Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: empanelment :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: cpt :: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARD :: form 3cd :: ACCOUNTING STANDARDS :: due date for vat payment :: VAT RATES :: articles on VAT and GST in India :: VAT Audit
 
 
ę News Headlines »
 Directions under section 119 of the Income-tax Act, 1961
 Securities excluded from GST ambit in revised Bill
 GST dilemma: Hope fades for new tax regime
 5nance.com launches tax investment platform
 Is government tapping your phone?
 Income tax department to use analytics to look for discrepancies in bank accounts
 GST Council fails to break deadlock over indirect tax regime, next meet on Dec 11 and 12 to hammer out differences
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful

Dont lose sight of your capital gains
July, 30th 2008

As this column appears exactly one day before the last date for filing tax returns, my dilemma was to choose from the vast maze of Indian tax laws a single topic that would be most useful to taxpayers at this juncture.

Axe the tax | Filing your tax returns is as easy as 1,2,3 | Online tax payment sans net banking a/c?

A quick office poll saw capital gains win hands down. Therefore, the following is a snapshot of our capital gains tax structure encompassing the various rules and rates applicable to different assets.

Basically, capital gains tax is applicable on capital assets such as property, gold, shares, units, bonds debentures, etc. Depending upon your period of holding, these capital assets may be classified as long-term or short-term.

Short-term assets are those that are held for three years or less. By corollary, assets held for over three years will be termed as long-term. Note the above rule carefully. A capital asset has to be held for over three years to be deemed long-term. For example, if you sell a property after exactly three years of owning it, it would still be termed as a short-term asset. It has to be owned for over three years (even one day more) to be designated as long-term.

In the case of shares, debentures, units of mutual funds and deep discount bonds, the period of holding to qualify as long-term assets is reduced to over 12 months instead of the above mentioned three years. The equity share, units and bonds neednt be listed or quoted. Only debentures have to be necessarily listed in order to qualify for the 12-month period.

Special: Credit Policy - Q1 review 2008-09

Indexation

Starting with FY 1981-82 as the base year, the RBI notifies the Cost Inflation Index (CII) every year. Indexed cost is arrived at by multiplying the cost with the ratio of CII for the year of sale and year of purchase, respectively. Indexation essentially adjusts cost for inflation, thereby reducing the amount of capital gains.

For example, say a property that was purchased in April 1992 for Rs 10 lakh is sold in March 2008 for Rs 50 lakh. Now, in this case, the capital gain would normally have been Rs 40 lakh (Rs 50 lakh - Rs 10 lakh). However, this would be unfair to the taxpayer since the value of the rupee in 1992 was not the same as it is today. Hence, the cost would be suitably inflated as per the indices for the specified year. The CII for 92-93 was 223 and that for 2007-08 was 551.

Therefore, the indexed cost in the above example would work out to Rs 24.7 lakh (Rs 10 lakh x 551 223). The resultant capital gain of Rs 25.3 lakh is much lower than the non-indexed Rs 40 lakh.

Tax rates

Long-term capital gain tax rate is 20% after reducing the indexed cost. However, only in the case of listed securities, units and zero-coupon bonds does the taxpayer have the option of choosing to pay 10% after reducing the non-indexed cost from the sale price, if the same works out to be lower. For other assets, such as property or gold, the 10% option isnt available, long-term tax is payable only at 20% after indexation.

Short-term capital gains tax on listed shares and units is 10% (subsequently increased to 15% by the Finance Act 2008). On other assets, short-term gains is simply added to the other income and taxed at slab rates applicable to the taxpayer.

Saving capital gains tax

Tax on short-term capital gains cannot be specifically saved. In other words, short-term capital gain is necessarily taxable. On the other hand, depending upon the asset, long-term capital gains tax may be saved by making certain investments. For example, long-term gains from sale of a residential house may be saved by investing the capital gain amount in another residential property, either one year before or within two years of date of sale.

More India business stories

Long-term gains on assets other than a residential house may be saved by investing the net sale consideration (and not the capital gain), in another residential property again one year before or within two years from date of sale. If only a part of the consideration is used to buy the new property, proportionate deduction will be available.

Lastly, tax on all long-term capital gain (whether from residential property or otherwise) may be saved by investing the capital gain amount in bonds under sec 54EC. Today, NHAI and REC issue such bonds. The maximum amount investible is Rs 50 lakh in any one financial year.

 

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions