Capital Gain

What is Capital Gain?

Capital gains refer to the increase in the value of a capital asset at the time of selling. In simple words, if you sell any asset for more than what you paid to purchase it, then it will be considered capital gains.

Any assets that you own are considered capital assets, such as stock, bonds, real estate, or items you have purchased for personal use. There is a Capital gains formula that can be used to find out the capital gains on your assets:

Formula: Selling Price + Cost Basis = Capital Gain

Example OF Capital Gains: 1Cr (Selling Price) - 90Lac (Cost Basis) = 10Lac (Capital Gain)

Types of Capital Gains

There are two types of capital gains, which are mentioned below:

1. Short-term Capital Gains: It includes the capital gains you realized in selling the assets after holding them for one year or less than that.
2. Long-term Gains: It includes the capital gains you realized in selling the assets after holding them for more than one year.

You need to report both the short and long-term capital gains on your annual tax report. Only the realized gains trigger the taxable event. If you have made profits on unrealized gains, then it is not a taxable event.

Capital Gains Tax

It refers to the tax that you have to pay on capital gains. The short-term capital gains and the long-term capital gains are taxed differently.

• The short-term capital gains tax rates are the same as the tax rates of ordinary income. They are taxed based on the individual's tax filing status and adjusted gross income.
• The long-term capital gains are taxed at lower rates than the normal income tax rates. They are taxed at the rates of 0%, 15%, and 20%. There is a maximum income fixed for all the tax rates.