This post will discuss classification of capital asset, consequent tax implication and tax planning tips.
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Tax incidence on Capital Asset
Capital gains shall be chargeable to tax if following conditions are satisfied:
There should be a capital asset. In other words, the asset transferred should be a capital asset on the date of transfer;
It should be transferred by the taxpayer during the previous year;
There should be profits or gain as a result of transfer.
Types of Capital Assets
Short Term Capital Assets
Capital asset held for not more than 36 months immediately prior to the date of transfer shall be deemed as short-term capital asset. However, following assets held for not more than 12 months shall be treated as short-term capital assets:
Equity or preference shares in a company which are listed in any recognized stock exchange in India;
Other listed securities;
Units of UTI;
Units of equity oriented funds; or
Zero Coupon Bonds.
Note: Unlisted shares and immovable property (being land or building or both) held for not more than 24 months immediately prior to the date of transfer shall be treated as short-term capital asset.
Long Term Capital Assets
Capital Asset that held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as long-term capital asset.
Computation of Capital Gain
Short Term Capital Assets
Short-term capital gains shall be included in the gross total income of the taxpayer and will be taxed at the normal rates;
Short-term capital gains arising from transfer of Equity Shares, Units of an Equity Oriented Funds or a unit of a business trust which is chargeable to securities transaction tax shall be taxed at 15% under Section 111A;
Long Term Capital Assets
Long-term capital gains are subject to tax at 20%;
Long-term capital gains arising from transfer of listed equity share, or a unit of an equity oriented fund or a unit of a business trust as referred to in Section 112A shall be chargeable to tax at the rate of 10% in excess of Rs. 1 Lakh. (STT paid)
Long-term capital gains arising from transfer of listed securities, units or a zero coupon bonds (other than as referred above) shall be taxable at lower of following (STT not paid):
20% after taking benefit of indexation; or
10% without taking benefit of indexation.
Long-term capital gains arising to a non-residents or foreign company from transfer of unlisted securities shall be taxed at without giving benefit for indexation;
Help me save taxes on this
Exemptions against income from sale of capital asset can be availed through multiple options listed below:
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For further information, refer link.
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