CAPITAL GAINS TAX
CAPITAL GAINS TAX
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WHAT IS CAPITAL GAIN AND CAPITAL GAINS TAX ?
Any Gain or profit arising out of transfer of capital asset is called Capital Gain and taxed under the head Capital gain .
Under Income tax law ,capital asset is defined to include any kind of property held,whether or not connected with business or profession .The following items are excluded from the definition of “capital asset”:
(i) any stock-in-trade , consumable stores or raw materials held for his business or profession ;
(ii) personal effects, that is, movable property (including wearing apparel and
furniture) held for personal use , but excludes--
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
“Jewellery" includes--
a. ornaments made of gold, silver, platinum or any other precious metal or
b. precious or semi-precious stones,
(iii)Agricultural Land in India .
For the purpose of taxation ,Capital gains are made in to two categories
1. Short term capital Gains and
2 . Long Term Capital gains
Under Income tax law ,capital asset is defined to include any kind of property held,whether or not connected with business or profession .The following items are excluded from the definition of “capital asset”:
(i) any stock-in-trade , consumable stores or raw materials held for his business or profession ;
(ii) personal effects, that is, movable property (including wearing apparel and
furniture) held for personal use , but excludes--
(a) jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
“Jewellery" includes--
a. ornaments made of gold, silver, platinum or any other precious metal or
b. precious or semi-precious stones,
(iii)Agricultural Land in India .
For the purpose of taxation ,Capital gains are made in to two categories
1. Short term capital Gains and
2 . Long Term Capital gains
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LATEST NEWS : CAPITAL GAINS UNDER SECTION 54 TO 54 GB OF IT ACT .
25.06.2020 : As per ordinance of Finance Ministry , Time limit for making investment by way of investment / construction / buying properties under section 54 to 54GB is extended up to 30.09.2020 and exemptions under capital gains tax can be claimed .
To read original ordinance / notification . CLICK HERE
WHAT IS SHORT TERM CAPITAL GAINS ?
Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short-term capital asset. However, in respect of certain assets like shares (equity or preference) which are
listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or
before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities,
Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months
Note:
1) With effect from Assessment Year 2017- 18, period of holding to be considered as 24 months instead of 36 months in case of
unlisted shares of a company .
2) With effect from A.Y. 2018-19, period of holding to be considered as 24 months in instead of 36 months in case of immovable
property being land or building or both.
listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or
before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities,
Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months
Note:
1) With effect from Assessment Year 2017- 18, period of holding to be considered as 24 months instead of 36 months in case of
unlisted shares of a company .
2) With effect from A.Y. 2018-19, period of holding to be considered as 24 months in instead of 36 months in case of immovable
property being land or building or both.
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LONG TERM CAPITAL GAINS TAX
WHAT IS LONG TERM CAPITAL GAINS ?
Any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months
Note:
1) With effect from Assessment Year 2017- 18, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company .
2) With effect from A.Y. 2018-19, period of holding to be considered as 24 months in instead of 36 months in case of immovable property being land or building or both.
Note:
1) With effect from Assessment Year 2017- 18, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company .
2) With effect from A.Y. 2018-19, period of holding to be considered as 24 months in instead of 36 months in case of immovable property being land or building or both.
TAX PLANNING FOR FY 2022-23 ( AY 2023-24 )
Comprehensive Article on Income tax changes in Rules, Rates , Slabs, Rebates and Estimation
CLICK HERE TO READ
HOW SHORT TERM CAPITAL GAIN IS TAXED ?
Short Term Capital Gain is taxed under section 111A for specified transactions and all other short term capital gains are taxed differently
Short-term capital gains covered under section 111A.
1. Short-Term Capital Gains (STCG) arising on account of sale of equity shares listed in a recognised stock exchange, units of equity oriented mutual fund and units of business trust i.e., STCG covered under section 111A which states :
Where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust and--
(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and
(b) such transaction is chargeable to securities transaction tax under that Chapter,
the tax payable by the assessee on the total income shall be the aggregate of--
(i) the amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent; and
(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee:
A resident individual/HUF can adjust the STCG covered under section 111A against the basic exemption limit but such adjustment is possible only after making adjustment of other income. In other words, first income other than STCG covered under section 111A
is to be adjusted against the exemption limit and then the remaining limit (if any) can be adjusted against STCG covered under section 111A.
Short-term capital gains other than covered under section 111A
Normal STCG, i.e., STCG other than covered under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.
HOW LONG TERM CAPITAL GAIN IS TAXED ?
1. TAX ON LONG TERM CAPITAL GAIN :
Generally, long-term capital gains are charged to tax @ 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of charging
long-term capital gain @ 10% is available only in following cases:
1) Long-term capital gains arising from sale of listed securities and it exceeds Rs.1,00,000 (Section 112A);
2) Long-term capital gains arising from transfer of any of the following asset:
a) Any security (*) which is listed in a recognised stock exchange in India;
b) Any unit of UTI or mutual fund (whether listed or not) ($); and
c) Zero coupon bonds
As per Section 112A, long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10% (without indexation) of such capital gains. The tax on capital gains shall be levied in excess of Rs.1 lakh.
ADJUSTMENT OF BASIC EXEMPTION LIMIT AGAINST LTCG :
A resident individual can adjust the LTCG but such adjustment is possible only after making adjustment of other income. In other words, first income other than LTCG is to be adjusted against the exemption limit and then the remaining limit (if any) can be
adjusted against LTCG.
TAX ON DEBT MUTUAL FUNDS FROM FY 2023-24 : As per amendment on Finance Bill 2023 passed in the Loksabha , Capital gains out of Debt Mutual Funds will be taxed along with your general income as done on Short term capital gains , instead of Long term capital Gains as being done hitherto . Details awaited.
Generally, long-term capital gains are charged to tax @ 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of charging
long-term capital gain @ 10% is available only in following cases:
1) Long-term capital gains arising from sale of listed securities and it exceeds Rs.1,00,000 (Section 112A);
2) Long-term capital gains arising from transfer of any of the following asset:
a) Any security (*) which is listed in a recognised stock exchange in India;
b) Any unit of UTI or mutual fund (whether listed or not) ($); and
c) Zero coupon bonds
As per Section 112A, long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10% (without indexation) of such capital gains. The tax on capital gains shall be levied in excess of Rs.1 lakh.
ADJUSTMENT OF BASIC EXEMPTION LIMIT AGAINST LTCG :
A resident individual can adjust the LTCG but such adjustment is possible only after making adjustment of other income. In other words, first income other than LTCG is to be adjusted against the exemption limit and then the remaining limit (if any) can be
adjusted against LTCG.
TAX ON DEBT MUTUAL FUNDS FROM FY 2023-24 : As per amendment on Finance Bill 2023 passed in the Loksabha , Capital gains out of Debt Mutual Funds will be taxed along with your general income as done on Short term capital gains , instead of Long term capital Gains as being done hitherto . Details awaited.
What is Basic Exemption Limit ?
Basic exemption limit means the level of income up to which a person is not required to pay any tax. The basic exemption limit applicable in case of an individual for the financial year 2018-19 is as follows :
• For resident individual of the age of 80 years or above, the exemption limit is Rs.5,00,000.
• For resident individual of the age of 60 years or above but below 80 years, theexemption limit is Rs. 3,00,000.
• For resident individual of the age of below 60 years, the exemption limit is Rs.2,50,000.
• For non-resident individual, irrespective of the age of the individual, the exemption limit is Rs. 2,50,000.
• For HUF, the exemption limit is Rs. 2,50,000.
Basic exemption limit means the level of income up to which a person is not required to pay any tax. The basic exemption limit applicable in case of an individual for the financial year 2018-19 is as follows :
• For resident individual of the age of 80 years or above, the exemption limit is Rs.5,00,000.
• For resident individual of the age of 60 years or above but below 80 years, theexemption limit is Rs. 3,00,000.
• For resident individual of the age of below 60 years, the exemption limit is Rs.2,50,000.
• For non-resident individual, irrespective of the age of the individual, the exemption limit is Rs. 2,50,000.
• For HUF, the exemption limit is Rs. 2,50,000.
CAPITAL GAIN TAX EXEMPTION ON TRANSFER OF RESIDENTIAL PROPERTY
Under Section 54 of Income tax Act,a person who sells his / her residential property and acquires another residential property has relief from tax arising out of Capital Gain from selling of the original property .The basic conditions to be satisfied are :
1. The benefit of section 54 is available only to an individual or HUF
2. The asset transferred should be a long-term capital asset, being a residential house property.
3. Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old
house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).
4. With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only.
5. No exemption can be claimed in respect of house purchased outside India.
6. In the budget proposed for FY 2019-20 , EXEMPTION IS EXTENDED TO SECOND RESIDENTIAL PROPERTY ALSO .
1. The benefit of section 54 is available only to an individual or HUF
2. The asset transferred should be a long-term capital asset, being a residential house property.
3. Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old
house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).
4. With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only.
5. No exemption can be claimed in respect of house purchased outside India.
6. In the budget proposed for FY 2019-20 , EXEMPTION IS EXTENDED TO SECOND RESIDENTIAL PROPERTY ALSO .
CAPITAL GAIN ACCOUNTS
As per section 54 ,the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. But one requires time to reinvest .If you plan to re-invest it in a residential property or any other specified asset within the stipulated time frame, you can park the proceeds in a Capital gains account in the specified branches of the banks ,under the Capital Gains Account Scheme, 1988 and be eligible to claim exemption of Long Term Capital Gains Tax on sale of Capital Assets.
The accounts can be opened as Savings Bank account or term deposit accounts .Term deposits should be made to a period which falls within the stipulated time period to claim exemption under LTCG . normally banks give interest at par with other deposit schemes Banks will not extend loan on the deposits .
Illustratively you can view SBI'S CAPITAL GAINS PLUS scheme
As per section 54 ,the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. But one requires time to reinvest .If you plan to re-invest it in a residential property or any other specified asset within the stipulated time frame, you can park the proceeds in a Capital gains account in the specified branches of the banks ,under the Capital Gains Account Scheme, 1988 and be eligible to claim exemption of Long Term Capital Gains Tax on sale of Capital Assets.
The accounts can be opened as Savings Bank account or term deposit accounts .Term deposits should be made to a period which falls within the stipulated time period to claim exemption under LTCG . normally banks give interest at par with other deposit schemes Banks will not extend loan on the deposits .
Illustratively you can view SBI'S CAPITAL GAINS PLUS scheme
CAPITAL GAINS BOND SCHEME
In case you do not want to buy another property and still you want to save on LTCG Tax , Government of India has introduced CAPITAL GAINS BOND SCHEME and bonds are popularly called 54 EC BONDS .
54EC bonds, or capital gains bonds, are one of the way to save long-term capital gain tax.They are are for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act. However they do not carry any tax exemption on short-term capital gains tax.The bonds are issued in multiples of Rs 10,000 each. The maximum limit for investing in 54EC bonds is Rs. 50 lakhs The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited). The bonds offer 5.75% rate of interest payable annually. The Bonds are AAA Rated and backed by the government . Lock in period is 5 years and the interest received on the bonds are taxable . Bonds can be held either in physical form or Demat form .
In case you do not want to buy another property and still you want to save on LTCG Tax , Government of India has introduced CAPITAL GAINS BOND SCHEME and bonds are popularly called 54 EC BONDS .
54EC bonds, or capital gains bonds, are one of the way to save long-term capital gain tax.They are are for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act. However they do not carry any tax exemption on short-term capital gains tax.The bonds are issued in multiples of Rs 10,000 each. The maximum limit for investing in 54EC bonds is Rs. 50 lakhs The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited). The bonds offer 5.75% rate of interest payable annually. The Bonds are AAA Rated and backed by the government . Lock in period is 5 years and the interest received on the bonds are taxable . Bonds can be held either in physical form or Demat form .
THIS ARTICLE CARRIES INFORMATION ON VARIOUS TAX PROVISIONS WHICH ARE GENERALLY USEFUL . YET IT DOES NOT CARRY ALL THE PROVISIONS AND HENCE YOU ARE ADVISED TO GO THROUGH INCOME TAX DEPARTMENT WEBSITES FOR AUTHENTIC COMPLETE INFORMATION . YOU MAY ALSO CONSULT A QUALIFIED TAX CONSULTANT / CHARTERED ACCOUNTANT FOR ANY CLARIFICATION. READERS ARE ALSO WELCOME TO SEND FEEDBACK , FORM AVAILABLE BELOW . WE ARE OPEN FOR CORRECTION IF NEEDED
For Tutorial on STCG published by Income Tax department , CLICK HERE
For Tutorial on LTCG published by Income Tax department , CLICK HERE
For Tutorial on LTCG published by Income Tax department , CLICK HERE
