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If you are an investor, then the first step required is to build an investment portfolio, in sync with your financial goals and risk appetite. You must also have a thorough understanding of the market. This requires knowing about the key concepts, like what is capital gain? Read on to know more about capital gain – an essential concept for all investors and traders.
Also Read: Capital gains accounts scheme
Capital assets don’t include personal goods, like clothes, furniture and household items. Any raw materials or consumables held for production purposes along with agricultural land in rural pockets don’t come under the category of capital assets. Some of the gold bonds and special bearer bonds also are also outside the ambit of being defined as capital assets.
To know what capital gain is, you need to know about the types of capital assets. There are two types of capital assets, namely long-term capital assets and short-term capital assets. An capital asset held for a period of 36 months or less is a short-term capital asset. However in case of a equity share/security listed in a recognized stock exchange in India or a unit of the UTI or a unit of an equity oriented fund or a zero coupon bond, is being held not more than 12 months will be considered short capital assets and further, in the case of a share of a unlisted company, or an immovable property, being land or building or both, is being held not more than 24 months from its date of purchase will be considered short term capital asset.
And long-term capital asset" means a capital asset which is not a short-term capital asset
Tax on capital gains: For a proper answer of what is capital gain, you need to know about its taxation structure. The government has stipulated rules both for short-term and long-term capital gains. You can refer to the chart given below:
|Type of capital gains tax||Taxation rate|
|Long-term capital gains tax on sale of capital assets, except from sale of equity shares or equity funds||20%|
|Long-term capital gains tax on sale of equity shares or equity funds 10%, provided the capital gain is above Rs 1 lakh in Financial year||10%, provided the capital gain is above Rs 1 lakh in Financial year|
|Short-term capital gains tax on sale of equity shares or equity funds where Securities Transaction Tax (STT) is applicable||15%|
|Short-term capital gains tax on sale of assets where Securities Transaction Tax (STT) is not applicable||Taxation as per your income tax slab|
|Long-term capital gains on sale of debt funds||20% along with indexation|
|Short-term capital gains on sale of debt funds||Taxation as per your income tax slab|
Important note about capital gains tax: You must remember that if you receive a capital asset through inheritance, or as a gift, the profits accruing from it will not be within the ambit of capital gains tax.
Deductions made while calculating capital gains: According to the rules, certain deductions are allowed while calculating capital gains tax. Typically, in the case of long-term capital gains, the indexed cost of acquisition and improvement is deducted to reach the true or fair estimate of your profit. This allows you to make adjustments as per the existing inflationary trends, while taking into account the cost of improvements that you might have made in the capital asset. The expenditure of getting the asset transferred in your name is also adjusted.
Conclusion: Thus, it is important to know what capital gain is, before beginning your investment journey. Always remember to choose a viable investment plan for your hard-earned money. You can select the Invest 4G plan from Canara HSBC Life Insurance, which provides the benefit of market-linked returns along with protection of life cover. This ULIP plan adds to your savings through wealth and loyalty boosters.