What is capital gain Tax?

Who doesn’t want to earn money out of said investment, the capital gain is the same? You invest in mutual funds because you want to earn fixed or considerable return after maturity. Investing in property is a type of saving or earning through rent. People invest in properties so that they can sell it later at higher prices.

So, Capital Gain is gain that arises from capital assets like building, jewelry, house, vehicle, machinery, patent, leasehold rights or trademarks etc. This profit is considered as income and hence charged to tax in the year in which the transfer of the capital asset takes place. On an inherited asset no capital gain is applicable, because there is no sale only transfer. The capital gain tax will be applicable if a person who inherits property sell it.

What are capital assets?

Capital assets are patent, building, machinery, vehicles, land, trademarks, house property, leasehold rights and jewelry. This includes having rights in or in relation to an Indian company, followed by rights of management or control or any other legal right.

What are non-capital assets?

  • Special bearer bonds 1991
  • Goods held for personal use like clothes, furniture etc
  • Gold deposit bond issued under the gold deposit scheme 1991
  • Any raw material, stock or consumable material held for the purpose of business
  • Agricultural land in rural India
  • Gold bonds issues by central government 7% gold bonds 1980 or 6½% gold bonds 1977 or national defense gold bond 1980

Types of Capital Gain Tax Asset

Capital gain assets are of two types:-

  • Short-term capital asset

The short-term capital asset is an asset which is held for not more than 36 months or less. The criteria of 36 months have been reduced to 24 months. The 24-months criteria are applicable to immovable properties like a house, building, land from FY 2017-18.

Also, if you are selling house property after holding it for complete 24 months of the period, any income arises will be treated as long-term capital gain.

  • Long-term capital asset

The long-term capital asset is an asset that is held for more than 36 months. The criterion of reduced 24 months is not applicable to a movable property like mutual funds, bonds, jewelry etc. This movable property will be classified as a long-term capital asset if held for more than 36 months as earlier.

If any asset held for 12 or less month then, it will be considered as a short-term capital asset. This rule is applicable if the date of transfer is after 10th July 2014 irrespective of purchase.