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Q.1 What incomes are charged to tax under the head Capital Gains? Any profit or gain arising from transfer of a capital asset during the year is charged to tax under the head Capital Gains. Q.2 What is the meaning of capital asset? Capital asset is defined to include: a) Any kind of p
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FAQ :
A capital asset includes any property held by an assessee, regardless of its connection to business or profession. However, stock-in-trade, consumables, raw materials for business, and personal effects (excluding jewellery and art) are generally not considered capital assets. Certain government bonds and special bearer bonds are also excluded.
A long-term capital asset is held for more than 36 months (or 12/24 months for specific assets like listed shares or unlisted shares respectively). A gain from selling such an asset is a long-term capital gain. A gain from selling a short-term capital asset is a short-term capital gain. Depreciable assets always result in short-term capital gains.
Long-term capital gain is calculated by subtracting the indexed cost of acquisition and indexed cost of improvement from the net sale consideration. Indexation adjusts the cost against inflation using cost inflation indices for the year of transfer and acquisition/improvement.
Short-term capital gain is computed by subtracting the actual cost of acquisition and cost of improvement from the net sale consideration. Unlike long-term capital gains, the benefit of indexation is not available for short-term capital gains.
For income tax purposes, 'transfer' of a capital asset includes sale, exchange, relinquishment, extinguishment of rights, compulsory acquisition, conversion into stock-in-trade, allowing possession of property under part performance of a contract, and any transaction that effectively transfers or enables enjoyment of immovable property.
Yes, certain capital gains can be exempt under Section 10. Additionally, taxpayers can claim exemptions by reinvesting capital gains into specified assets, such as purchasing or constructing another residential property (Section 54), buying agricultural land (Section 54B), or investing in specified bonds (Section 54EC).
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