What is Capital Gains Tax, Types & Calculations?

Capital gains tax is the tax that is applicable to the profit by selling the capital assets. This can be STCG which is Short term capital gains tax or LTGC Long term capital gains tax depending on the holding period.

  • STCG is depended on the slab rates.
  • LTGC for stocks is 10% and also on equity mutual funds, for debt mutual funds, real estates, and other assets it is 20%. Depending on the asset to asset the classifying tax holding period will change. The indexation benefit will not be there for LTCG on equity/equities.

The LTGC applies a holding period for more than 2 years for real estate, more than three years for debt funds, and more than one year for equity/stocks mutual funds. More information about capital taxes is given here.

The following content contains the details about the

  1. Capital Gain
  2. Exemptions of Capital Gains Tax.
  3. Capital Gains Calculation.
  4. Capital gains Indexation.
  5. Methodology
  6. Capital Asset.

Capital Gains Tax Calculations –

A net profit that is made after selling any capital asset by the individual who invested in it before selling is the capital gain. The whole profit gained on this asset is called the capital gains. To be eligible for the taxation the transfer of those capital assets must have to be done in the previous financial year.

There are three fundamental elements for this complete procedure which are

  1. Property/ gold as the asset,
  2. that capital asset transfer,
  3. finally, the transfer of the gained profit.

capital gains tax

Capital Gains Tax Exemptions.

The given details here about exemptions can be claimed either partially or fully. You can clearly understand the tax exemptions by the following example- If the buying price of the asset is 70 lakhs and the proceed of that asset is Rs.90 lakhs. The gained profit is 20 lakhs. If you deposit fifty lakhs as the exemptions, in the gained 20 lakhs profit the half of your capital gains will be exempted and the other half 10 lakhs will be taxable.

Capital Gains Calculation-

Depending on the nature of the capital gain the calculation of the gain is done. The procedure of the calculation is as follows-

LTGC (Long term capital gains) are applicable as follows

LTGC for stocks is 10% and also on equity mutual funds, for debt mutual funds, real estates, zero-coupon bonds, units of UTI, listed bonds, and other assets it is 20%. Depending on the asset to asset the classifying tax holding period will change.

STGC (Short-term capital gains taxation)- It is calculated adding the capital gain to the tax payer’s income. As per the tax bracket of the individual only the income tax is applicable.

Computing Capital gains methodology

LTCG- It is calculated as A-(B+C+D)

  •  A is Full value of the consideration received or accruing
  • B-is Indexed cost of the acquisition
  • C is the indexed cost of the improvement.
  • D is the cost of expenditure incurred completely and the exclusive connection with the transfer.

Whereas A*(B/C) is the indexed cost of acquisition. In this

  • A is the cost of acquisition,
  • B-is CII of the transfer year and
  • C is the CII of the Improvement year.

STCG Tax is calculated as-
STCG tax = A-(B+C+B) whereas

  • A is the assets sale value,
  • B is the acquisition cost,
  • C is the improvement cost and
  • D is the cost of the expenditure.

Capital gains Indexation.

To reduce the tax liability of the effect of tax inflation was brought. The calculation of the tax indexation is done using CCI. Income Tax Department will maintain this CCI index. For the financial year of 2018-2019, the CCI is 280. For better understanding here is the example, imagine that you have purchased a debt fund in the year of 2013 at the rate of Rs.100 and then you sold in the year of 2018 at the rate of Rs.150. as u sold it after 3 years of purchase you will get good gains and also 20%
tax is applicable.

Capital Asset-

The capital assets are as follows, any immovable property including vehicles, jewelry, machinery, intellectual-property such as trademarks and patents, leasehold earnings.

Types of Capital Gains-

There are two types of capital gains which are
1. LTCG Long-term Capital gains
2. STCG Short-Term Capital Gains.

STCG is depended on the slab rates. LTCG for stocks is 10% and also on equity mutual funds, for debt mutual
funds, real estates, and other assets it is 20%. Depending on the asset to asset the classifying tax holding period will
change. The indexation benefit will not be there for LTCG on equity/equities.

  •  The LTGC applies holding period for more than 2 years for real estates.
  • More than three years for debt funds and more than 1 year for equity/stocks mutual funds.
  • More information about capital taxes is given here.