What is Income Tax on Capital Gains?
Subject to certain exceptions, capital gain is computed in the following manner :-
Profit arising from sale of capital assets is Capital Gains.
Major Capital Asset is Property. It means home/ flat/ office/ plot/ Agricultural Land.
CAPITAL GAINS
Types of Capital Gains – There are two types of Capital Gains
1. Long Term Capital Gains
2. Short Term Capital Gains
Capital assets are classified as Long Term or Short Term with reference to the period of holding of the assets till it is transferred. The classification is made on the following basis :-
When a person holds the Property for more than 36 months then the gains/profit are considered as Long Term Capital Gains. In case the person has held them for less than 36 months the gains are considered as Short Term Capital Gains.
In case a person has incurred a loss in either of the above scenarios, then it is considered as Long Term Capital Loss and Short Term Capital Loss respectively.
Income Tax
In Short Term Capital Gains, the profit added to salary and tax on according to the slab that is 10%, 20%, 30%..!
Long Term Capital Gains from above properties are taxed at the rate of 20% with cost of indexation.
Cost of Indexation is calculated keeping inflation effect in mind.
Hence,
Long Term Capital Gain = (Sale Price – Expenses ) – Indexed Cost of Acquisition.
where, Indexed Cost of Acquisition = (Purchase Price+Expenses) * (Cost Inflation Index during the year of sale / Cost Inflation Index during the year of purchase)
IMPORTANT NOTE:
Subject to certain exceptions, capital gain is computed in the following manner :-
According to Indian Income Tax department,
Capital Gain = ( Full value of consideration received or accrued on transfer of capital asset) - ( Cost of acquisition of capital assets + Cost of improvement of capital assets + Expenditure incurred wholly and exclusively in connection with the transfer of capital asset such as stamp duty, registration charges, legal fees, brokerage etc.)
In respect of long term capital assets, cost of acquisition and cost of improvement should be worked out as under:-
Cost inflation index of the year of improvement The cost inflation index is notified by the Central Govt. for every year and it is given on Tax information page of Income Tax department site.
COST INFLATION INDEX
Financial Year Cost Inflation Index
2010-2011 711
2009-2010 632
2008-2009 582
2007-2008 551
2006-2007 519
2005-2006 497
2004-2005 480
2003-2004 463
2002-2003 447
2001-2002 426
2000-2001 406
1999-2000 389
1998-1999 351
1997-1998 331
1996-1997 305
1995-1996 281
1994-1995 259
1993-1994 244
1992-1993 223
1991-1992 199
1990-1991 182
1989-1990 172
1988-1989 161
1987-1988 150
1986-1987 140
1985-1986 133
1984-1985 125
1983-1984 116
1982-1983 109
1981-1982 100
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