One of the five heads of income, at the time of calculating the taxable income of a taxpayer, is the income from capital gains. Profits made at the time of selling any capital assets, such as property, shares, bonds, gold and any other tangible assets are known as capital gains and any such income is to be included under this head. Whether you have made gains or incurred losses, it is mandatory to disclose capital gains at the time of filing income tax returns for the year in which it is made.
A capital gain is a difference in the price of sale value and purchase value of the asset, but, the calculation of tax liability is different for each capital asset. Further, capital gains are classified as either short-term capital gains or long-term capital gains, depending upon the holding period of the asset.
Calculation of long-term capital gains of various assets
Long-term capital gains in case of sale of Property
Profits arising from the sale of any property such as a land, building, house, apartment after a period of two years are known as long-term capital gains. The applicable tax rate on such gains is 20% with indexation benefit.
Long-term capital gains are calculated as under
| Sale Price | |
| (-) | Indexed cost of acquisition |
| (-) | Indexed cost of improvement |
| (-) | Expenses incurred for such sale |
| = | Long-term capital gains |
Where,
- Sale price is the actual selling price of the property
- Indexed cost of acquisition is calculated as cost of acquisition x CCI of the year of transfer/CCI of the year of acquisition
- Indexed cost of the improvement is calculated as cost of improvement x CCI of the year of transfer/CCI of the year of improvement
- Expenses incurred could be any expenses incurred at the time of acquiring or selling the property such as brokerage, legal fees, registration fees and stamp charges.
The CCI or Cost Inflation Index is notified by the government for each year.
Long-term capital gains on the sale of property are then taxed at 20% plus applicable cess and surcharge. However, if the amount earned as capital gains is reinvested in the purchase of a reinvested in the purchase of residential property or specific government bonds within a stipulated time frame then you are not liable to pay any capital gains tax on it.
Long-term capital losses arising in case of sale of property can be carried forward for 8 consecutive years and should be shown as the capital loss at the time of filing returns.
Long-term capital gains in case of Shares and Equity mutual funds
From 1st April 2018, a new section 112A was introduced, and, as per that, any gains in excess of Rs.1 lakh from the sale of shares or equity oriented mutual funds after 12 months shall be considered as long-term capital gains and taxed at 10% without any indexation benefits.
The long-term capital gains are calculated as
Actual selling price – Cost of acquisition – Expenses incurred (brokerage)
The cost of acquisition for all the investments made before 1st February 2018 would be the higher value of
- The actual purchase price of the asset, and
- The lower of
- The fair market value of the asset (the highest price of the share on 31st January, 2018.)
- The sale value of the asset
After calculating the long-term capital gains on all the equity investments sold in a year and deducting Rs. 1 lakh from the overall gains. On the gains over and above 1 lakh, you will have to pay long-term capital gains tax of 10% plus cess and surcharge without any indexation benefit.
A long-term capital loss in case of equity investments cannot be carried forward.
Long-term capital gains for debt funds
For debt-oriented schemes, the holding period and tax is different from that of equity funds. Capital gains made from selling debt-oriented fund after 36 months are considered as long-term capital gains and the applicable tax on such gains is 20% with indexation benefit.
Long-term capital gains on Gold and bonds
In case of gold held in any form bullion or jewellery sold after a period of 3 years, then any gains made on such a sale is considered as long-term capital gains and taxed at 20% with indexation benefits.
There are many different types of bonds available for investments and the rules for computation of tax for each bond are different depending upon the terms and conditions of the issuer. There are different rules for bonds depending on the issuer and other features. Capital gains arising from listed corporate bonds sold after a year are considered as long-term capital gains and taxed at 10% without any indexation benefit. Apart from these, there are specific tax-free bonds which are covered under Section 10(15) and gains from such bonds are exempt from tax.
If you have income through capital gains in a financial year in any of the capital assets, then it is mandatory to report the same. Failing to report such gains and avoiding taxes will lead to a heavy fine and penalty.