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Long Term Capital Gains Tax

Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.

Capital gains are not applicable when an asset is inherited because there is no sale, only a transfer.
Capital asset is defined to include:

a) Any kind of property held by an assesse, whether or not connected with business or profession of the assesse.

b) Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992.

However, the following items are excluded from the definition of "capital asset":
Any stock-in-trade, consumable stores, or raw materials held by a person for the purpose of his business or profession.

Government has introduced long-term capital gains tax of 10 percent if the gains exceed Rs 100,000 without allowing the benefit of indexation. However, all gains till 31st January 2018 will be grandfathered and short term capital gains remains unchanged at 15 percent.

For example, if the equity share is purchased 6 months before 31st January 2018 at Rs100 and the highest price quoted on 31st Jan is Rs120. There will be no tax on the sale, if the stock is sold after 1 year. However, any gains in excess of Rs20 earned after 31st Jan 2018 will be taxed at 10 percent if this share is sold after 31st July 2018.

Long-term capital gains were made tax exempt in 2004.

Practice question:

1. Which of the following statement related to long-term capital gains is/are correct?
1. Capital gains are not applicable when an asset is inherited.
2. Long-term capital gains were made tax exempt in 2004.


a) Only 1

b) Only 2

c) Both

d) None

Ans: c


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