In very simple words, every yield or gain that results from the selling of any capital asset is called a capital gain. Capital gains income comes particularly under the portrayal of income. And this will require you to pay your tax for the capital gains in that year itself when the transfer takes place. The tax can be of two types: long-term capital gain & short-term capital gain. It is never applicable for inherited possessions that are not for sale. If you receive presents particularly by the way of an inheritance or will, you will get rid of taxes. However, if you decide to sell that asset, then the capital taxes will be imposed. Click to know more about saving taxes.
The Common Misconceptions
Below listed are some common myths about capital gains tax in India busted.
Taxing Investment Earnings Will Not Necessarily Lower Your Investment
The most common confusion heard about capital gains tax in India is this. This is also believed to reduce wages and employment. But that is not exactly what the fundamental economic logic speaks.
It says that when the prices of a particular item start going up, people start buying that material less. But this never means that consumers spend less on that item. A rash competition continues between the reduction of the quantity purchased and the increase in the price of the quantity.
Similarly, while investing, people are effectively buying for future consumption, for themselves and their heirs. So, in the end, when investment income is taxed, the race is between the reduction of the quantity for future uses bought and the increase in their price.
The Data Does Not Give Any Transparent Response
Going back to the above-mentioned race, ideally, the result of that competition will show if taxing investment can increase it or decrease it. This can be resolved just by doing a careful study of proper data.
But in reality, the data is very disheveled and the doubt remains the same.
Gifts From Any Person Are Absolutely Tax-free
Surely you feel cheerful while receiving a gift. But the moment you get to know that you have to pay tax for it thereon, your happiness may be gone. Under the capital gains tax in India, taxes on gifts has been abolished for sure but still, there are some provisions listed in the Income Tax Act that can make the recipient pay taxes for the gift.
Only when gifts are received from specific relatives, are they not taxable. And that amount also has no upper limit. Likewise, during your marriage, you can receive gifts from anyone, with no upper limit and it is absolutely tax-free. On your birthday, you can receive presents from your relatives without any limit, but those received from non-relatives have an upper limit of Rs 50,000 per annum. Any amount from a non-relative exceeding that will require you to pay tax on the whole gift, under capital gains tax in India.
Filing Tax Returns Is A Complicated Task
This is surely not true, given that you have completed your home task. There are some notified forms for the capital gains tax in India which a person can use while filing tax returns. You can also go for filing income tax returns online. But there’s an online acknowledgment form known as ITRV, which will be required to be submitted in person, to the competent tax authorities. Filing an IRTV will not be required if you have a digital signature. You can also avail of the E-verification service in that case. You can get various such free e-filing sites that will help you in your preparation for Income Tax returns.
Surely, now you know about the truth behind most of the common myths. Capital gains are mostly estimated by lowering the purchase price from the sale amount to know the gains. But the same process cannot be appropriate for the asset that has been held for a long period. It has a different way of estimation. So, estimate your capital gains tax in India wisely.