Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. Such gain or profit is charged to tax in the year in which the transfer of the capital asset takes place or when the sale is affected.
In case of an inheritance, though there is a transfer of assets but there is no ‘sale’, therefore there are no capital gains applicable when an asset is inherited. However, when this inherited asset is sold by the person who inherits it – capital gains tax will be applicable. The Income Tax Act has specifically exempted assets received as Gifts by way of an inheritance or will.
Here are some examples of capital assets –
Land, Building, House Property, Vehicles, Patents, Trademarks, Leasehold rights, Machinery, Jewellery.
This includes rights in or in relation to an Indian Company, including rights of management or control or any other right.
The following are not considered capital assets –
- Any stocks or consumables or raw material held for the purpose of Business or Profession
- Personal goods – clothes, furniture held for personal use.
- Agricultural Land in Rural Area in India*
- 6 ½ % Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government
- Special Bearer Bonds 1991
- Gold Deposit Bond issued under the Gold Deposit Scheme 1999
*Definition of Rural Area – from AY 2014-15 – Any area which is outside the jurisdiction of a municipality or cantonment board having a population of 10,000 or more is considered Rural Area, if it does not fall within distance(to be measured aerially) given below – (population is as per the last census)
|2kms from local limit of municipality or cantonment board||If the population of the municipality/cantonment board is more than 10,000 but not more than 1lakh|
|6kms from local limit of municipality or cantonment board||If the population of the municipality/cantonment board is more than 1lakh but not more than 10 lakh|
|8kms from local limit of municipality or cantonment board||If the population of the municipality/cantonment board is more than 10lakh|
In our next post we will look at what are Long Term and Short Term Capital Gains, which may vary according to not only basis the time period they have been held for but also according to the type of asset in question.
If you have recently sold an asset and are not sure if Capital Gains apply to you – write to us firstname.lastname@example.org and we will be happy to help you!