India is a developing economy that requires a steady infusion of capital to maintain its current growth rate. Because investors and realtors are significant drivers of India's economic growth, the Capital Gains Tax is an important tool that provides them with tax incentives, encouraging them to buy and sell assets on a regular basis. Each year's budget is announced on the 1st of February, along with numerous rate changes.

Long-term capital gains (LTCG) would be taxed at 15%, according to Finance Minister Nirmala Sitharaman, who announced this in her Budget 2022 speech on February 1, 2022. Depending on the kind or class of assets, long-term capital gains rates range from 10% to 20%. Only listed shares and mutual fund units are eligible for the LTCG charge at this time.

Simply put, capital gains are the profits or gains made when you sell an item. This is deemed "income" for the purposes of Section 80C of the Internal Revenue Code. You must pay tax on this amount in the year in which your asset was transferred. This is referred to as Capital Gains Tax. If a person obtains an asset through inheritance or bequest, however, capital gains tax does not apply. When the individual who inherits the asset sells the identical property to someone else, however, it becomes taxable.

Capital assets include land (including agricultural land), buildings, patents, machinery, real estate, trademarks, automobiles, leasehold rights, and jewelry that have Indian or Indian-related rights. Few of these items do not come under capital assets:

Personal items such as clothing and furniture, as well as any stock or raw materials maintained for commercial purposes

Agricultural lands in India's rural areas Government-issued national defense bonds or 7% gold bonds or 6.25% gold bonds

Bonds with a special bearer

A gold deposit bond is a bond that is issued as part of a gold deposit arrangement.

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Capital Assets are of two types:

Long Term Capital Asset

Short Term Capital Asset

Long Term Capital Asset

Long-Term Capital Assets are assets that have been held by an individual for more than 36 months. On movable items like jewelry and debt-oriented mutual funds, there is no reduction of 24 months.

In circumstances where assets are held for less than a year/12 months, they are referred to as short-term capital assets.

·        Shares of equity or preference in a publicly traded corporation on any recognized stock exchange.

·        UTI units are securities (debentures, bonds, and government securities) traded on recognized stock exchanges, whether or not they are quoted.

·        Units of equity-oriented mutual funds, whether or not they are quoted

·        Quoted or unquoted zero-coupon bonds.

Short Term Capital Asset (STCA)

Short-term capital assets are assets that have been held for less than 36 months. Starting in the fiscal year 2017-18, the 36-month requirement for immovable property such as land and buildings has been decreased to 24 months. As a result, if you sell an asset after holding it for 24 months, the profit will be subject to long-term capital gains tax (LTCG)

Long-term capital gains were expected to be relieved, according to market participants. The continuation of the LTCG tax, as well as other transaction taxes such as STT and stamp duty, has already harmed investor confidence.

Capital Gains Tax Exemption

This is a section 54 exemption in which capital gains from the sale of a home are reinvested in the acquisition or building of two other homes. Capital gains should not exceed 2 crores, the exemption for two residential properties will be provided once in a taxpayer's lifetime.

Tax Savings on Agricultural Land Sales

In some circumstances, capital gains on agricultural land can be totally exempt:

Agricultural land is not considered a capital asset in rural India, hence sales of these lands are not taxed.

Section 10 (37) of the Income Tax Act exempts capital gains received as compensation for the acquisition of urban agricultural land. You will be exempt from the tax under Section 54B if you have held any land inherited from an individual or parent for two years prior to the sale.

The capital gains tax contributes to the country's economic growth and development. Exemptions from capital gains taxes also serve to mitigate the system of double taxation on corporate revenues, which may prevent investors from selling assets to avoid paying tax, causing the economy to suffer.

Conclusion

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