Capital Gains Tax
The profit realized on the sale of a non-inventory asset is subject to a capital gains tax (CGT). Stocks, bonds, precious metals, real estate, and property are the most prevalent sources of capital gains. Not every country has a capital gains tax, and most have varying tax rates for people and businesses.
On valuable items or assets sold at a profit, capital gains tax may be due. If you make enough money from antiques, stocks, precious metals, or second houses, you may be subject to the tax. The amount of tax that must be paid varies. The government establishes a lower limit of profit that is large enough to be taxed. If the profit falls below this threshold, it is tax-free. In most circumstances, profit is the difference between the amount (or value) of an asset sold and the price paid for it.
How is capital gain tax calculated?
In case of short-term capital gain:
Capital gain = final sale price – (the cost of acquisition + house improvement cost + transfer cost).
In case of long-term capital gain:
Capital gain = final sale price – (transfer cost + indexed acquisition cost + indexed house improvement cost).
Definition of ‘Capital Gain/loss’
Definition: The profit earned on the sale of an asset such as stocks, bonds, or real estate is known as a capital gain. When the selling price of an asset exceeds its acquisition price, it results in a capital gain. It is the gap between the asset’s selling (higher) and cost (lower) prices. When the cost price is higher than the selling price, a capital loss occurs.
Description: A capital gain occurs when the selling price of an asset surpasses its cost price or purchase price. There are two sorts of capital gains: realised and unrealized. 1) A realised capital gain is the profit earned on an investment that was sold for a profit.
2) Unrealized capital gain is the profit on an investment that has not yet been sold but could make money if sold later. Capital gain is a term used in financial discussions to describe again that has been realised. When an investment is sold, capital loss is the inverse of capital gain, resulting in a loss. Capital gain/loss is the difference between the selling price and the cost/purchase price of an investment in basic terms. A capital gain occurs when the selling price is higher than the cost price, while a capital loss occurs when the selling price is lower than the cost price. Example: Assume a guy paid Rs 10,000 for 100 shares of Rs 100 apiece. (Formula 1: Capital Gain) If he sells those shares for Rs 130 each after a year, the total selling price of those 100 shares will be Rs 13,000, resulting in a profit of Rs 3,000. This is referred to as capital gain. (Case 2: Capital Loss) However, if the person sells those shares for Rs 80 each after a year, realizing Rs 8,000 on those 100 shares, he will lose Rs 2,000. This is referred to as a capital loss.
What is considered a capital gain or loss?
If you sell an asset for more than its adjusted basis, you earn a capital gain. If you sell an asset for less than its adjusted basis, you incur a capital loss. Personal-use property losses, such as those from the sale of your home or automobile, are not tax-deductible.
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