Capital Gains arise when a taxpayer transfers a capital asset and receives more than the amount invested in acquiring it, after making the adjustments permitted under tax law.
Capital assets may include:
- Shares and securities
- Mutual fund units
- Land and buildings
- Gold and jewellery
- Certain other investments or property
A simplified calculation is:
Sale Value − Cost of Acquisition − Eligible Expenses = Capital Gain
For example, if an investor buys shares for ₹2 lakh and later sells them for ₹2.8 lakh, the basic gain before applying other tax adjustments would be:
₹2,80,000 − ₹2,00,000 = ₹80,000
Capital Gains may be classified differently depending on factors such as:
- Type of asset
- Holding period
- Applicable tax law
- Whether the gain qualifies as short-term or long-term
- Whether any exemption or special tax treatment applies
In India, capital gains are generally taxed under the head “Capital Gains.”
The tax treatment can differ significantly between asset classes. Some gains may be taxed at special rates, while others may be taxed differently depending on the holding period and the legal provisions in force.
Capital Gains should therefore be understood as the taxable profit arising from the transfer of a capital asset, rather than simply the cash received from selling it.