CALCULATION OF INCOME TAX ON CAPITAL GAIN
BY Advocate G.M Choudhry
Tax and Corporate Consultant
Co-founder and associated partner of G.Z Legal Nexus
Capital asset:
Capital asset is asset that a person holds for longer period of time for the purpose of investment and not for the purpose of business.
A painting, sculpture, drawing or other work of art, jewelery, a rare manuscript, folio or book, a postage stamp or first day cover, a coin or medallion or an antique falls in the definition of assets but stock in trade, consume able raw material in business and personal moveable property and amortizable property does not fall in the definition of asset.
How to calculate gain?
Gain shall be calculated by subtracting acquisition cost from consideration received on sale of asset.
Now question arises how much gain is taxable. I will explain it by example.
Mr. A bought a asset for Rs.10,00,000 and sold it after one year for 12,00,000.The gain will be Rs2,00,000.Now we multiply 2,00,000 by ¾.The taxable gain will be Rs1,50,000 and rate of capital gain will apply on this amount.
What about immoveable property?
The immove able property will be asset if someone does not use it for the purpose of business. Holding period has importance to calculate taxable gain.
a)Where the holding period of an immovable property does not exceed one year then full gain will be taxable.
b) Where the holding period of an immovable property exceeds one year but does not exceed two years GAIN x 3/4 will be taxable.
c) Where the holding period of an immovable property exceeds two years but does not exceed three years GAIN x ½ will be taxable.
d) Where the holding period of an immovable property exceeds three years but does not exceed four years GAIN x ¼.
e) Where the holding period of an immovable property exceeds four years then gain will not be taxable and it will be income tax free.
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