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What is Capital Gain Tax?

How Capital Gain Tax is calculated?










Let's understand what are -Short Term Capital Gain Tax and  Long Term Capital Gain Tax.


As we know that tax are categorised as direct tax and indirect tax. For example GST
(goods and service tax) is indirect tax and Income tax is direct tax as it is paid by the same person on whom it is levied. The capital gain tax is also a direct tax. It is applied on the sales of all assets if the owner of the assets has made profit (gain) by selling the assets. Assets means property like house, equity shares, mutual funds etc. It can be classified into two -
                     1) Short Term Capital Gain Tax.
                      2) Long Term Capital Gain Tax.
Now, let's understand these two types one by one in a layman terms:
1) Short Term Capital Gain Tax:- It applies if asset has been sold within 36 months of owning it. In this scenario the rate of this tax is as per income tax slab. But in case of equity shares, mutual fund, bonds etc. the period is 12 months. Means if equity shares, mutual fund, bonds etc are sold within 12 months. In this case the rate of this tax is 15%.
2) Long Term Capital Gain Tax :- It is applied if the asset has been sold after 36 months of owning it. In this scenario the rate of this tax is 20%. In case of  assets like equity shares, mutual fund, bonds etc. the period is again 12 months and  a long term capital gain tax of 10% has been introduced in the union budget 2018-19 if the profit (gain) is above one lakh. Earlier these assets (equity shares, mutual fund etc.) were exempted from long term capital gain tax. Now, if one makes a profit of less than one lakh by selling his/her equity shares, mutual fund etc. after holding for more than 12 months only exempted from long term capital gain tax.

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