Types of Capital Assets, Capital Gain and Taxe
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A capital gain is any profit made from the sale of an item classified as a capital asset. Capital assets include things like machinery, leasehold rights, patents, trademarks, cars, land, buildings, and real estate. The income category includes the profit that was made on the sale of a capital asset. The tax on capital gains is imposed when an investor sells an investment and makes a profit. It is due for tax in the year in which the investment is sold. Consequently, a tax must be paid on the gain arisen /income earned.
Types of Capital Assets
The following is a list of the two categories of capital assets:
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Short-Term
Short-term assets are those that have a holding period of less than 36 months. The period is less than 24 months in the case of immovable property. However, in the case of the sale of securities, shares, UTI Units, Zero Coupon Bonds, and equity-oriented mutual funds, the period for calculation of short-term capital gain is less than 12 months. Such an asset would generate a capital gain upon sale, which would be subject to the relevant short-term capital gains taxes.
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Long-Term
A long-term asset is one that has been held for more than 36/24/12 months, as the case may be. The proceeds from the sale of such an asset would constitute long-term capital gains and would be subject to the relevant tax.
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Tax implications on the sale of capital assets:
An assesse is liable to pay tax on capital assets when any capital gain arises on the sale of these assets.
Types of Capital Gain Taxes:
1. Short-Term:
Short-term capital gain taxes are levied on capital gains from the sale of assets held for a short period. They shall be included in the assesse’s income and taxable as per the normal tax slab rate if security transaction tax (STT) is not paid. If STT is not paid, it will be taxed at a rate of 15%.
2. Long -Term:
Long-term capital gain taxes are levied on capital gains from the sale of assets held for a longer period (more than 36/24/12 months). They will be taxed at various rates.
On sale of Equity Shares/Units of equity oriented mutual funds – 10% over and above Rs.1 Lakh
Other than equity shares/ units of equity oriented mutual funds – 20%
If a person in India inherits a property and there is no sale, no capital gains tax is due under the Income Tax Act. However, if the inheritor decides to sell the property, tax will need to be paid on the sale’s earnings.
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