Capital Gains Tax

Any profit or gain that arises from the sale of a capital asset is known income from capital gains. Capital gains tax is the tax imposed on the profit that an investor makes when the investment is sold off. This kind is applied only on capital assets that comprises stocks, bonds, jewellery, coin collections, real estate, land, building, house property,vehicles, patents, trademarks, leasehold rights, and machinery. Also, gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015 are capital assets. Jewellery includes ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel; Also, precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG)

An asset held for a period of 36 months or less is a short-term capital asset.

An asset held for more than 36 months is a long-term capital asset.

Short-term gains are taxed at the regular tax rate, while long-term gains are levied on profitable investments held for more than a year. This tax isn’t applied to unsold investments or unrealized capital gains.

There are special Capital Gains and exceptions on:

• Collectibles

• Owner-occupied Real Estate

• Investment Real Estate

• Investment Exceptions.

Following points should be kept in mind:

The property being capital asset may or may not be connected with the business or profession of the taxpayer. E.g. Bus used to carry passenger by a person engaged in the business of passenger transport will be his capital asset.

Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

Two examples are given below to make the points more clear.

Mr. Ram purchased a residential house in January, 2018 for Rs. 84,00,000. He sold the house in April, 2022 for Rs. 90,00,000. In this case residential house is a capital asset of Mr. Ram and, hence, the gain of Rs. 6,00,000 arising on account of sale of residential house will be charged to tax under the head “Capital Gains”.

Mr. Sunil is a property dealer. He purchased a flat for resale. The flat was purchased in January, 2019 for Rs. 84,00,000 and sold in April, 2022 for Rs. 90,00,000. In this case. Mr. Sunil is dealing in properties in his normal business. Hence, flat purchased by him would form part of stock-in-trade of the business. . In other words, for Mr. Sunil's flat isnot a capital asset and, hence, 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 gain.