Who Pays Capital Gains Tax?

Wondering

who pays capital gains taxes.

In India, capital gains tax is paid by the individual or entity that realizes a gain from the sale or transfer of a capital asset. A capital asset includes property of any kind, securities, stocks, mutual funds, gold, and other investments. 

Capital gains can be classified into two categories: short-term capital gains (STCG) and long-term capital gains (LTCG).

Who Pays Capital Gains Taxes?

The capital gains tax is paid by the seller of the capital asset. Here’s how it typically works,

• Calculation: The taxpayer calculates the gain by subtracting the purchase price (or indexed cost of acquisition) and any associated costs of transfer from the sale price.

• Filing: The gain is then reported in the taxpayer's income tax return for the relevant financial year.

• Payment: The taxpayer pays the applicable tax rate on the calculated capital gains.

• Exemptions and Deductions: There are various exemptions available under sections 54, 54EC, 54F, etc., which allow the taxpayer to reinvest the proceeds in specified assets (like another property or specified bonds) to defer or avoid paying capital gains tax.

In summary, the responsibility to pay capital gains tax in India falls on the person or entity that realizes the gain from the sale of a capital asset. The tax rates and regulations are determined based on the classification of the asset and the duration for which it was held. 

Taxpayers must adhere to these rules to accurately compute and pay their capital gains tax. This is all about who should pay capital gains tax

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In so many years of being an investment banker, I can tell you that among the most popular investments is purchasing real estate. The main motivation is to own a home, while other people invest in order to profit from the sale of their immovable property. For taxation reasons, a residential property counts as a capital asset. You can deduct the gain or loss from the sale of a residential property on the income tax return. Similar to this, sales of various kinds of capital assets may result in capital profits or losses which leads to capital gains tax. Before I tell you who pays capital gains tax, I will tell you a little about capital gains tax.

What is capital gains tax and who has to pay capital gains tax?

Simply explained, a capital gain is any revenue or gain that results from the selling of a "capital asset." Due to the fact that this gain or profit falls under the category of "income," you must pay tax on it in the year that the capital asset is transferred. Long-term or short-term capital gains tax is what is meant by this. Since there is no sale, only a transference of ownership, capital gains really aren't taxable on inherited property. Assets obtained as gifts through bequest or will are expressly exempt under the Income Tax Act. However, capital gains tax would be charged if the asset's new owner decides to sell it.

You must pay tax on any profit or gain resulting from the sale of a "capital asset" in the year that the transference of the capital asset occurs since it falls within the category of "income." Capital gains tax is the name for this. Long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) are the two forms of capital gains (LTCG).

Who will pay the capital gain tax of different types?

1. STCG ( Short-term capital asset ):

   An asset held for a period of 36 months or less is a short-term capital asset. The criteria are 24 months for immovable properties such as land, building and house property from FY 2017-18. For instance, if you sell a house property after holding it for a period of 24 months, any income arising will be treated as a long-term capital gain, provided that the property is sold after 31st March 2017.

   The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc.

1. LTCG ( Long-term capital asset ):

   Long-term capital assets are those that have been kept for longer than 36 months. If retained for a period of time greater than 36 months, they will be categorised as long-term capital assets. If the owner keeps an asset for 24 months or longer, such as land, a building, or a house, it is termed a long-term capital asset (from FY 2017-18).

Tax Rates – Long-Term Capital Gains and Short-Term Capital Gains

I hope now you understand what is capital gains tax and who pays capital gains tax.