Income from Capital Gains, Short and Long Term Capital Gain

Income from Capital Gains, Short and Long Term Capital Gain. Capital gains are something which you will hand over to your tax advisor, considering a range of provision and exemptions. However, you need to have a certain understanding with respect to capital gain and their taxability and exemptions thereto. This will help you plan your investments better considering the taxability aspect.

Income from Capital Gains, Short and Long Term Capital Gain

What is meant by capital gain?

Capital gain refers to gain or profit, arising out of the sale of any capital asset. Let’s understand the assets which are excluded from the definition of capital assets.

Any stock or inventory or consumables on hand with respect to business or profession
Personal effects such as clothes, cooking utensils, etc. (however, it excludes jewellery, drawings, paintings, any work of art etc.)
Agricultural land in rural area (please refer definition of rural area as per Income Tax Act)
Gold bonds or Gold Defense bonds issued by the central government
Special bearer bonds
Gold Deposit Bond issued as per Gold Deposit Scheme.

Apart from the above stated assets, all other assets are considered as capital assets. Hence, gain arising from the sale of all other assets will be liable to tax as capital gain.

What are types of capital gains?

Long term capital gain

With respect to shares and securities as well as units of ELSS (Equity Linked Savings Scheme), UTI or Zero Coupon Bonds

These will be considered as long term capital assets, if the holding period is more than 12 months or an year. In such cases, the gain arising out of sale of above said assets would be termed as long term capital gain. There are some unique passive income ideas you must try.

With respect to any other capital asset

Where such capital assets are held for a period of more than 3 years or 36 months, then gain arising out of such sale of such capital assets would be termed as long term capital gain.

Short Term capital gain

With respect to shares and securities as well as units of ELSS (Equity Linked Savings Scheme), UTI or Zero Coupon Bonds

These will be considered as short term capital assets, if the holding period is less than 12 months or an year. In such cases, the gain arising out of sale of the above said assets would be termed as short term capital gain.

With respect to any other capital asset

Where such capital assets are held for a period of less than 3 years or 36 months, then gain arising out of such sale of such capital assets would be termed as short term capital gain.

Important points

Long term capital gain on equity shares and ELSS units is exempted.
Other long term capital gains can be exempted if the taxpayer has complied with the conditions. For e.g. section 54 can be availed if the new residential property is acquired after selling the old property (within the time limit as prescribed).
Long term capital gains enjoy the benefit of indexation for cost of acquisition and cost of improvement if any.
Long term capital gains are taxed @ 20% with indexation benefit, however, short term capital gains are taxable @ 15%.

CONCLUSION

Even though, there are so many things to be explained with respect to Capital gains, this article summed up just key points. Now, that you understand the basic concepts, you can discuss better with your tax advisor and plan your investments better.

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