Here's how you can file tax returns on your capital gains

Date : 31/07/2018
Read: 4 mins

Are you a capital asset owner? Here's how your capital gains will be taxed this year

Capital gains on any financial transactions related to capital assets such as shares, property, etc. needs declaration at the time of filing of your income tax return. The capital asset owner should be aware of what capital gains are taxable and how to calculate the tax.

Capital gains tax (CGT) is applicable in a given fiscal year in which the capital asset is transferred and the owner earns income to be taxed. However, the tax is payable by the owner in the financial year in which the actual transfer/sale proceeds are received by the assessee.

Long-term capital gains (LTCG) and short-term capital gains (STCG) have different tax slabs as per income tax laws. In addition, there are special rates for specified cases of capital gains.

What are capital gains?

Capital gain is the profit the capital asset owner earns through the sale of assets such as property, stocks, mutual funds, and gold. Depending on the asset class and the holding period, the tax rates are applied to the investor gains.

What is the holding period?

Capital gains computation depends on the asset class and the holding period. Based on this, the investor or assessee needs to mandatorily disclose the capital gains tax in the income tax form during the year.

The holding period is calculated from the asset purchase date to the immediately preceding date of the actual date of sale of asset. The holding period further classifies the asset into short-term and long-term capital assets.

Tax rates for capital assets

The minimum holding period for treating capital gains as long-term gains for different assets is as follows:

Stocks,equity-oriented funds	If sold within one year, it is considered short-term gains and taxed at 15%.	If held for more than a year, it is long-term gains and the applicable tax rate is 10% for gains over 1 lakh in a year. Long-term gains less than 1 lakh is exempted from tax.
Debt and hybrid funds	Less than three years is considered short-term gains. The gains are added to the total income of the investor for tax purposes.	More than three years is considered long-term capital gains, and is taxed at 20% after indexation. This takes into account the inflation rate while calculating profits on the sale of the asset.
Immovable property (land, house, shop or office)	Capital gains within two years of purchase are considered short-term gains. This is added to the total income of the investor for tax purposes.	More than two years is considered long-term capital gains, and is taxed at 20% after indexation.
Gold (physical gold jewellery, coins, bars), ETFs, and gold bonds	Gains from sale within three years are considered short-term gains. This is added to the total income of the investor for tax purposes.	Sovereign Gold Bonds capitals gains are tax-free if held till maturity; else the same rule is applicable as gold funds

Disclosure in ITRThe assessee also has an option to invest the capital gains from any long-term long capital asset (only land or building or both from AY 2019-20 onward) in specified bonds subject to a maximum of Rs 50 lakh within six months from the date of transfer of the capital asset. Taxpayers can seek exemption from LTCG tax in certain cases. If the investor invests the residential property capital gains in another residential property, there is no income tax liability. The only condition being that the residential property purchase has to be done in the specified period. If the assessee invests a partial amount of capital gains, income tax will be payable only on the difference. Exemptions available for LTCG

All capital gains or losses need to be disclosed in the ITR form. Salaried individuals need to declare in ITR 2. Business (or profession) individuals need to file ITR 3. Even in case of exemption of capital gains tax exemption, individual needs to disclose in the ITR form.