Question

what is capital tax know to be ?

Answer 1

Simply put, any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit is considered as income and hence charged to tax in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term. Capital gains are not applicable when an asset is inherited because there is no sale, only a transfer. However, if this asset is sold by the person who inherits it, capital gains tax will be applicable. The Income Tax Act has specifically exempted assets received as gifts by way of an inheritance or will.

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Answer 2

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Capital gains is the profit that the investor realizes when he sells the capital asset for a price higher than its purchase price. The transfer of capital asset must be made in the previous year. This is taxable under the head ‘Capital Gains’ and there must exist a capital asset, transfer of the capital asset and profit or gains arising from the transfer.

Capital Gains include any property held by the assesse except the following:

Stock in trade.

Consumable stores or raw materials held for the purpose of business or profession.

Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.

Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.

6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.

Gold Deposit bonds under Gold Deposit Scheme.



What is Capital Gains Tax?

Capital gains tax is a tax that is charged on the profits that he has made by selling his capital asset. For making it easy for taxation, the capital assets are classified to ‘Short-Term Capital Asset; and ‘Long-Term Capital Asset’.

Short-Term Capital Asset:

If the shares and securities are held by the taxpayer for a period not more than 36 months preceding the date of its transfer will be treated as a short-term capital asset.

Long- Term Capital Asset:

If the taxpayer holds the shares and securities for a period exceeding 36 months before the transfer will be treated as a long-term capital asset.

Equity shares which are listed in a recognised stock exchange, units of equity oriented mutual funds, listed debentures and Government securities, units of UTI and Zero Coupon Bonds’ period of holding will be considered for 12 months instead of 36 months.

Transfer is giving up your right on an asset it includes sale, exchange, compulsory acquisition under any law and relinquishment.

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