Wondering What Are Capital Gains

Capital Gains :

Capital Gains are the profit that a person 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. Income from capital gains is classified as "Short Term Capital Gains" and "Long Term Capital Gains".

A capital asset includes:

(a) Any kind of property held by a taxpayer, whether or not connected with business or profession.

(b) Any securities held by a FII(foreign institutional investor ) which has invested in such securities.

Capital Gains include any property held by the taxpayer, except the following:

• Stock in trade.
• Consumable stores or raw materials held for the purpose of business or profession.
• personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

(a) jewellery(ornaments made of gold, silver, platinum or any other precious metal or any alloy containing precious metal)

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

• Agricultural Land in India, not being a land situated in various specifications specified by the Income Tax Department in this behalf.
• 6.5 percent Gold Bonds, National Defense Gold Bonds and Special Bearer Bonds.
• Gold Deposit bonds under Gold Deposit Scheme.

Types Of Capital Gains :

1.Short term:

Any asset owned by an individual (taxpayer) for less than 3 years since the date of transfer/ownership is termed as a short term capital asset. This duration should be less than 12 months in case of shares. Capital gain earned by an individual by means of transfer of a short term capital asset is termed as short term capital gain.

2.Long term:

Any asset owned by an individual (taxpayer) for more than 3 years since the date of transfer to his/her name is treated as a long term capital asset. This duration is taken as 12 months or more in case of shares. Capital gain earned by an individual by means of transfer of a long term capital asset is termed as long term capital gain.

Taxability Of Short Term Capital Gains :

Short-term Capital Gains arising on account of transfer of short-term capital asset is computed as follows :

Full value of consideration (i.e., Sales value of the asset) XXXXX

(Less): Expenditure incurred wholly and exclusively in connection

with transfer of capital asset (E.g., brokerage, commission, etc.). XXXXX

=Net Sale Consideration XXXXX

( Less) Cost of acquisition (i.e., the purchase price of the capital asset) XXXXX

( Less)Cost of improvement (i.e., post purchases capital expenses on improvement of

capital asset) XXXXX

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= Taxable Short-Term Capital Gains XXXXX

Taxability Of Long Term Capital Gains :

Full value of consideration (i.e., Sales consideration of asset) XXXXX

(Less)Expenditure incurred wholly and exclusively in connection with transfer of capital

asset (E.g., brokerage, commission, advertisement expenses, etc.). XXXXX

Net sale consideration XXXXX

Less: Indexed cost of acquisition (*) XXXXX

Less: Indexed cost of improvement if any (*) XXXXX

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Long-Term Capital Gains XXXXX

(Indexation is a process by which the cost of acquisition off an asset is adjusted against inflationary rise in the value of asset. For this purpose, Central Government has notified certain cost inflation index for calculating these amounts)