What incomes are charged to tax under the head “Capital Gains”?
Any profit or gain arising from transfer of a capital asset during the year is charged to tax under the head “Capital Gains”.
What is the meaning of "Capital Asset"?
A capital asset may be defined to include property of any kind held by an assessee, whether or not connected with their business or profession
Whether Stock in trade and raw materials held by person for business is considered as capital Asset?
No. If they are held as stock in trade for the purpose of business, it is not considered as a Capital Asset.
What is the meaning of the term ‘long-term capital asset’?
Any capital asset held by a person for a period of more than 24 months immediately preceding the date of its transfer will be treated as long-term capital asset subject to few exceptions like in the case of shares.
What is the meaning of the term ‘short-term capital asset’?
Any capital asset other than long term capital asset is treated as short term capital asset
What is long-term capital gain and short-term capital gain?
Gain arising on transfer of long-term capital asset is termed as long-term capital gain and gain arising on transfer of short-term capital asset is termed as short-term capital gain.(The same is subject to certain exceptions)
Why capital gains are classified as short-term and long-term?
Capital gains are classified into short-term capital gain and long-term capital gain to determine the tax liability. In other words, the tax rates and computation provisions are different for long-term capital gain and short-term capital gain
What do you mean by the term indexation?
It is the process by which the cost of acquisition or improvement of a capital asset is adjusted against inflationary rise in the value of asset
What do you mean by cost of acquisition of capital asset?
It is the cost incurred in acquiring the capital asset. It includes the purchase consideration plus any expenditure incurred exclusively for acquiring the asset
How to compute indexed cost of acquisition?
Cost of acquisition × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of acquisition
How to compute indexed cost of improvement?
Indexed cost of improvement is computed with the help of following formula: Cost of improvement × Cost inflation index of the year of transfer of capital asset
Cost inflation index of the year of improvement
Is the benefit of indexation available while computing capital gain arising on transfer of short-term capital asset?
No, it is only available in case of long-term capital assets
Is there any special method to compute cost of acquisition of capital asset acquired before 1st April 2001?
In respect of capital asset acquired before 1st April 2001, the cost of acquisition will be higher of the actual cost of acquisition of the asset or fair market value of the asset as on 1st April 2001. This option is not available in the case of a depreciable asset.
What is Undisclosed Income?
Any income which has not been into consideration for the purpose of calculation of tax is known as undisclosed income.
What will be the cost of acquisition of any undisclosed income from such capital assets declared under Income Declaration Scheme, 2016?
The fair market value of the asset as on 1st June 2016 [which has been taken into account for the purpose of said declaration Scheme, 2016] shall be deemed as cost of acquisition of the asset. [This provision is applicable w.e.f. 1-4-2017]
What are the provisions relating to computation of capital gain in case of transfer of asset by way of gift, will, etc.?
If a person gifts his capital asset to any other person, then no capital gain will arise in the hands of the person making the gift. If the person receiving the capital asset by way of gift, will, etc. subsequently transfers such asset, capital gain will arise in his hands. Special provisions are designed to compute capital gains in the hands of the person receiving the asset by way of gift, will, etc. In such a case, the cost of acquisition of the capital asset will be the cost of acquisition to the previous owner and the period of holding of the capital asset will be computed from the date of acquisition of the capital asset by the previous owner. Also, note that in case gift received from a non-relative, there would be tax impact in the hands of the person who received the gift.
Do I have to pay any tax on the profit earned on sale of a house purchased 5 years ago?
Any gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income-tax Law has prescribed the method of computing capital gain arising on account of sale of capital assets. Thus, to check the taxability in this case, compute capital gain by following the rules laid down in this regard, and if the result is gain, then the same will be liable to tax.
What is the meaning of stamp duty value?
Stamp duty value means the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty.
What is the relevance of stamp duty value while computing capital gain in respect of transfer of capital asset?
While computing capital gain arising on transfer of capital asset, if the stamp value does not exceed 105% of actual sales consideration then the actual sale value is taken as full value of consideration.
Do I have to pay taxes on profit earned from sale of land or building or both?
Profits and gains earned from sale of land or building, or both are chargeable to tax under the head Capital Gain.
Is value determined by stamp duty authorities considered as full value of consideration in case of sale of land or building or both?
Yes, only if certain conditions are satisfied such as the asset transferred is land or building or both, sale consideration is less than the value as determined by the stamp duty authority for the payment of stamp duty and stamp duty value exceeds 105% of the consideration received or receivable on account of transfer.