House to Vehicles: What Are Capital Gains Tax on Sale of Assets?

The profit earned by selling a capital asset is termed as capital gains.

3 min read
Proper tax planning can help save tax on rental income, that is the largest source of income after salary. 

Come 1 February and Finance Minister Nirmala Sitharaman will present her first budget for a full financial year.

In the build-up to the big day, The Quint will keep you abreast of all the concepts and technical terms that will help you understand the (inevitable) jargon in the Budget speech.

Let us get acquainted with the term Capital Gains Tax.

What is Capital Gains Tax?

The profit earned by selling a capital asset (for eg a house) is termed as a capital gain. Capital gains are considered part of the income earned by an individual, and the tax levied on it, is known as ‘capital gains tax’.

There are two types of capital gains: long term and short term. The rules for classifying various forms of capital assets into long term and short term and the tax imposed on them are different.

What are Capital Assets?

All sorts of movable and immovable properties such as land, building, house, vehicles, jewellery, shares, patent, trademark and machines etc, come under the ambit of capital assets. However, clothes, furniture and agricultural land are not considered as capital assets.

House to Vehicles: What Are Capital Gains Tax on Sale of Assets?
(Photo: The Quint)

The duration for which an individual owns a particular capital asset determines whether the gains earned from it are long term capital gains or short term capital gains. If the gains go beyond the exemption limit, they become taxable.

Capital Gains on Immovable Properties

If a land, building or house is sold after owning it for less than 24 months, then any increase from the purchase price to the sale price is termed as a short term gain. Prior to the 2017-18 financial year, the duration was 36 months.

Profit earned from the sale of an immovable property owned for more than 24 months is considered a long term capital gain.
House to Vehicles: What Are Capital Gains Tax on Sale of Assets?
(Photo: The Quint)

Capital Gains Tax on Shares or Mutual Funds

In case of listed shares and equity mutual funds, the profits earned for owning them for up to 12 months comes under short term gains.

For short term gains, the rate of tax levied is 15 percent, while that for long term gains above Rs 1 lakh is 10 percent.

Capital Gains Tax on Other Capital Assets

As for assets like jewellery and debt mutual funds, profits made by selling them after owning such assets for less than 36 months come under short term capital gains; beyond that period, they are considered long term capital gains.

Apart from properties, any change in the rules related to capital gains is likely to affect those involved in the trading and investment of shares and mutual funds. Share market traders, for instance, are demanding the doing away of long term capital gains on equities.

(Translated by Abhik Deb. Click here to read the original article in Hindi)

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