What is Capital Gains Tax (CGT)?

About Capital Gains Tax (CGT): 

• The term capital gains can be defined as profits accumulated from the sale of any capital asset.
  • Land, buildings, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
  • This includes having rights in or in relation to an Indian company.
  • It also includes the rights of management, control, or any other legal right. 
• Depending on the duration, capital gains can either be short-term or long-term. Since profits are categorised as an ‘income’, they are liable for taxation, which is known as CGT.
• Such taxes are levied when an asset is transferred between owners. This tax applies to both individuals and businesses. Taxpaying individuals can use tax-efficient financial strategies to reduce the burden of their CGT.
• There are two types of CGT: Short-term CGT and Long-term CGT
• Short-term CGT:
  • Any asset that is held for less than 36 months is termed as a short-term asset.
  • In the case of immovable properties, the duration is 24 months.
  • The profits generated through the sale of such an asset would be treated as short-term capital gain and would be taxed accordingly.
• Long-term CGT:
  • Any asset that is held for over 36 months is termed as a long-term asset.
  • Assets like preference shares, equities, UTI units, securities, equity-based Mutual Funds and zero-coupon bonds are also considered as long-term capital asset if they are held for over a year.
  • The profits generated through the sale of such an asset would be treated as long-term capital gain and would attract tax accordingly.