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Capital Gain Tax in India

Capital gain tax in India is applicable to the sale or transaction of any capital assets inside the country. The capital gains tax is imposed on the profits arising from the transactions done in that particular tax year. The capital assets in India include all the movable and immovable property except the personal effects, trading goods and gold bonds.
The agricultural lands that are inside or within the 8 kilometers of the municipal area are considered capital assets in India. The long term capital assets in India are those assets which are held for more than 36 months while in case of the shares, mutual fund units and debentures, the holding time period is 12 months.

The capital gain tax in India on the short-term capital assets is taxed as the regular income but the rate of tax varies for the long-term assets. The capital gains tax for the long term assets is calculated on the basis of the cost inflation index for that particular year.

The capital gains tax in India is calculated by deducting three amounts from the money received from the sale or transfer of capital assets.
These are:
  • If there is any cost of improvement for the asset, then that is deducted.
  • The expense that is incurred on the transfer of the asset is deducted.
  • If purchased earlier, the actual cost of the asset as on 01.04.1981 is deducted.

There are some capital gain tax exemptions available in India provided by the Income Tax Department of India. The individuals and Hindu Undivided Families (HUF) enjoy the capital gains tax exemption from the long-term capital investments only if the sale that has occurred is reinvested in certain assets. For example in case if the profits earned from the sale of residential house is invested again in the new residential house, then there will be no capital gains tax charged on that sale of the property. In case if the long term capital gains are invested again in the notified bonds, then also tax exemption can be enjoyed. These capital gains exemptions in India are generally subject to certain conditions and it also should be noted that the reinvestment has to be made within the specified time.


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Last Updated on : 5th July 2013

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