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Capital Gains Basics

We received many queries , that when someone is selling his/her labtop,mobile,computer,car then he/she is liable to pay capital gain tax?

The thing is that they are not aware of basics, so this post is to throw some light on basics of Capital Gains Tax.

Section 45(1) In short, this section says that when there is any transfer of capital asset then capital gain tax is chargeable under the head "capital gains"but there will be certain exemptions u/s 54,54B,54D,54EC,54F,54G,54GA,54GB.

  • Now question is that what is transfer?

Section 2(47) defines transfer
In short transfer includes sale,exchange,extinguishment of rights, relinquishment,renouncement,conversion,compulsory acquisition of capital asset.

  • Now the question is that what is Capital Asset?

Section 2(14) defines Capital Asset 
In short, capital asset is any kind of property (movable or immovable)  held by assessee, whether or not  connected with his business or profession.

Capital Asset doesn't includes certain things such as

Movable personal assets (excluding Sculpture,drawing,painting,artwork,archaeological collections,jewellery)
Gold bonds
Special bearer bonds
Stock in trade
Rural agricultural land in india

From the above definition it can be understood that transfer of movable assets such as 

Sculpture,drawing,painting,artwork,archaeological collections,jewellery are taxable.

So, here we clear doubt of many people that when they sell any movable personal asset other than 

Sculpture,drawing,painting,artwork,archaeological collections,jewellery then they would not be liable to pay Capital gain tax.


There are two types of capital asset
  1. Long term capital asset (period of holding of capital asset should be more than 3 years)
  2. Short term capital asset (period of holding of capital asset should be upto 3 years)

note-:In the following cases even if the period of holding of capital asset is 1 year the gain would be considered as long term
*Listed securities
*Zero coupon bonds
*Units of UTI and mutualfunds

Concept of indexation

what is indexation?
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation.

Indexation benefit can be enjoyed only when you are selling your capital asset after holding 3 years (1 year for  listed securities, units of uti and mutual fund, zero coupon bond and shares)

This concept can be understood by reading the example given below-:

Suppose you bought any capital asset on 1/4/2009 for rs. 1lakhs and you want to sell this asset on 1/4/2013 for rupees 4lakhs , it would be unfair to pay tax on profit of rs. 3lakhs...

Here you gets the benefit of concept of inflation .i.e you can calculate d today's value of property which you had bought on 1/4/09 , now as per rates you calculated that the today's value of your capital asset is r.s 2.5lakhs,
then here you gets the benefit to  claim gain of rs. 1.5lakhs (4lakhs -2.5lakhs)

Now, after you compute your capital gain you can invest your capital gain money somewhere which is mentioned in sections 54,54B,54D,54EC,54F,54G,54GA,54GB. to save your capital gain tax.

so, these were some basics of Capital Gains tax , hope it would be useful for many readers.

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