1 1 5 Different Direct Tax Laws 2

Summary

This video provides a detailed explanation of direct tax laws, specifically focusing on capital gains. It covers the definitions of capital assets, short-term, and long-term capital gains, with key distinctions on tax implications for various asset classes like equities, real estate, and bonds. The video also walks through the process of computing capital gains tax, highlighting deductions, exemptions, and the indexing system. Viewers are introduced to the relevant tax rates, including special conditions for equities and debt funds, and how inherited properties and bonus shares impact tax calculations. Overall, it offers a comprehensive guide to understanding and calculating capital gains tax.

Takeaways

• 😀 Capital assets are large, fixed purchases used to generate revenue, not for personal consumption (e.g., stocks, bonds, real estate).
• 😀 Capital gains tax is levied when there is a profit from the sale of a capital asset.
• 😀 A capital loss, which occurs when the sale of a capital asset results in a loss, is also recognized under capital gains tax.
• 😀 Short-term capital gains are taxed on assets held for 24 months or less (for land, buildings, and house properties post-2017).
• 😀 Long-term capital gains are taxed on assets held for more than 36 months, except for certain movable properties, which still require 36 months for long-term status.
• 😀 When an asset is inherited, its holding period is considered from the date the original owner purchased it, not from the date of inheritance.
• 😀 Bonus or right shares' holding period begins from the date they are allotted, not from when they are purchased.
• 😀 To compute capital gains tax, you need to subtract transfer-related expenses, and apply indexation to the cost of acquisition and improvements.
• 😀 Special exemptions are available for long-term capital gains on equity shares, which are exempt up to ₹1 lakh per year (post-2018).
• 😀 Tax rates: 10% on long-term capital gains exceeding ₹1 lakh for equity shares, 20% for other assets, and 15% for short-term capital gains with securities transaction tax.

Q & A

What is a capital asset?

A capital asset is a large, one-time purchase of a fixed asset that generates revenue but is not itself a revenue item. These assets include equities, fixed income instruments, money market instruments, real estate, and tangible assets used for business purposes.

What is capital gains tax?

Capital gains tax is the tax levied on the profit or gain from the sale of a capital asset. A capital loss, resulting from the sale of an asset at a loss, is also recognized but does not incur a tax.

What is the difference between short-term and long-term capital gains?

Short-term capital gains are earned from assets held for 36 months or less (24 months for land, buildings, and house property after FY 2017-18). Long-term capital gains arise from assets held for more than 36 months, with certain exceptions for specific assets like equity shares.

How is the holding period of inherited assets determined for capital gains tax?

For inherited assets, the holding period of the asset is determined by the previous owner. This means that if you inherit an asset, you consider the time it was held by the original owner to decide if it's short-term or long-term capital gains.

What are bonus shares and how do they affect capital gains tax?

Bonus shares are issued to shareholders at no cost. The holding period of bonus shares is counted from the date they are allotted, not from the original purchase date of the stock.

What is the taxation rate on long-term capital gains for equity shares sold after 31st March 2018?

Long-term capital gains on the sale of equity shares are exempt up to ₹1 lakh per annum. Beyond ₹1 lakh, the tax rate is 10%, without the benefit of indexation.

What are the steps to compute long-term capital gains?

To compute long-term capital gains, start with the full value of consideration received, subtract expenses directly related to the transfer, and then deduct the indexed cost of acquisition and improvement. Any exemptions available under the Income Tax Act can further reduce the tax liability.

What are the capital gains tax rates for different types of assets?

For long-term capital gains (LTCG), the rate is 20% for assets other than equity shares. For equity shares and equity-oriented funds, the rate is 10% beyond ₹1 lakh. Short-term capital gains (STCG) on securities with securities transaction tax (STT) applied are taxed at 15%. For other assets, STCG is taxed as per the individual's income tax slab.

How does the Securities Transaction Tax (STT) affect capital gains tax?

If STT is applicable, the short-term capital gains tax is fixed at 15% on the gain from securities sold on the stock exchange. If STT is not applicable, the gain is taxed based on the individual's income tax slab.

What changes were introduced in capital gains taxation from July 11, 2014?

From July 11, 2014, the tax rate on long-term capital gains for equity shares and equity-oriented mutual funds was introduced at 10% beyond ₹1 lakh, without the benefit of indexation. The tax rate for short-term capital gains on equity shares and mutual funds was fixed at 15%, with securities transaction tax applicable.