Congratulations on your Sale of Capital Assets:
Most people invest money in capital assets for good returns and asset creation. Let’s first understand the meaning of capital assets under Income tax. Capital assets include all kinds of properties whether movable or immovable, tangible or intangible, related to business or not. It excludes inventory and movable property held for personal use. Examples of Capital Assets are House, cars, investments, jewelry, land and building, machinery, goodwill, shares, debentures, mutual fund units, zero-coupon bonds. In our lives, we invest in all capital assets or a few of them. We will understand the few basic concepts of capital gain and its taxability and tax savings.
A capital gain arises when the sale price is higher than the purchase price. Capital loss arises when the purchase price is higher than the sale price. As you are aware, the capital gain is subject to income tax. Depending on the period of holding of assets, they are classified as short-term and long-term. Tax rates vary for short-term and long-term capital assets. You can take professional help from CAs for calculation of accurate gains, tax on gains, and tax savings.
Capital Gain on sale of immovable property:
If you sell a residential property or land after two years of holding, long term capital gain tax @ 20 percent after indexation. If the gain is Rs. 20 lakhs, you are liable to pay tax Rs. 4 lakhs. You can reinvest the amount in residential property and get exempted from capital gain tax. If you are an NRI, the buyer is liable to deduct TDS @30%.
Capital Gain on Sale of Agricultural Land:
Few things to know about the sale of agricultural land. The sale of agricultural land in the village is not taxable. Capital gains on the sale of compulsory acquisition of urban agricultural land are exempt.
If you sell an urban agricultural after 2 years of holding, capital gain tax is applicable to @20% with indexation. You can reinvest the sale proceeds again in agricultural land to get an exemption from capital gain tax.
Capital Gain Exemption Bonds:
Sell a House or Stocks, Invest in Bonds.
Invest the long term capital gain arising from land or building or both in capital gain exemption deposits/bonds. The Lock-in-period of the bond is 5 years to get tax exemption. Section 54 of the Income-Tax Act allows you to invest in another House Property. If you are unable to invest immediately, you have to invest all gains in capital gains account scheme.
Section 54EC allows you to invest in certain bonds to save/avoid tax on capital gains subject to maximum limits of exemption.
Capital gain on sale of shares and securities:
If you sell shares after holding for a year, long term capital gain is applicable. There are some basic exemptions for the sale of shares and securities. Afterward, you have to pay a flat rate of tax based on the respective finance act / income-tax act.
Sec.54F allows you to invest in House Property when you have capital gains arising out of the sale of gold, stocks, Mutual Funds, and other assets.
Always, You need to take professional help from Chartered Accountants for calculating your Capital Gains arising from the sale of capital assets and save tax by investing in another house property/bonds / Capital Gain Savings Scheme. You can also get help with various other investment options available and save your tax.