Income From Capital Gain
Updated on : Feb. 18, 2023 - noon 17 min read.
Income from capital gains is a type of income earned by individuals or businesses from the sale of an asset, such as stocks, bonds, mutual funds, real estate, or other investments. The capital gain is the difference between the purchase price of the asset and the selling price. This gain is considered a taxable income by the government and is subject to capital gains tax.
Income Tax Return Form for Capital Gains:
The Income Tax Return Form (ITR) used to report capital gains in India is ITR 2, ITR 3, ITR 4, or ITR 5. The choice of form depends on the nature of the income and the type of taxpayer. For example, ITR 2 is for individuals and Hindu Undivided Families (HUF) who have income from capital gains and do not have income from business or profession.
Format of Income from Capital Gains:
The format of income from capital gains is as follows:
- Sale consideration: This is the amount received from the sale of the asset.
- Less: Cost of acquisition: This is the cost incurred in acquiring the asset, which includes the purchase price, brokerage, and other expenses.
- Less: Cost of improvement: This is the cost incurred in improving the asset, such as repairs, renovation, or other expenses.
- Capital gain: This is the difference between the sale consideration and the cost of acquisition and improvement.
- Taxable capital gain: This is the capital gain minus the exemptions and deductions available under the income tax laws.
How to withdraw money from capital gain account?
To withdraw money from a Capital Gains Account, you need to follow the steps below:
- Submit an application: You need to submit an application to the bank or financial institution where your Capital Gains Account is held, requesting a withdrawal.
- Provide supporting documents: You may need to provide supporting documents, such as your PAN card, Capital Gains Account statement, and a copy of the application form.
- Specify the amount to be withdrawn: In your application, you need to specify the amount you want to withdraw from your Capital Gains Account.
- Choose the mode of withdrawal: You can choose the mode of withdrawal, which can be either through a demand draft or an electronic transfer.
- Wait for processing: Once the application is processed, the bank or financial institution will transfer the money to your bank account or issue a demand draft in your name, as per your request.
It's important to note that there are certain restrictions on withdrawing money from a Capital Gains Account. For example, the withdrawal can only be made for the purpose of purchasing or constructing a residential property, and the withdrawal amount cannot exceed the amount deposited in the Capital Gains Account. Any excess withdrawal will be subject to capital gains tax.
Also, it's advisable to consult with a tax professional or financial advisor before withdrawing money from a Capital Gains Account, as there may be tax implications and other considerations that need to be taken into account.
Calculation of Capital Gains Tax:
The calculation of capital gains tax depends on the type of asset and the period for which it was held. If the asset was held for less than 36 months, it is considered a short-term capital gain, and if it was held for more than 36 months, it is considered a long-term capital gain.
Short-term capital gains are added to the income and taxed at the applicable income tax rate. Long-term capital gains are taxed at a lower rate of 20%, with the benefit of indexation. Indexation refers to adjusting the purchase price of the asset for inflation, which reduces the tax liability.
Exemptions and Deductions:
There are several exemptions and deductions available under the income tax laws that can reduce the taxable capital gain. For example, if the sale proceeds are reinvested in a residential property, the capital gain is exempt from tax under Section 54 of the Income Tax Act. Similarly, if the sale proceeds are invested in specified bonds, the capital gain is exempt under Section 54EC.
Income from capital gains is an important source of income for many individuals and businesses. It is important to understand the tax implications of capital gains and to plan investments accordingly. The Income Tax Return Form and the format of income from capital gains provide a structured approach to reporting capital gains and calculating the tax liability. With the help of exemptions and deductions, taxpayers can reduce their tax liability and maximise their after-tax returns.