As per Indian Income Tax laws, a capital gain tax is a voluntary tax payable on the sale of assets, investments, capital accumulation, and productivity.
A Capital Gain can be defined as an any income generated by selling a capital investment. A capital investment can be anything from business stocks, paintings, and houses to family businesses and farmhouses. The 'gain' here, refers essentially to the difference between the price originally paid for the investment and money received upon selling it. A capital gain can be categorized under the following heads, depending on how long the investment has been under your possession:
Short-term: If you sell an investment within three years from the date of its purchase, it will be defined as a short-term capital gain. But if the investment is in the form of mutual funds/company shares, the allowed time duration is one year.
Long-term: If you sell an investment after three years from the date of its purchase, it will be defined as a long-term capital gain. However, selling mutual funds and company shares after one year will also constitute a long-term capital gain.
Taxation
In case of a short-term capital gain related to sale of property, the gained amount needs to be added to your total annual income. Then you'll be need to pay capital gain tax, depending on the total taxable amount.
In case of a long-term capital gain related to sale of property, factors such as inflation are usually taken into consideration. The seller of the property needs to pay a tax not just on the real capital gain, but also on the projected gain as a result of inflation.
You need to pay a
capital gain tax on all your capital gains, though the government will allow you only a partial tax deduction in case you suffer a loss as a result of selling your investment.
Capital gain tax rates
For short-term capital gains, you will be taxed depending on the tax slab relevant to you after you have added the capital gain to your annual income. But if the transaction was levied with Securities Transaction Tax (STT), your gain will be taxed 10%.
For long term capital gains, you will be taxed 20%. But if the transaction was levied with STT, you need not pay any tax on your gain. In case of long term capital gains, you can either calculate your capital gain using an indexed acquisition cost, or you can choose not to opt for indexing.
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