This process allows the investors to remain invested in these funds to acquire benefit of long-term capital gains tax for a minimum of three years. When it is cashed in within three years, the capital gains will be further added to an individual’s income and will be taxed as per the person’s income tax slab. Thus, “A guidebook on income from Capital Gains in India”, is necessary to understand the concept of capital gains.

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