Capital Gain

Capital Gain

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This is the earning generated from capital resources investments that surpass the acquisition price in India. In simple language this is the money a business enterprise stands to gain by selling an asset at a certain price. The difference occurring from buying an asset at a certain price than after ward selling the asset at a higher price. The capital gain can easily be calculated by:

Capital gain= {Sale Amount [-sale expense]}

– {purchase Amount [+purchase expense]}

Sale amount =100000

Sale expense=5000

Purchase amount =40000

Purchase expense=5000

Therefore the capital gain will be :{ 100000[-5000]}-{40000[+5000]} = 50000


On the capital gained in any business the tax is to be calculated. Below is a demonstration of how the tax is to be calculated. There are various types of capital assets such as shares, mutual funds with equity, non- equity mutual funds, house property, land and building gains, machinery and plants and finally precious jewellery.

The capital gains can either be short term of long term. It is however advisable that your tax computation is done by a professional auditor. This ensures accuracy

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Shares capital assets short term is within a period of one year. The tax required is 15% of the total capital gain. Long term however which is a period of more than a year is fully exempted. During the calculation on the tax to be paid on capital gains, some documents must be submitted. These documents include:

  • For share calculation you must present a statement on capital gain or even transaction statement
  • For calculations of the mutual funds one requires to present, an account statement from the particular mutual fund firms or either the statement on capital gain
  • For calculations of land and buildings, plant, house property and even machinery, you are required to present supporting papers such as deeds of sales or even purchase deed.

If a person happens to default on the payment of the tax or if they happen to pay a smaller amount than the required stipulated amount. They are to be penalized therefore, you required in making necessary payments on added interest. This is in accordance to the tax act.

An individual can easily reduce tax required on the capital gain. The computed tax can be lessened when the capital gain is actually invested in accordance to the provisions availed in segment 54 of income tax act of 1961 in India. It has numerous parts that are applicable in various capital assets and the relevant reinvestments. When utilized wisely the tax on the gained capital is relatively reduced.

They are implication that comes with an individual having both capital loss and capital gain during the same fiscal year. The short time loss of capital can either be adjusted to long time gain in capital or short time gain in capital. However, long term loss in capital can only be adjusted to long time gain in capital. The balance in capital loss after the required adjustments are made are to be carried over to 8 successive years and then can be accustomed on the capital gain below same head.

Posted in Tax.