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| Capital Gains
The profit on sale of Capital asset is treated as Capital Gains. The Capital Assets (which are not held as stock - in - trade) are Shares, Debentures, Government securities ,Bonds Units of UTI and Mutual Funds ,Immovable property, jewellery, archeological collections, drawings, paintings, sculptures, any work of art etc.
The Capital gains are segregated into long term capital gains and short term capital gains in the following manner :- |
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| Capital Asset |
Short-term |
Long-term |
| Shares held in a company, listed securities, units of UTI or Mutual Fund or zero coupon bonds. |
If held for a period not exceeding 12 months from the date of acquisition.
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Capital Asset which is not a short term capital asset is long term capital asset. |
| All other Capital Assets like, immovable property, Jewellery etc |
If held for period not exceeding 36 months from the date of acquisition
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Capital asset which is not a short –term capital asset is long term Capital Asset. |
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| Section 48 of the Income Tax Act, 1961 provides for mode of computation of capital gains. This is explained in form of illustration as under:
Capital Gain Computation
Full Value Consideration |
9,50,000/- |
Stamp Duty Valuation |
10,00,000/- |
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Sales consideration or Stamp Duty valuation as
per Sec 50 C, whichever is higher |
10,00,000/- |
Less: |
Expenditure incurred wholly and exclusively
In connection with such Transfer |
(50,000) |
Net sales Consideration |
9,50,000 |
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Short Term Capital Asset \ Long Term Capital Asset |
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Less: |
Cost of Acquisition \ Indexed Cost of Acquisition |
(4,50,000) |
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Cost of Improvement \ Indexed Cost of Improvement |
(3,00,000) (7,50,000) |
Taxable Capital Gains |
2,00,000 |
This is how the Capital gain is to be worked out for the purpose of Income Tax. However, the matter is not as simple as it appears to be at the first instance. All the components of above formula are very complex and requires thorough knowledge.
TOTAL EXEMPTION FROM LONG TERM CAPITAL GAINS TAX
Under the provisions of the Income Tax Act, 1961 Capital Gains made on
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Sale of Equity Shares or units of Equity oriented Mutual fund being a Long term Capital Asset and
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Such transaction is chargeable to securities transaction tax is entirely exempt from tax.
Note:
1. Cost of Acquisition :
Cost of Acquisition in case of long term capital asset other than Specified Asset** means Indexed Cost of Acquisition.
2. Indexed Cost of Acquisition:
For long term capital asset other than Specified Assets **, the Cost of Acquisition means Indexed cost of Acquisition. The system helps you to claim higher cost than actual cost of acquisition. The term “Indexed cost of Acquisition“ is the amount which bears, to the cost of acquisition, the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on April 1, 1981,whichever is later.
The working of the Cost of Acquisition has many riders and provisions under the Income Tax Act, 1961 and hence it is not stated here e.g. cost in forex, actual Cost of Acquisition for assets received as gift or inheritance, statutory cost as on 01/04/1981. If there is any specific query the same shall be replied. But it is good to know that an assessee is permitted as deduction of an amount higher than actual cost under normal provisions.
**Debentures and Bonds (except capital index bonds issued by the Government). |
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CAPITAL GAINS TAX EXEMPTIONS ON REINVESTMENT
NRIs are entitled to claim exemption from the tax if they reinvest long term capital gains /net sale consideration into following assets.
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| LONG TERM ASSET SOLD |
REINVESTMENT IN |
CONDITIONS |
AMOUNT TO BE INVESTED * |
| ALL LONG TERM CAPITAL ASSET |
TAX SAVING BOND issued by
a. National Highways Authority of India
b. Rural Electrification Corporation Ltd ( REC) |
1) Investment is to be made within Six months from the date of transfer of asset.
2) New asset is to be held for a period of 3 years.
3) You cannot borrow against security of this bonds |
Amount equivalent to Capital Gains or Rs. 50 lakhs whichever is less. |
| ANY LONG TERM CAPITAL ASSET OTHER THAN RESIDENTIAL HOUSE |
RESIDENTIAL HOUSE |
There are many conditions, which shall be provided at request. |
Amount equivalent to Net Sales consideration |
| RESIDENTIAL HOUSE |
RESIDENTIAL HOUSE |
There are many conditions, which shall be provided at request. |
Amount equivalent to Capital Gains |
* Please check with us the quantum of exemption if the amount required is not entirely reinvested. |
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| SET-OFF
OF GAINS AGAINST LOSSES:
When NRI has incurred loss on sale of shares and later when he sells other shares where he has capital gains, in such a case the NRI is eligible to claim set off provided both the transactions are in the same year i.e. during April- March financial year. In this case, NRI can apply for Tax Exemption Certificate prior to the sale of shares of second lot where he has capital gains to ensure set –off and Nil or lower deduction of tax .If the loss cannot be set off or entirely be setoff in the same year, it is allowed to be carried forward to subsequent year provided return of income is filled within the prescribed time limit. |
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TAX RATES AND T.D.S.
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Long - term Capital gain |
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| Capital Gains |
Equity shares |
Other assets |
Mutual Fund |
| Listed |
Unlisted |
Immovable Property, Jewellery etc |
Equity oriented |
Debt oriented |
| Securities Transaction Tax is paid |
Others |
Securities Transaction Tax is paid |
Others |
| Rate of T.D.S. |
NIL |
11.33% |
22.66% |
22.66% |
NIL |
11.33% |
11.33% |
| Rate of Tax |
NIL |
11.33%
(Without indexation)
22.66%
(With indexation) |
22.66% |
22.66% |
NIL |
11.33%
(Without indexation)
22.66%
(With indexation) |
11.33%
(Without indexation)
22.66%
(With indexation) |
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Short - term Capital Gain |
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| Capital Gains |
Equity shares |
Other assets |
Mutual Fund |
| Listed |
Unlisted |
Immovable Property, Jewellery etc |
Equity oriented |
Debt oriented |
| Securities Transaction Tax is paid |
Others |
Securities Transaction Tax is paid |
Others |
| Rate of T.D.S. |
11.33% |
33.99% |
33.99% |
33.99% |
11.33% |
33.99% |
33.99% |
| Rate of Tax |
11.33% |
Max:
33.99%**
(Slab Rates) |
Max:
33.99%**
(Slab Rates) |
Max:
33.99%**
(Slab Rates) |
11.33% |
Max:
33.99%**
(Slab Rates) |
Max:
33.99%**
(Slab Rates) |
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** Such income is to be clubbed with all other income and tax will be charged as per prescribed rate given below : |
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| Income (In Rs.) |
Tax Liability (In Rs.) |
Surcharge |
Education Cess |
| Upto Rs. 1,10,000 |
Nil |
Nil |
Nil |
Between Rs. 1,10,000 -
Rs. 1,50,000 |
10% of income in excess of Rs. 1,10,000 |
Nil |
3 % of Income Tax |
Between Rs. 1,50,000 –
Rs. 2,50,000 |
4,000 + 20% of income in excess of Rs. 1,50,000 |
Nil |
3 % of Income Tax |
| Above Rs.2,50,000-Rs 10,00,000 |
24,000 + 30% of income in excess of Rs. 2,50,000 |
Nil |
3 % of Income Tax |
| Above Rs 10,00,000 |
Rs.2,49,000 +'30% of (total Income minus Rs. 2,50,000 |
10% of
Income Tax |
3% of Income Tax & Surcharge |
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Note:
For Women there is no tax upto Rs.1,45,000 and for senior citizens it is Rs. 1,95,000 /-
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