Simply put, any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
This gain or profit is comes under the category ‘income’, and hence you will need to pay tax for that amount in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term.
Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry 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 or control or any other legal right.
What are short term capital assets and long term capital assets?
Different assets have different periods of holding to be called short term and long term. Here is a table that defines period of holding for different classes of asset in order to be classified as short term or long term.
How does the type of Capital asset affect my taxation?
The Income Tax Act incentivizes holding of assets for a longer period, by generally charging a lower tax rate on Long Term Capital Gains vis a vis Short Term Capital Gains.
What's the treatment of my Capital Losses?
As a thumb-rule, capital losses can be set off only against capital gains.
Accordingly, short term capital losses can be set off against any income under capital gains be it short term or long term. However, long term capital losses can be set off only against long term capital gains.
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