Capital Gains Tax
Capital Gains Tax Definition :
A Capital gain is income derived from an investment. The investment can be a house, building, stocks, farm, and business.
A capital gains tax means the tax imposed on the money accumulated from those investments. A capital gains tax is different from other forms of taxation. It is a voluntary tax, because, the tax is paid only after the asset is sold.
Types of Capital Gains Tax:
Capital gain can be categorized as follows depending the how long the asset is held.
Short Term Capital Gains Tax
If an asset is held for 36 months or less it is considered to be a short term capital asset. In the case of shares, mutual funds, unit trusts held for 12 months or less are also considered to be short term capital assets.
Capital Gains Tax Computation
Full sale price minus expenses incurred for the transfer,cost of acquisition,cost of improvement deduct exemptions under 54B,54D,54G.
Long Term Capital Gains Tax
On the contrary if an asset is held for more than 36 months it is considered as a long term capital asset. However, unit trusts, or shares of a company security listed in any stock exchange and mutual funds held for more than 12 months come under long term capital assets.
Capital Gains Tax Computation
Full sale price minus expenses incurred , indexed cost of acquisition,indexed cost of improvement deduct exemptions under 54,54B,54D,54EC,54ED,54F,54G.
Indexed cost of acquisition is calculated as under:
Formula: Cost of improvement*cost of inflation index of the year in which the asset is transferred/cost of inflation index of the year in which the improvement was made.
Capital Gains Tax Calculation
In case of short term capital gains, the tax to be paid related to the sale of property, the total taxable money is the gained amount on the asset plus individual’s annual income. In case of long term capital gains,factors such as inflation are also taken into account. The tax is paid on the capital gains and also the projected gain due to inflation.
|
|
Short Term Capital Gains Tax | Long Term Capital Gains Tax |
|---|---|---|
| Sale on transaction of securities which attract STT | 10% | Nil |
| Sale on transaction of securities which do not attract STT | ||
| Individuals(resident and non-resident) | Progressive slab rates | 20% with indexation 10% without indexation( for units/zero coupled bonds) |
| Partnerships(resident and non-resident) | 30% | -do- |
| Overseas financial organisations specified in section 115AB | 40%(corporate) 30%(non corporate) |
10% |
| FIIs | 30% | 10% |
| Other foreign companies | 40% | 20% with indexation 10% without indexation for units/zero coupon bonds |
| Local authority | 30% | -do- |
| Co-operative society | Progressive slab rates | -do- |
The country of France has a flat rate of 27% for the capital gains. The countries like Belgium, Switzerland and Singapore do not have capital gains tax.
Capital Gains Tax on Sale of Property or House in Case of India
Long term capital gains tax on the sale of a house or property is 20%. There are income tax exemptions from long term capital gains if the individual were to invest in a residential property. There are two sections in the IT act that deal with the exemption. They are section 54 and 54F. section 54 deals with the capital gains on the sale of the house and reinvestment of the capital gains in to another residential house. Section 54F deals with sale of the any other capital asset like gold and investment of the net consideration.
For example, a person A purchased a flat for Rs.10 lakh,and then put it for sale after 10 years. He got a gain of Rs.25 lakh on thepurchase, then according to IT act section 54 he has to reinvest Rs.15 lakh into another residential property.
Indexation is calculated taking into account cost inflation index. These indices are fixed and declared by the central government every year. The CII or cost inflation index for the year 2009-10 is 632.
Taxation of Long Term and Short Term Capital Gains Exemptions
Long term capital gains on sale of property used for residence: when any capital gain arises from the sale of a residential house which is chargeable to tax under House Property then that tax is exempted provided
The asset which is sold is held by the individual for more than 3 years
The individual ahs purchased a new house within a period of 3 years after the sale
The cost of the new asset equals or exceeds the amount of capital gain.
But if the capital gain is not utilized then the same should be deposited in the bank. If the amount the capital asset is greater than the amount of the new asset then the difference is chargeable.
Rental Income tax
Non-residents are charged at progressive rates. In case the property is owned jointly then they are taxed separately. Income earned from leasing land,buildings are levid a 15% withholding tax which is levied on the gross rent. This tax is credited against the total income tax liability.
Computation
Taxable income is calculated according to the rental value of the property or the government determined rental value whichever is higher.
Deductions
A standard deduction of 30% is granted for the repairs.
