Close
Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term

Protect Your family’s financial future with Kotak e-Term. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

What is capital gains tax, and how it works?

The economy of India is still expanding. Therefore, it needs ongoing capital infusions to keep booming. Investors are key drivers of India's economic growth, making the capital gains tax an essential tool for asset purchases and sales.

  • Jan 19, 2023
  • 1,500 Views

The word “capital gain” describes the increase in a capital asset’s value upon sale. A capital gain happens, to put it simply, when you sell an asset for more money than you purchased for it. Almost any kind of asset you own is a capital asset, whether it was bought for personal use or as an investment.

Key takeaways

  • Taxes on capital gains are only owed when an investment is sold.
  • Only “capital assets”—stocks, bonds, digital assets like cryptocurrencies and NFTs, jewelry, coin collections, and real estate—are subject to capital gains taxes.
  • Profits from investments held for longer than a year are subject to long-term gains tax.
  • Short-term gains are subject to the same taxation as an individual’s regular income. That is more than the tax on long-term gains for everyone but the wealthiest.

When you sell an asset, you realize capital gains by deducting the purchase price from the sale price. In certain situations, the Internal Revenue Service (IRS) taxes individuals on capital gains.

Understanding capital gains

The capital gains, or profits, are said to have been “realized” when stock shares or any other taxable investment assets are sold. Unsold investments and “unrealized capital gains” are exempt from the tax. No matter how long they are held or how much their value rises, stock shares will not be taxed until they are sold.

Most taxpayers pay a greater rate on their income than any potential long-term capital gains. Thus, they have a financial incentive to hang onto investments for at least a year to benefit from the lower profit tax.

Calculating Long-Term Capital Gains Tax

The steps involved in determining long-term capital gains are listed below

  • The person must first determine the asset’s total value.
  • The person then needs to deduct the following:
  • The costs associated with the transfer
  • Spending on purchases
  • Investments in improvements


To calculate the long-term capital gains tax, complete the aforementioned stages and then deduct any applicable exemptions granted by the following sections.

  • Section 54B
  • Section 54F
  • Section 54EC
  • Section 54

Calculating Short-Term Capital Gains Tax

Follow the steps listed below to calculate their short-term capital gains tax with accuracy:

  • Take into account the entire value of the item.
  • The points indicated below must then be deducted after that
  • Expenditures made to upgrade the property
  • All of the funds used to purchase the property
  • Costs related to the property’s sale or exchange
  • The remaining amount is the short-term capital gain after the deduction

Deductions to Reduce Capital Gains Tax

By utilising provisions under the following parts of the Income Tax Act, you may be able to reduce your capital gains tax obligation if you own an asset.

Section 54

If the money is then used to purchase another residential property, the capital gains on the sale of the residential real estate are not subject to taxation. However, this is subject to the following conditions being satisfied:

  • Real estate purchases should only be made two years or, at most, a year after they have been sold.
  • The transfer shall occur no later than three years from the initial property transfer date if the property is still being built.
  • The freshly acquired property is not transferrable for the first three years following acquisition or development.
  • The recently acquired property should have a location in India.

Section 54F

If you sell any other item, such as rare artwork, jewelry, loans of money, or agricultural property within ten kilometres of your city, you may be able to benefit from Section 54F. This provision permits a deduction from the proceeds of the liquidation of any financial instrument to finance the purchase of a residence or other residential property.

Section 54EC

Over ₹50 lakh in profits from bonds issued by the Rural Electrification Corporation (REC) or the National Highways Authority of India (NHAI) are exempt from capital gains tax. They have a 5-year term and a fixed interest rate (currently 5.25%). The interest rate on these bonds is taxable. Your investment must have generated a profit from selling real estate and other buildings for it to be eligible for this write-off.

Conclusion

Investors with taxable accounts must comprehend the capital gains tax, how it is computed, and the distinction between long-term and short-term capital gains. Investors will have a greater chance of keeping more of their earnings if they know the various tax rates and structures that apply to capital gains.

Download Brochure

Features

  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999

T&C

Download Brochure

Features

  • Enhanced Protection Through Riders
  • Life Cover
  • Tax Savings
  • Multiple Premium Payment Terms
  • Guaranteed @ Loyalty Addion
  • Accrued Guaranteed @ Additions

Ref. No. KLI/22-23/E-BB/490

T&C

- A Consumer Education Initiative series by Kotak Life

Similar Articles

Pradhan Mantri Suraksha Bima Yojana

What is Tax Deduction at Source (TDS)?

Union Budget 2023 and Tax Exemptions on Life Insurance Premium Over ₹5 Lakhs

Top 8 Tax-Saving Methods in India- Budget Planning

Why January Is an Important Month for Saving Tax?

What To Do If Your TDS Is Not Deposited With The Government?

Guaranteed Return Plans-Why is it a must for you?

How To Save Tax Using Life Insurance?

List of Important Income Tax FAQs

Tax Benefit of Investing in Term Plan

Save Income Tax by 31st March: Here Is a Checklist

Income Tax Benefits for Doctors

How to File TDS Return?

Types of Income Tax Return (ITR) Forms

What is the Percentage of Tax Deducted at Source (TDS)?

Tax Saving Options for Salaried Employees

Income Tax Deductions Under Section 80C

Income Tax Exemption for Disabled

Sub-sections Under Section 80C of the Income Tax Act, 1961

सुकन्या समृद्धि योजना (SSY) के कर लाभ क्या हैं?

धारा 80सी आयकर अधिनियम, 1961

E-Filing of Income Tax Returns in India

Importance of Savings Plan You Need to Know

Income Tax Filing For NRI in India

Money Saving Tips for Single Women

How to Check Income Tax Refund Status Online in India

When Should TDS be Deducted and Who is Liable to Deduct it?

How to File Form 16 for Salaried Employees?

3 Tips to Buy Guaranteed Savings Plan

Tips to plan your savings in 2022

What are the Different Types of Taxes in India?

Budget 2019: Impact on the Common Man in India

Can You Get Term Insurance Without Income Proof?

Complete Savings Plan for Low Income Earners

How to create wealth through a savings plan?

TDS rules on the sale of jointly owned property

All you need to know About Tax on Inheritance

What is the Last ITR Filing Date and Penalty for Late Filing of ITR?

Types of Riders in Insurance Policy

Form 16, Form 16A, and Form 16B?

Interest Imposed Under Sections 234A, 234B and 234C

5 Popular Tax-Saving Schemes in India

What is Rule 132 of Income Tax? How Does it Affect You?

Are Financial Planning and Tax Planning the Same Thing?

How Inflation Affects Savings and Investment?

How to create a savings plan and make good investment choices

Financial Benefits and Government Schemes Every Woman in India Should Know

What is ITR & How to File Income Tax Return?

How can NRIs prevent double taxation in India?

Personal Finance - Meaning, Importance, and Tips for Personal Finance

Everything You Need to Know About Tax Benefits of National Pension Scheme (NPS)

How to Check Income Tax Refund Status Online in India

How to File ITR Online

What is TDS Exemption Limit?

Tax Benefits for Startups in India

Highlights of the Union Budget 2023-24

What are Deferred Savings Plans?

12 Tax Changes in Budget 2022 that May Impact Your Personal Financial Planning

How to View 26AS and Download Form 26AS Online

Income Tax Deduction Under Section 80CCC In India

Union Budget 2023: Impact on Life Insurance

Challan 280 - How to Use Challan 280 to Pay Income Tax

What is the difference between TDS and TCS?

Why PAN Card is Essential for Income Tax Filing?

Is PF Withdrawal Taxable for NRI?

All about TDS Payment Online & Due Dates

इनकम टैक्स रिटर्न कैसे फाइल करें?

What is Tax Evasion and What Are The Penalties For Tax Evasion In India?

Income Tax Exemption for Physically Handicapped Dependent

Have You Considered Term Insurance a Part of Your Tax Planning?

Section 16 of the Income Tax Act (ITA), 1961

Difference between Section 80C, 80CCC, 80CCD & 80D

What is Section 80C Deduction?

Plan your Daughter's Wedding With Best Monthly Savings Plan

Difference Between Guaranteed Savings Plan and Guaranteed Income Plan

How much gold can you keep at home? Limits and income tax rules explained

Post Office Savings Scheme - All You Need to Know

What is Section 80C Deduction Limit?

Do Beneficiaries Pay Taxes on Life Insurance?

What is the Difference Direct Tax and Indirect Tax

Tax Benefits of ULIP Plans Available for NRIs

What is Form 16B?

Easy ways to make personal savings plans

Tax-Free Income in India

Should you prefer a Guaranteed Savings plan over monthly income schemes?

All about TDS on Salary under Section 192 – Kotak Life

What is the Difference between Form 16 and Form 16A?

Tax Season is Coming- Know How to Save Tax

9 Income Tax Myths That Could Cost You Money while Filing returns

Income Tax Calculator: How Life Insurance Policies are Taxed? Explained

Difference Between Guaranteed and Assured Returns

Presumptive Taxation for Business and Profession

How to Calculate returns on an assured savings plan?

What is Section 195 of the Income Tax Act? TDS on Non-Residents of India

What is TDS Slab?

What is a savings plan?

प्रत्यक्ष कर और अप्रत्यक्ष कर में क्या अंतर है?

How to File Income Tax Return - Everything You Need to Know

All You Need to Know About Section 80C

A Complete Guide for Filing ITR 3 Form

How To Save Tax Better with 80C

Impact of GST on Life Insurance in India

Section 80D - Medical and Health Insurance Tax Benefits Under Section 80D

Received an Income Tax Notice? Your Guide to Understanding Intimations under Section 143 (1)

9 Unusual Investments you Didn't Know for Saving Taxes in India

आयकर स्लैब 2021-2022

How to Save Tax on Salary Arrears?

All You Need To Know About Assured Savings Plan

How Much Money This Budget 2019 Can Help You Save

How to File Income Tax Return for First Time Tax Payers

How to Boost Your Savings with Guaranteed Results

Section 10 (10d) of Income Tax Act, 1961 on Payouts of Life Insurance Policy

A Comprehensive Guide to Understand the ITR 7 Form

Tax Saving Options other than Section 80C

Tax Saving for Self Employed in India

Section 80G of the Income Tax Act

How to e-Verify your Income Tax Return

भारत में महिलाओं के लिए सरकारी योजना

ITR 1: Sahaj Form

Financial Planning and Best investment options for Housewives

Best Savings plan for the middle class in India

आयकर रिटर्न (आईटीआर) फॉर्म के प्रकार

What are Direct Taxes? How to Avoid being Overtaxed?

Maximize Your Savings: Tax Tips for Salaries Above ₹20 Lakhs

What is Form 26AS - All You Need To Know

How to View 26AS and Download Form 26AS Online?

Tax Planning Tips for a Newly Married Couple

Saving Income tax in 2017 - 18

Income-Tax Liability- The Difference Between Gross Income & Total Income in Calculating Income Tax

How to save tax for salaried person?

Who Should Invest In Savings Plan

What is the Difference between Assessment Year (AY) and Financial Year (FY)?

What is ITR 5 Form and How to File ITR 5?

LTC Cash Voucher Scheme October 2020 – Everything You Need to Know

How to File Form 10E for Tax Relief on Salary Arrears?

What is Salary Protection Insurance and Why You Need It

How to Save Income Tax with Insurance

Tax-Savings Investments and Options in India

Tax Exemption and Scope of Coverage

ITR-6: Guide to filing ITR-6 Form online

How Should I Allocate A Monthly Savings Plan For Long-Term Benefits?

What is HRA (House Rent Allowance) and How is HRA Exemption Calculated?

Investment Proofs You Need Submit To Lower TDS Cut From Your Salary

How to Pay Advance Tax Online in India

What is indirect tax and its types?

Section 80C Deductions as per Income Tax Act, 1961

TDS Due Dates of FY 2022-23 For Return Filing

What is the TDS Rate on Salary?

What Investment Options Come with Tax Incentives?

How to file Form 16 online?

What is EEE in income tax? 5 tax-free investment options to become crorepat

What is Section 80CCC of the Income Tax Act 1961

How to Claim a Tax Refund?

Understanding Tax Exemptions in ULIP (Old and New)

How to Get Form 16?

A Guide to Life Insurance Policy’s Tax Benefits and Taxability

8 Things to Help You Select a Savings Investment plan

Income Tax Deductions & Exemptions under Sections 80C, 80D & 80DDB for FY 2021-22 & 2022-23

How to Download Form 16?

Should one prefer a guaranteed savings plan over monthly income schemes?

What is Form 16A?

What is Section 10D of the Income Tax Act?

What is TDS Refund Process?

What is the Maximum Maturity Benefit in Assured Savings Plans?

Why Tax Planning Should Be an All-year Round Activity

Tax Structure in India

How to e file ITR on Income Tax Government Portal

Home Investment Plan to Buy Dream Home

Income Tax Deductions for Disabled Persons Under Section 80U

What is Section 80C - Explained in Detail

Tax Saving Guide for 2019-20

Section 44AD of Income Tax Act for AY 2021-22

Investing Lump Sum Amount

Insurance and Endowment: Everything You Need to Know!

Tax Rate Chart for FY 2022-2023: What is TDS Slab?

Income Tax Filing Using Multiple Form 16

Income Tax Slabs and Rates in India for FY 2021-22/AY 2022-23

Guide for Tax Calculation on your Salary

Basics of Guaranteed Savings Plan

Invest in Tax-Free Bonds: Understanding the Benefits and Who can Invest?

Tax Planning and Tax Benefits of Life Insurance

Tax Saving Tips: Best Ways to Save Income Tax for 2021

How to Check Income Tax Returns Status Onine?

Why is Form 16 Important?

How can I get Form 16B from traces?

Saving Plans to Give Children a Debt-free College Education

How To Invest In Guaranteed Return Plans For Higher Returns And Financial Security?

Problems People Face with Tax Returns after a Job Change

Things to Do After Filing Income Tax Returns

52 Weeks Savings Plan: Daily Savings Plans for a Better Tomorrow

How to File Income Tax Return without Form 16

धारा 80डी आयकर अधिनियम, 1961

ITR 2 Form – Complete Guide

Penalty For Late Filing TDS Return

How Do Assured Savings Plans Work and Why You Should Consider One?

Tax Deductions You MUST Know

What Is Advance Tax and How Is It Calculated?

Section 80E: Tax Exemption on Interest on Education Loan

Understand ITR4 Form: How to Fill, Structure & Determine Your Eligibility