Capital gains are classified into long term and short term based on the period for which
the asset was held. In the case of immovable property if the asset has been held by the
assessee for more than 3 years it will be regarded as long term. In the case of shares the
period of holding has to be only 12 months.
While short-term capital gains is taxed like any other income, special treatment is
accorded to the long-term capital gains.
While computing long-term capital gains the cost inflation index can be applied and the
gains are taxed at a flat rate of 20 per cent only.
Moreover, capital gain exemptions can be availed of by reinvesting the consideration
subject to certain conditions such as:
In case property used for residence is sold, exemption can be claimed from capital gains
if a new house is purchased within a period of1 year before or 2 years after the date of
transfer or new house is constructed within 3 years.
In case of sale of assets other than a residential house exemption under Section 54F can
be claimed if the net consideration is reinvested in purchase or construction of a new
residential house within the prescribed period subject to conditions.
If the amount is not invested in a new house before the due date of filing of returns the
amount should be invested in the capital gains account scheme of a Nationalized Bank. The
amount can be drawn from the account and utilized subsequently within
the prescribed period.
Exemption from capital gains can also be availed by investing in specified bonds under
section 54EC. In the case of capital gains arising during the financial year 2000-2001,
this exemption is available on 3 years redeemable bonds issued by NABARD or by the
National Highways Authority of India. In respect of capital gains arising on or after
April 1, 2001, investment can be made in the bonds issued by Rural Electrification
Corporation Ltd.
Exemption is available to the extent of capital gains invested. The investment has to be
made within 6 months from the date of transfer.
|
