CapitalGain2022
COMPUTATION OF TAXES ON CAPITAL GAIN:
Capital gain refers to any gain or profit that is earned by the individual from the sale of a capital asset. The profit that arises from the sale of the capital asset is taxed under the head of “Income from Capital Gain”. Capital gains tax does not apply to the inherited property, as there is only a transfer of ownership and no sale. Any asset which is received as a gift by way of will or inheritance is exempted from the Income Tax Act 1961. However, Capital gain Tax will be applicable if the individual who inherits the asset decides to sell it.
TYPES OF CAPITAL GAIN TAX :
The tax that is charged on the gains earned from the selling of capital assets is known as capital gains tax. The capital assets are generally categorized into two categories i.e.
short-term capital assets and long-term capital assets.
Reason for bifurcation of capital gains into long-term and short-term :
The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability, capital gains are to be classified into short-term and long-term. In other words, the tax rates for long-term capital gain (10%) and short-term capital gain (15%) are different.
EXAMPLE 1: Mr. A purchased a residential house in January 2020 for Rs. 84,00,000. He sold the house in April 2020 for Rs. 90,00,000. In this case, the residential house is a capital asset for Mr. A and, hence, the gain of Rs. 6,00,000 arising on account of the sale of the residential house will be treated as capital gains and will be charged to tax under the head “Capital Gains”.
EXAMPLE 2: Mr. B is a property dealer. He purchased a flat for resale. The flat was purchased in January 2021 for Rs. 84,00,000 and sold in August 2022 for Rs. 90,00,000. In this case, Mr. B is dealing in properties as his ordinary business. Hence, flat so purchased by him would form part of the stock-in-trade of the business. In other words, for Mr. B flat is not a capital asset and, hence, a gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gains.
EXAMPLE: (3) Mr. A is a salaried employee. In the month of April 2021, he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in January 2022. In this case, shares are capital assets for Mr. A. He purchased shares in April 2011 and sold them in January 2022, i.e., after holding them for a period of fewer than 12 months. Hence, shares will be treated as Short Term Capital Assets.
EXAMPLE: (4) Mr. B is a salaried employee. In the month of April 2020, he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in December 2011. In this case, shares are capital assets for Mr. B. He purchased shares in April 2020 and sold them in December 2021, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as Long Term Capital Assets.
EXAMPLE: (5) Mr. P is a salaried employee. In the month of September 2019, he purchased unlisted shares of ABC ltd. and sold the same in May 2020. In this case, shares are sold in the assessment year 2021-22. Hence, the period of holding for unlisted shares is to be considered as 24 months instead of 36 months. Mr. P purchased shares in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, shares will be treated as Short Term Capital Assets.
EXAMPLE:(6) Mr. B is a salaried employee. In the month of September 2019, he purchased a house and sold the same in May 2021. In this case, the house is sold in the assessment year 2022-23. Hence, the period of holding for immovable property is to be considered 24 months instead of 36 months. Mr. A purchased a house in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, the houses will be treated as Short Term Capital Assets.
EXAMPLE: (7) Mr. A is a salaried employee. In the month of April 2020, he purchased gold and sold the same in December 2021. In this case, gold is a capital asset for Mr. A. He purchased gold in April 2020 and sold it in December 2021, i.e., after holding it for a period of fewer than 36 months. Hence, gold will be treated as Short Term Capital Asset.
EXAMPLE: (8) Mr. B is a salaried employee. In the month of April 2018, he purchased gold and sold the same in August 2021. In this case, gold is a capital asset for Mr. B. He purchased gold in April 2018 and sold it in August 2021, i.e., after holding it for a period of more than 36 months. Hence, gold will be treated as Long Term Capital Asset.
EXAMPLE: (9) Mr. P is a salaried employee. In the month of September 2019, he purchased unlisted shares of ABC ltd. and sold the same in May 2020. In this case, shares are sold in the assessment year 2021-22. Hence, the period of holding for unlisted shares is to be considered as 24 months instead of 36 months. Mr. P purchased shares in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, shares will be treated as Short Term Capital Assets.
COMPUTATION OF TAXES ON CAPITAL GAIN:
Capital gain refers to any gain or profit that is earned by the individual from the sale of a capital asset. The profit that arises from the sale of the capital asset is taxed under the head of “Income from Capital Gain”. Capital gains tax does not apply to the inherited property, as there is only a transfer of ownership and no sale. Any asset which is received as a gift by way of will or inheritance is exempted from the Income Tax Act 1961. However, Capital gain Tax will be applicable if the individual who inherits the asset decides to sell it.
TYPES OF CAPITAL GAIN TAX :
The tax that is charged on the gains earned from the selling of capital assets is known as capital gains tax. The capital assets are generally categorized into two categories i.e.
short-term capital assets and long-term capital assets.
Reason for bifurcation of capital gains into long-term and short-term :
The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability, capital gains are to be classified into short-term and long-term. In other words, the tax rates for long-term capital gain (10%) and short-term capital gain (15%) are different.
EXAMPLE 1: Mr. A purchased a residential house in January 2020 for Rs. 84,00,000. He sold the house in April 2020 for Rs. 90,00,000. In this case, the residential house is a capital asset for Mr. A and, hence, the gain of Rs. 6,00,000 arising on account of the sale of the residential house will be treated as capital gains and will be charged to tax under the head “Capital Gains”.
EXAMPLE 2: Mr. B is a property dealer. He purchased a flat for resale. The flat was purchased in January 2021 for Rs. 84,00,000 and sold in August 2022 for Rs. 90,00,000. In this case, Mr. B is dealing in properties as his ordinary business. Hence, flat so purchased by him would form part of the stock-in-trade of the business. In other words, for Mr. B flat is not a capital asset and, hence, a gain of Rs. 6,00,000 arising on account of sale of flat will be charged to tax as business income and not as capital gains.
EXAMPLE: (3) Mr. A is a salaried employee. In the month of April 2021, he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in January 2022. In this case, shares are capital assets for Mr. A. He purchased shares in April 2011 and sold them in January 2022, i.e., after holding them for a period of fewer than 12 months. Hence, shares will be treated as Short Term Capital Assets.
EXAMPLE: (4) Mr. B is a salaried employee. In the month of April 2020, he purchased equity shares of SBI Ltd. (listed in BSE) and sold the same in December 2011. In this case, shares are capital assets for Mr. B. He purchased shares in April 2020 and sold them in December 2021, i.e., after holding them for a period of more than 12 months. Hence, shares will be treated as Long Term Capital Assets.
EXAMPLE: (5) Mr. P is a salaried employee. In the month of September 2019, he purchased unlisted shares of ABC ltd. and sold the same in May 2020. In this case, shares are sold in the assessment year 2021-22. Hence, the period of holding for unlisted shares is to be considered as 24 months instead of 36 months. Mr. P purchased shares in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, shares will be treated as Short Term Capital Assets.
EXAMPLE:(6) Mr. B is a salaried employee. In the month of September 2019, he purchased a house and sold the same in May 2021. In this case, the house is sold in the assessment year 2022-23. Hence, the period of holding for immovable property is to be considered 24 months instead of 36 months. Mr. A purchased a house in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, the houses will be treated as Short Term Capital Assets.
EXAMPLE: (7) Mr. A is a salaried employee. In the month of April 2020, he purchased gold and sold the same in December 2021. In this case, gold is a capital asset for Mr. A. He purchased gold in April 2020 and sold it in December 2021, i.e., after holding it for a period of fewer than 36 months. Hence, gold will be treated as Short Term Capital Asset.
EXAMPLE: (8) Mr. B is a salaried employee. In the month of April 2018, he purchased gold and sold the same in August 2021. In this case, gold is a capital asset for Mr. B. He purchased gold in April 2018 and sold it in August 2021, i.e., after holding it for a period of more than 36 months. Hence, gold will be treated as Long Term Capital Asset.
EXAMPLE: (9) Mr. P is a salaried employee. In the month of September 2019, he purchased unlisted shares of ABC ltd. and sold the same in May 2020. In this case, shares are sold in the assessment year 2021-22. Hence, the period of holding for unlisted shares is to be considered as 24 months instead of 36 months. Mr. P purchased shares in September 2019 and sold them in May 2021, i.e. after holding them for a period of fewer than 24 months. Hence, shares will be treated as Short Term Capital Assets.
Very helpful to calculate my tax
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