How to claim LTCG (Long term capital gain) of Rs 1lac from shares/Equity Mutual funds FY 2021-2022 (AY 2022-2023)
Have you sold any real estate, stocks, collective investment schemes, or other Capital Assets? You will be subject to Capital Gains Tax and will be required to report such earnings under the heading “Capital Gains.”
Are you hoping to save money on Capital Gains Tax? In the following post, we’ll go over Capital Gains in-depth.
What do you mean by capital assets?
To comprehend when a capital gains tax would apply, you must first grasp the definition of “capital assets,” or assets that would be subject to a capital gains tax if sold. Capital assets are those that you possess and can make a profit from. House property, pieces of jewelry, land, and buildings, goodwill, brand, patent, car, equipment, investments, and so on are all examples of capital assets.
Read More: How to Calculate Tax on Mutual Funds?
The following points, on the other hand, are not included in the definition of capital assets:
Capital Assets: Short and Long Term
A short-term capital asset is one that an assessee has held for less than 36 months prior to the time of transaction. As a result, a long-term capital asset is one that an assessee has held for more than 36 months before the date of transfer.
Security (other than a unit) listed on a recognized stock exchange, a unit of an equity-oriented Index fund, will be regarded as a long capital asset if held for more than 12 months immediately prior to the time frame of transfer.
What are capital gains, and how do you calculate them?
Any earnings or gains originating from the transfer of a capital asset in the preceding year are taxable to income tax under the heading ”Capital Gains”, according to Section 45 of the Income Tax Act of 1961.
These capital gains will be treated as income from the year in which the transaction occurred. Two words are crucial in this subsection on charging. The terms “capital asset” and “transfer” are used interchangeably.
How do you calculate capital gains tax, both short and long term?
There are various components of computation that you should be aware of before computing capital gains tax. The following are some of these aspects:
The whole value of consideration is the sum of money obtained when you transfer a capital asset to another person.
The price you pay for a capital asset when you acquire it.
When you make any improvements or adjustments to the asset in terms of improving it, you will incur expenses. Furthermore, if you acquire the asset from the prior owner and the former owner paid for any changes, those costs will be reflected in the asset’s cost of improvement.
Formula
The following formula is used to determine long-term capital gains:
(Indexed cost of purchase + indexed cost of improvement + expenditures paid in transferring or selling the asset) = total value of consideration
Short-term capital gains are calculated in the same way as long-term capital gains.
The formula for calculating the short-term capital gain is as follows:
(cost of purchase + cost of improvement + fees paid in transferring or selling the asset) is the whole value of consideration.
How to claim LTCG (Long term capital gain) of Rs 1lac from shares/Equity Mutual funds FY 2021-2022 (AY 2022-2023)
You must file your return if you earned Long Term Capital Gains (LTCG) in the fiscal year 2021-22. Up to Rs 1 lakh in LTCG from the sale of shares/equity mutual funds (covered under section 112A) is tax-free. There is a special circumstance if you have incurred/carried forward Long Term Capital Loss (LTCL) from another source.
This LTCL is deducted from the LTCG under section 112A without the benefits of the Rs 1 lakh exemption.
Setting off losses: You can set off losses incurred under a head of income against gains/profits from other heads subject to conditions. Both intra-head and inter-head set-offs are possible.
Also, losses that couldn’t be set off can be carried forward. Both short-term and long-term capital losses can be carried forward for eight years.
Setting off LTCG from shares against other LTCL.
This is where there is an issue. If you have earned LTCG from shares of less than Rs 1 lakh and have also incurred/carried forward LTCL from some other source (like from the sale of land, or stocks), first, you will have to set off the long-term capital gain with LTCL.
If after setting off you have LTCG up to Rs 1 lakh, that will be totally tax-free. Beyond Rs 1 lakh, you will have to pay tax at the rate of 10%.
Read More: Golden Rules for Saving for Retirement
Conclusion
There are two significant advantages to knowing how much tax one must pay on income from various investments. For starters, investors are able to predict how much money they will make from their investment ahead of schedule.
Secondly, making accurate tax contributions reduces the risk of getting audited or obtaining a letter from the Internal Revenue Service. In the long run, this could save investors a substantial amount of time and work.
