Income from capital gains
In simple terms, a capital gain is the profit from the sale of a capital asset (including investments such as shares and bonds). The loss on the sale of such assets is treated as a capital loss. A capital gain on the sale of an asset is chargeable to tax as capital gains in the year in which it is sold. Under the Indian Income Tax Act, capital gains are taxed on even the transfer of a capital asset, not merely on sale. The word ‘transfer’ includes the following:
- The exchange or relinquishment of an asset or the extinguishment of any rights in an asset.
- The acquisition of an asset.
- The conversion of an investment into stock-in-trade. This means, if you buy, say, shares as an investment, and later want to trade in them, then on the day you make the change, you will have converted your asset into stock-in-trade. The difference in the cost and the market price on the date of the conversion is treated as capital gains in your hand. However, this capital gain is liable to tax not in the year of conversion, but in the year in which the converted asset is sold or transferred.
- In the case of immovable property like land or a building, the transfer is complete when possession is handed over to the buyer. Thus, tax is payable on the gains when possession is handed over even if the sale deed has not been executed or the property registered.
- Any transaction which in effect transfers or gives the benefits of immovable property, for instance, in cases where you buy shares in a co-operative society.
Capital asset means property of any kind held by an assessee whether or not connected with his business or profession. A capital asset is property of any kind held by a person, irrespective of whether it is connected with the business. However, this does not include:
- Stock-in-trade, raw materials and stores held for business purposes.
- Personal effects, that is, movable property, including clothes and furniture, but excluding jewellery for personal use.
- Rural agricultural land
- Gold Deposit Bonds issued under the Gold Deposit Scheme 1999.