CAPITAL GAINS TAX
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What is Capital Gains Tax?
A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.
Short-term and long-term Capital Gains :
Gains on sale of capital assets held for more than three years (one year for listed securities or mutual fund units) are treated as long-term capital gains and are taxed at concessional rates compared short-term capital gains.
While calculating taxable long-term capital gains, the cost of acquisition and the cost of improvement are linked to a cost inflation index. As a result, the indexed cost of acquisition is deducted from the sale consideration received, to arrive at the capital gain.
Long-term capital gains are taxed at a flat rate of 20 per cent for individuals and foreign companies, and 30 per cent for domestic companies. Long-term capital gains on the transfer of shares/bonds issued in a foreign currency under a scheme notified by the Indian Government are taxed at 10 per cent.
Capital Gain Tax Rates :
Incase of short-term capital gains, you will be taxed depending on the tax slab relevant to you after you have added the capital gain to your annual income. However if the transaction was levied with Securities Transaction Tax (STT), your gain will be taxed 10%.
Incase of long term capital gains, you will be taxed 20%. When the transaction is levied with STT, you don't need to pay any tax on your gain. In this case, you can either calculate your capital gain using an indexed acquisition cost, or choose not to opt for indexing.
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We provide general guidance on Capital Gains Tax.