What Is Capital gain ?

When you sell an asset for more than what you purchased for it, you have made a capital gain. There are many different kinds of capital assets, including stocks, bonds, precious metals and jewellery, as well as real estate.

How long you owned the asset before you sold it is a factor in determining how much tax you have to pay on the gain you made from selling it. Gains on investments can be classified as either long-term or short-term, and the tax regime of these different types of gains varies accordingly.

Short Term Capital Gains (STCG)

A profit made from the sale, transfer, or other disposition of personal or investment property (also known as a capital asset) held for a period of less than one year is considered to be a short-term gain. When an investment that has been held for less than a year for a profit, such as a stock, is sold, the result is referred to as a short-term capital gain. These gains are subject to regular income taxation at the same rate as applies to your personal income.

The amount of the short-term gain is the difference between how much the capital asset was worth when it was bought and how much it was sold for when it was sold. Short-term gains are taxed at the highest marginal tax rate of the person making the gain.

Formula for Short-Term Capital Gain

The difference between an asset's cost basis when it was bought and its cost basis when it was sold is used to figure out short-term capital gains. Then, based on this difference, the taxpayer's own marginal tax rate is calculated.

Short-term capital gain after paying off the taxes  = (sale price minus purchase price) x(1- tax rate)

Long Term Capital Gains (LTCG)

A profit made from the sale, transfer, or other disposition of personal or investment property (also known as a capital asset) held for a period of  one year or more than one year   is considered to be a long-term gain. When an investment that has been held for a year or more than a year for a profit, such as a stock, is sold, the result is referred to as a long-term capital gain. These gains are subject to regular income taxation at the same rate as applies to your personal income.

The amount of the long-term gain is the difference between how much the capital asset was worth when it was bought and how much it was sold for when it was sold. Long-term gains are taxed at the slightly lower  tax rate than short term capital gain.

Capital gain taxe rates in India.

  • Long Term Capital GainĀ :-

Long-term capital gain or loss occurs when an investor sells publicly traded stock more than a year after buying it (LTCG).

Before Budget 2018, long-term capital gains from the sale of equities or equities-oriented mutual funds were tax-free.

Budget 2018 eliminated this exception. Therefore, a 10% long term capital gains tax would be charged on a seller's profit when selling equities or equity-oriented mutual fund units over Rs.1 lakh (plus applicable cess). Additionally, the seller will not be able to take advantage of indexation.

  • Short Term Capital Gain:-

If a stock is sold within 12 months of purchase, the seller may have a short-term capital gain or loss (STCL). When shares are sold for more than they were bought, the seller gains short-term capital.

Short-term capital gains are taxed at 15% regardless of tax bracket.

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