To define simply, capital asset is property (including shares, debentures, government securities, bonds, units of UTI and Mutual Fund, immovable property etc) of any kind held by an individual. The following however is not included in ‘capital asset’:
- Personal items like electronic items, apparel, furniture etc
- Agricultural land
- Specified bonds like 6.5% Gold Bonds 1977, 7% Gold Bonds 1980, National Defence Gold Bonds 1980, Special Bearer Bonds 1991, Gold Deposit Bonds 1999
This is the profit or loss arising from the transfer of a capital asset.
Just as there are many kinds of capital assets, so also are there many kinds of capital gains.
Generally, capital gains are classified, based on the duration for which the asset is with the client, as long-term and short-term capital gain.
Short-term capital asset includes those assets sold within 36 months (1 ½ years) of its purchase. Long-term asset, on the other hand, re assets sold after 36 months (1 ½ years) from the date of purchase. Nevertheless, this ‘holding period’ criterion is relaxed to 12 months in case of the following:
- Equity and preference shares, debentures or any other financial instrument listed on a recognized stock exchange in India
- Units of UTI or any other Mutual Fund
- Zero coupon bonds
Like other assets, long-term and short-term capital gains are also taxable. Please go through the given table to understand how tax is deducted.
|Type of asset||Rate of tax deduction at source (TDS)||Exemption available (only for long term capital gains)|
|Long term||Short term|
|A) Purchased in Indian Currency (RS.)|
|Equity share in listed companies and Securities Transaction Tax is paid||Nil||10.2% (11.22% if the total income exceeds Rs.10 lakh)||Not applicable (NA) as long term capital gain is fully exempt|
|Unit of equity oriented mutual fund||Nil||10.2% (11.22% if the total income exceeds Rs.10 lakh)||NA as long term capital gain is fully exempt|
|B) Purchased in Foreign Currency (other than Rs.)
– Indian Companies’ equity shares
– Debentures and deposits in Indian public companies
– Central Government securities
|10.2% (11.22% if the total income exceeds Rs.10 lakh)||30.6% (33.99% if the total income exceeds Rs.10 lakh)||Capital gains proportionate to the amount of net consideration which is reinvested in the specified assets in column 1 (see example 1)|
|C) Other Assets
(Assets not included in categories above) like house property, land and building, jewellery, development rights etc.
(22.24% of the income exceeds Rs.10 lakh)
|30.6% (33.99% if the total income exceeds Rs.10 lakh)||If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempt, else the proportionate gain is exempt. As per the financial budget 2007-08, a cap of Rs. 50 lakh has been imposed on capital gains from the sale of property. (See example 2)|
Example 1: Supposing the net consideration from the sale of an asset is Rs.1 lakh. If s/he invests the entire amount, the entire amount is exempted from tax. But, if s/he invests, say Rs.90000, then 90% of the capital gain would be tax-free. Hence, how much of your capital gain is tax exempted depends on how much you invest. Please note that there is a cap of Rs.50 lakh on tax exemptions for long-term capital gains (read sale of property). This means that if, out of the Rs.1 lakh received, you invest less than Rs.50000, your investment would NOT be tax-free.
Example 2: If you invest all of your capital gain anew, then the entire capital gain is exempted. If you invest, say 50% of the capital gain, exemption is granted proportionately.
Filing Income Tax Returns in India:
If, as a non-resident, your income is ONLY from the long-term capital gains as mentioned in Column B, you do not have to file any tax. However, if you have other means of income, apart from those mentioned in Column B (like rent, salary, professional income or income from non-specified assets), you have to pay tax by the 31st of July.
Gains vs. Losses:
If a non-resident has incurred losses on the sale of a particular asset, and in the same financial year has profited from another sale of a particular asset, s/he can set off the loss against the gain, and avail of tax benefit on the gain. In this case, non-residents can apply for a tax exemption certificate prior to the sale of shares of the second lot where s/he has capital gains to ensure a set-off and apply for nil or lower deduction of tax.