Capital Gains
Introduction
Income-tax Act contains provisions for computation of income from five different sources and income from capital gains is one of them. Part E of Chapter IV of Income-tax Act, 2025 contains provisions for computation of income from capital gains.
1. About
The Income-tax Act has prescribed the following five heads of income under which whole of the income earned by the assessee shall be computed:
(a) Income from Salary;
(b) Income from House Property;
(c) Income from Profits and Gains of Business or Profession;
(d) Income from Capital Gains;
(e) Income from Other Sources.
The provisions for computation of income under the head capital gains are contained in Part E of Chapter IV of Income-tax Act, 2025. The Part E contains Section 67 to Section 91.
1.1. Chargeability of capital gains
Main article: Chargeability of Capital Gains
As per Section 67(1), any profit or gain arising from transfer of a capital asset is taxable on accrual basis during the tax year in which such transfer takes place. However, every transfer of a capital asset does not give rise to taxable capital gain because some transactions are either not treated as transfer under Section 70 or they are excluded from the preview of capital asset under Section 2(22) or they enjoy exemption for reinvestment of capital gains or sales consideration.
Section 67 also contains sub-sections (2) to (18) which define the chargeability of capital gains in respect of specific transactions.
1.2. Computation of capital gains
Main article: Computation of Capital Gains
| Particulars | Amount |
Full Value of Consideration Less: (a) Expenses incurred wholly and exclusively in connection with transfer (b) Cost of Acquisition (c) Cost of Improvement (d) Capital gains taxable under Section 67(10), which is attributable to the capital asset remaining with the firm, AOP or BOI after reconstitution Less: Exemption for reinvestment of capital gains or sales consideration |
xxx (xxx) (xxx) (xxx) (xxx) (xxx) |
| Short-term or Long-term Capital Gains | xxx |
1.3. Tax rates applicable to capital gains
Main article: Tax rates applicable in case of Capital Gains
The rate of tax on capital gains depends upon the nature of capital gain - short-term capital gains or long-term capital gains.
Long-term capital gains are taxable at the rate of 12.5%. The benefit of indexation shall not be available to assessee while computing the amount of long-term capital gain. However, the resident individual and resident HUF have the option to pay tax at the rate of 12.5% without indexation benefit or 20% with indexation benefit on long-term capital gain arising from the transfer of land or building acquired before 23-07-2024.
Short-term Capital gains are generally added to total taxable income and are chargeable to tax as per the tax rate applicable according to the status of the assessee. However, in a few cases short-term capital gains are also taxable at concessional rates.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.