Capital Gain FAQs

Capital assets can be any fixed asset owned for personal or investment purposes. It can be tangible or intangible. For Example Land, Building, Shares, Mutual Funds, bonds, Debenture, Gold, Antiques, etc.

There are two types of capital assets based on the holding period. Short Term Capital Asset & Long Term Capital.

Asset Type

Short Term

Long Term

Shares listed on Exchange, Equity Mutual Fund.

Less than 12 months.

12 months or more.

Unlisted Shares, Land, Building.

Less than 24 months.

24 months or more.

Bonds, Debentures, Precious Metals such as Gold, Antiques, etc.

Less than 36 months.

36 months or more.

Profit or gain arising from the sale of a capital asset is called Capital Gain.

Indexed cost means the inflated cost of acquisition which is derived from increased inflation index factors known as cost inflation index (CII) numbers.

Indexed cost of acquisition= Cost of acquisition X (CII of the year of transfer / CII of the year of acquisition)

Indexed cost of improvement meant inflated improvement cost which is derived from increased inflation index factors known as cost inflation index (CII) numbers.

Indexed cost of improvement= Cost of improvement X (CII of the year of transfer / CII of the year of acquisition)

Long-term capital gain = Final Sale Price – (indexed cost of acquisition + indexed cost of improvement + cost of transfer)

If the Cost of Acquisition of any shares or equity-oriented mutual fund acquired before 31st Jan’18 is below the fair market value of 31st Jan’18, then fair market value will be treated as the cost of acquisition.

On the other hand, if the selling price is less than the fair market value, then the selling price or the actual price of acquisition whichever is higher will be considered to be the cost of acquisition.

In the case of listed shares, the fair market value (FMV) would be the highest price quoted on the recognized stock exchange on 31st Jan 2018. If there was no trading on that day then the highest price quoted on the date preceding 31st Jan 2018, on which it was traded will be considered.

For equity-oriented mutual funds, it will be closing NAV on 31st Jan 2018.

If purchased before 31st Jan 2018 then the actual price or FMV whichever is higher will be considered as the cost of acquisition. We have to subtract the same from the sale consideration. And if purchased after 31st Jan 2018 then the actual price gets deducted from sale consideration for computing long term capital gain. You need to hold the securities for 12 months for qualifying Long term.

Fair Market Value of bonus shares or units as of 31st Jan 2018 will be considered the cost of acquisition.

No. You need not pay any tax if your total income including capital gain doesn’t cross the basic exemption limit of Rs 2.5 lakh.

No. Rebate under Section 87A cannot be adjusted against tax on long-term capital gains.

No deductions shall be allowed from Sec 80C to 80U in respect of long term capital gain.

Residential Indians between 60 to 80 years of age will be exempted from long-term capital gains tax if their income doesn’t exceed Rs. 3,00,000 per annum and above 80 years is Rs 5,00,000. The exempted limit for individuals younger than 60 years is Rs. 2,50,000 every year provided that the aggregate of all heads of income tax doesn’t cross the threshold limit.

Jewellery made of Gold, Silver, Platinum, or any precious metal or alloy, may or may not contain any precious stone, and held for personal use is also considered a capital asset. Any profit and gains arising from the sale or transfer of such jewelry are considered capital gains.

In the case of buyback of shares whether listed or unlisted by domestic companies, w.e.f  05/07/2019 additional income tax @20% plus surcharge @12% and cess@ 4% is levied on the hands of the company. Any capital gain arising in the hands of investors is tax-free.

Sec10(43) provides that the amount received by a senior citizen, either a lumpsum or in installments would be exempted from tax.