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What is Capital Gains Tax?

Capital gains tax

What is Capital gain?

A capital gain occurs when you sell something for more than you spent to purchase it. This occurs so often with investments, but it applies to personal property, too. Buy a used car for 60000 INR and sell it for 70000 INR a week later, and you have a 10000 INR capital gain – same as if you bought stock for 60000 INR and sold it 70000 INR. Every taxpayer should understand a few basic facts about capital gains taxes.

What is Capital gains tax?

A mode of tax imposed on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes while selling the capital asset for a price that is higher than the purchase price.

Capital gains taxes are only initiated when an asset is appreciated, not while it is held by an investor. An investor can own shares that realized every year, but the investor does not acquire a capital gains tax on the shares until they are sold.


Short term capital gains Tax(STCGT) – Tax imposed on capital gains arising on transfer of short term asset.

Long term capital gains Tax (LTCGT) – Tax imposed on capital gains arising on transfer of long term property.

Capital Tax Eligibility

The Tax payer must have owned a capital asset.

The Tax payer must have moved the capital asset in the last year. Hence it is not necessary that property should have been a capital asset on the date of acquirement (date when property was owned by the investor) of the asset by the Tax payer. There must have been profit or gains as result of such transfer.


Tax deferment:

One advantage of capital-gains taxes is that tax expenses are delayed until the asset is sold. For instance, a real-estate depositor need not payback taxes on equity gained in a property investment till he gives the property for gain. Inaddition, a securities investor does not pay capital-gains taxes on gain resulted from stocks and bonds till he confronts a distribution or gives the assets. Owners pay taxes only in the tax period they appreciate the profit. It is unlike than income taxes which we pay tax every time you obtain an income . Read : What is Tax Deferment?


Profit Reduction:

  • According to Internal Revenue Service, almost everything we own for personal purpose or investment usage is a capital property. A downside on owning capital assets is when they are given away for gain, the IRS needs that you report profit as revenue.
  • This difficulty of the tax is that it may decrease the general gains realized from sale of the asset.

Double Taxation

  • Property owners or venturers, for instance, are liable to report capital profit from the trade of real estate on together central &state income-tax returns in many states.
  • The extra tax is a disadvantage.


To summarize, for lucid investment, Long-term capital-gains taxes are further advantageous than short-term capital-gains taxes ,as its rates typically yields savings.

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  1. Taxes on capital gains might not be a very feasible for the common people. This because pay certain tax to the government when you buy a capital be it a vehicle or a house. So the government gets it share of taxes. Hence, there is no point to impose tax in case you are selling the car at an appreciated price. It is like a double burden on people.

    • Hi!
      Definitely if any person gets profit as capital gain , he/she has to pay tax to the government….and in this case only seller is liable to pay tax if he/she sells at an appreciated price, not the puchaser.

  2. Capital gains tax is a huge source of investment for government. There are multiple avenues where you capital gains are possible. However, the rates should be feasible and government take all efforts to realize its importance from an investor’s perspective as well. Also, this would curb any malpractices any investor might indulge in a bid to save bucks. It is recommended that an investor have a clear understanding on the processing of this tax to avoid any penalties or legal actions.

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