Capital Gains

By: Ahsan Abdullah

Selling off property

Men from time to time have had a habit of collecting valuable things for use as well as for possession. Many find the idea of purchasing assets as a method of saving for future. Land, buildings, Gold, Vehicles and many other properties make a way to most of the people as reserves for future financial cringe. “Save for a rainy day”, is a proverb that literally conveys the importance of such reserved savings.

So what happens when those assets are sold off? Can one fully eat up the sale proceeds or is there an inheritance claim over them? What claim does the income tax department have on people’s property? These all are the FAQs we, as financial consultants, face in this juncture. IT act clearly sets out guidance on Capital gains. Let’s have a watch:

What are CAPITAL ASSETS?

  1. Property Held
  2. Securities held by FII invested as per the SEBI Act 1992

Exempted Capital Assets

  1. Stock in trade
  2. Personal effects

Assets that do not count as Personal Effects:

  • Jewellery
  • Archaeological Collections
  • Drawings
  • Paintings
  • Sculptures
  • Work of art
  • Rural agricultural land
  1. Specified gold bonds issued by Central Government
  2. Special Bearer Bonds
  3. Gold Deposit Bonds issued under gold deposit scheme 1999 or Deposit certificates issued under gold monetisation scheme 2015.

The categorisation of Capital Assets

*Listed securities = Listed shares, Units of Equity oriented mutual funds, Debentures, and government bonds

Capital gain on transfer of equity shares or equity oriented mutual fund units
LTCG arising on transfer of an equity share or a unit of an equity oriented mutual fund or a unit of a business trust shall be taxed @20% without indexation.

Computation of Capital Gains and Taxes

Expenses on the transfer of assets, cost of acquisition and improvement to the capital assets are allowed as a deduction from the total value of the consideration received on sale. If the asset sold are long-term capital assets, indexation benefits for inflationary changes are allowed.

Tax on LTCG

Shares u/s 112A 10% *
Other Assets 20%*

Tax on STCG

STT not Applicable Normal slab/rate*
STT Applicable 15%*

* Plus Cess @4% applicable from AY 2019-20

Tax benefits such as deductions under chapter VIA is not available for any assessee. NRIs lose an extra opportunity of adjusting their capital gains from basic exemption limit, which is exclusively available for resident individuals.

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