Capital Gain is simply the profit made from the sale, stocks, mutual funds, property, and bonds.
This profit is considered as income and hence charged to tax in the year in which the transfer of asset takes place. Capital asset means any kind of property held by an individual other than stock in trade, excluding personal goods such as jewelry, arts, and paintings, astrological collections, agricultural land, furniture or clothes.
The capital in which transfer of asset takes place on that capital gains tax implemented. It may be a short-term capital gain or long-term capital gain. The capital Gain tax will only be applicable if assets are sold by a person who inherits it not on that person who inherits an asset, not a sale only a transfer.
Calculating capital gains can be a complex and challenging task depending on the nature of assets and the financial transactions related to that assets. Also, capital gains tax depending on the assets class of that an individual and their holding period. Proper disclosure of the Income Tax Form needs to fill for a year. Holding periods are categorized for short term and long term capital gains.
Calculation of Short-Term capital gain:
- Start with the full value of consideration
- Deduct the following:
o Expenditure incurred wholly and exclusively in connection with such transfer
o Cost of acquisition
o Cost of improvement
- This amount is a short-term capital gain
Short-term capital gain = Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)
Calculation of Long-Term capital gain:
- Start with the full value of consideration
- Deduct the following:
o Expenditure incurred wholly and exclusively in connection with such transfer
o Indexed cost of acquisition
o Indexed cost of an improvement
- From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, and 54B
- This amount is a long-term capital gain
Long-term capital gain = Full value of the consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer).
Once you computed your capital gain, your next step is to fill the ITR form and include each and every detail of Capital gain. Capital gains are required to file ITR-2. Even if the capital gains earned are tax-exempt, they need to be disclosed in the return in schedule E1.
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