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what is a Capital Gain

Capital gain is the profit realized from the sale of an asset such as a stock, bond, real estate, or other investment. It is calculated by subtracting the cost of the asset (also known as the “basis”) from the sale price. If the sale price is higher than the cost of the asset, the difference is considered a capital gain.

Capital gains can be short-term or long-term, depending on how long the asset was held before it was sold. Short-term capital gains are realized when an asset is sold within one year of the purchase date, and they are taxed at the individual’s marginal income tax rate. Long-term capital gains are realized when an asset is held for more than one year before it is sold, and they are typically taxed at a lower rate than short-term capital gains.
Types of capital gains

Realized capital gains

Realized capital gains are when an asset is sold and capital gain is realized.

Unrealized capital gain

Unrealized capital gains are when an asset is held and its value has increased, but it has not been sold yet.

It’s important to note that capital gains are taxable events, and it’s important to keep track of them and report them to the tax authorities. It’s also important to consider the tax implications of selling an asset and to consult a tax professional or financial advisor to understand how capital gains will affect your taxes.

In addition, some assets are considered short-term capital assets if they are held for less than 12 months.
  • Stocks of recognized organizations listed on the Indian Stock Exchange.
  • Securities such as bonds and corporate bonds listed on the Indian Stock Exchange.
  • UTI unit, cited or not.
  • Capital gains on equity-oriented mutual funds with or without quotes.
[ZERO-COUPON BOND.]

Based on the holding period of the asset, the return on investment can be broadly classified into the following types –

Capital Gains Calculation
To calculate capital gains, you must be familiar with some important terms.
  • Acquisition Cost (COA): the value or value at which the asset was acquired. Indexed acquisition costs are taken into account for calculating the capital gains of assets, for which the benefits of indexing are recognized.
  • Improvement Cost (COI): Money spent on changing or improving a property. This only applies if you spend after 1 April 2001. For some assets, such as real estate, indexed costs of improvements are considered.
  • UTI unit, cited or not.
  • Inflation Index (CII): An index of inflation that affects the value of long-term assets. Whenever CII is issued by the government and the benefits of sequencing are allowed, you should calculate the indexed acquisition cost or sequencing improvement cost.
  • Sales Cost (CoS): The costs required for the sale of an asset. Costs to be recorded as sales costs depend on the type of property. For example, in the case of stocks, brokerage fees and securities transaction tax (STT) are considered selling costs. For land, this can be brokerage charges, stamp fees, travel expenses and some inheritance costs.
[INVESTMENT SECURITY OR RISK MITIGATION IS ONE OF THE MAJOR OBJECTIVES OF PORTFOLIO MANAGEMENT.]