Capital Gains
Introduction
Capital gain head is one of the five heads of income under the Income-tax Act, 1961, with its computation governed by the provisions in Part E of Chapter IV.
Chargeability
As per Section 45(1), profits or gains from the transfer of a capital asset are taxable in the year of transfer. However, not all transfers are taxable due to exemptions under Section 47, exclusions under Section 2(14), or reinvestment benefits.
Computation
Capital gain is calculated by deducting the following from the full value of consideration:
- Expenses wholly and exclusively related to the transfer
- Cost of acquisition
- Cost of improvementCapital gains taxable under Section 45(4), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution.
- Exemptions for reinvestment of capital gains or sale proceeds.
Classification of Capital Gain
The Gain is classified as short-term or long-term capital gains.
Tax Rates
- Long-term Capital Gains (LTCG):Taxable at 12.5% without indexation. However, resident individuals and HUFs can opt for a 20% rate with indexation for land, a building, or both acquired before July 23, 2024, and transferred on or after July 23, 2024.
- Short-term Capital Gains (STCG):Taxed at the applicable rates as per the assessee’s status. In certain cases, concessional tax rates apply.