Capital gain is the gain or profit due to the selling of capital assets. It is the profit that occur in the market when the selling price is higher than the purchase price. These gains are always taxable in short term. Suppose you brought a land for 100 lakhs, over the time due to developmental aspects land price rose by 20 %. So that land can be sold for 120 lakhs, which means 20 lakhs is your capital gain.
Similarly, Capital loss is the counter for capital gain. If the selling price of the asset is less than purchase price there occurs the capital loss.
Where does Capital Gain occur?
- In Real Estate- Here the gain on capital is the result of longer term invest, usually more than 1 year. A land purchased for a certain amount is kept as such for longer period for rise in its value.
- In Mutual Funds- If the security amount of the fund rise above the purchased price, there happens a capital gain. But for this money to be taxable, the security must be sold.
- In share or stock market- The higher selling price of stock or share results in capital gain.
Tax Exemptions for Capital Gains, In Indian context.
According 2008 tax regulations, equities older than 1 year are eligible for tax exemption. If these equities are traded through National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) market then they will get a tax relief and only need to pay the security transaction tax (SST). SST is usually 0.017% to 0.1% in India. Holdings like land, building, bank deposits also get this exemption if long term (usually 3 years or more).
