Capital Gain
A capital gain is the profit you make when you sell an asset for more than you paid for it. It can be applied to a variety of assets, such as stocks, bonds, real estate, or artwork.
Here are the basic steps involved in calculating your capital gain:
- Gather the cost basis of the asset (the price you paid for it) and the selling price.
- Subtract the cost basis from the selling price.
- If the result is a positive number, you have a capital gain. If the result is a negative number, you have a capital loss.
There are some rules that apply to capital gains:
- You can only claim capital gains for assets that you have held for at least one year.
- If you are single, you can claim up to $15,000 in capital gains. If you are married, you can claim up to $20,000 in capital gains.
- If you have any capital losses, you can use them to reduce your capital gains.
- You can defer paying taxes on capital gains if you reinvest them in certain assets.
Here are some examples of capital gains:
- You buy a stock for $10,000 and sell it for $12,000. You have a capital gain of $2,000.
- You buy a painting for $5,000 and sell it for $6,000. You have a capital gain of $1,000.
It is important to remember that capital gains are not the same as ordinary income. Ordinary income is taxed at your marginal rate, while capital gains are taxed at a lower rate. However, there are some exceptions, such as if you are over 65 or have a low income.
If you have any questions about capital gains, you should consult with a tax professional.
FAQs
How much capital gain is tax-free?
The amount of tax-free capital gain varies depending on the country and specific tax laws. In India, long-term capital gains (LTCG) up to โน1 lakh per financial year from the sale of listed equity shares or equity mutual funds are tax-free. For short-term capital gains and other types of capital gains, different tax rates apply, and exemptions may vary.
What is the exemption of capital gains?
Capital gains exemptions are specific conditions under which the gains from the sale of capital assets are not taxed. Examples include investing in a new residential property within a stipulated time frame or purchasing specified bonds. Each exemption has its own criteria, including the type of asset sold and the nature of the reinvestment.
What is capital gain in ITR (Income Tax Return)?
In an Income Tax Return (ITR), capital gain refers to the profit earned from the sale of a capital asset, such as property, stocks, or bonds. It must be reported under the ‘Capital Gains’ head in the ITR form. The gains can be classified as short-term or long-term, depending on the holding period of the asset.
Is it mandatory to show capital gain in ITR?
Yes, it is mandatory to report capital gains in your ITR if you have realized any gains from the sale of capital assets during the financial year. Failing to disclose such gains can lead to penalties and interest on unpaid taxes.
