CAPITAL GAIN TAX AND WHAT ARE THE EXEMPTIONS ALLOWED

Capital Gain Tax

Capital gain tax is a tax levied by the government on the profit earned from the sale or transfer of a capital asset. A capital asset refers to any property or asset that is owned by an individual or business, such as real estate, stocks, bonds, mutual funds, and so on.

 

There are two types of capital gains: long-term capital gains and short-term capital gains. Long-term capital gains are gains that arise from the sale of a capital asset that has been held for more than 24 months, while short-term capital gains are gains that arise from the sale of a capital asset that has been held for less than 24 months. The tax rate for long-term capital gains is lower than that of short-term capital gains. In India, the long-term capital gain tax is currently 20% (with indexation benefit), while the short-term capital gain tax is taxed at the applicable slab rate for the individual.

 

 

Capital Gain exemptions

Here are some of the major types of capital gain exemptions available under the Income Tax Act, section-wise:

 

capital gain tax

 

1. Exemption on Long-term Capital Gains (LTCG) from Equity Shares and Equity Mutual Funds

Section 10(38) of the Income Tax Act provides for the exemption on long-term capital gains arising from the sale of equity shares or equity-oriented mutual funds held for more than 12 months.

 

 

2. Exemption on Long-term Capital Gains from Residential Property

Section 54 of the Income Tax Act provides for the exemption on long-term capital gains arising from the sale of a residential property by investing the proceeds in another residential property within the specified time limit.

 

 

3. Exemption on Long-term Capital Gains from Agricultural Land

Section 54B of the Income Tax Act provides for the exemption on long-term capital gains arising from the sale of agricultural land by investing the proceeds in another agricultural land within the specified time limit.

 

 

4. Exemption on Long-term Capital Gains from Bonds

Section 54EC of the Income Tax Act provides for the exemption on long-term capital gains arising from the sale of any long-term asset by investing the proceeds in specified bonds issued by National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) within the specified time limit.

 

 

capital gain tax

 

5. Exemption on Long-term Capital Gains from any Other Assets

Section 54F of the Income Tax Act provides for the exemption on long-term capital gains arising from the sale of any asset other than a residential house property by investing the proceeds in purchasing or constructing a residential house property within the specified time limit.

 

 

6. Exemption on Short-term Capital Gains from Equity Shares and Equity Mutual Funds

Section 111A of the Income Tax Act provides for the exemption on short-term capital gains arising from the sale
of equity shares or equity-oriented mutual funds held for up to 12 months, subject to certain conditions.

 

 

Read More: POINTS TO CONSIDER WHILE FILING INCOME TAX RETURN TO AVOID NOTICES FROM DEPARTMENT

 

 

7. Exemption on Short-term Capital Gains from Other Assets

Section 54B of the Income Tax Act provides for the exemption on short-term capital gains arising from the sale of an agricultural land by investing the proceeds in another agricultural land within the specified time limit.

In India, there are 25 ways to save money on taxes.

Do you have a good job and a good salary… as well as belonging to India. But are you aware of the tax-saving options accessible to you…? By clicking on our blog, you have made the ideal decision.

Let us first grasp – before we dive into the ocean of brilliance that is income tax saving policy.

What is income tax, and why is it required of us to pay it to the government?

On a more lighthearted note, you should be aware that income tax is a direct tax that must be paid by everyone on the income produced during the previous year. In tax terms, the tax is due in the assessment year after the prior year. The government, as we all know, does not work and has no sources of income. Have you ever considered how they spend all of their money on expensive projects such as building roads, and dams, working on other policies, and so on? The simple answer to this issue is that they are using the money we pay them in taxes as a source of income.

Why would you want to save money on taxes?

Saving tax is unquestionably vital, as what good is it if we earn and then pay the government the entire amount or an excess? It doesn’t sound good, and it isn’t the best solution for this situation.

If you are eligible for any government scheme or if you are a senior or super senior citizen, you have the right to save tax in accordance with the government’s guidelines, and you should take advantage of it. It is beneficial to your health while also ensuring that you do not violate any government regulations.

But suppose if someone wants to take unnecessary benefits even though they are not eligible then it is to be proven wrong by our government policies as they don’t allow us to do so and it is not ethical either. Let’s assume you have done so right now and nobody knows about but what? when they got to know, Do you know what happened to you..? You are called to be a defaulter and have to pay tax with a penalty imposed upon you so it is better to be disciplined in terms of paying tax. 

The best way to assess taxes is to use a formula.

Appropriate tax evaluation must be completed by anyone, either by themselves or with the assistance of a Chartered Accountant, who is the only person known for their particular understanding of tax matters.

Let’s not lose any more time and figure out how to save money on income taxes, especially in India

1. National Pension System 

The National Pension System (NPS) is a government-run pension system (NPS). It falls under section 80C and includes a variety of different alternatives such as a Sukanya Samriddhi Account, life insurance, and public provident fund, among others.

2. Amount inherited via will 

There is no inheritance tax in India, hence anyone inheriting property from their parents or relatives through WILL is not liable for taxes.

3. The HUF Account

If you are a member of a HUF or a joint Hindu family, you can take advantage of Section 80C to save tax on your second income or any additional income.

4. Agriculture Revenue 

 In India, any income obtained from agricultural land is not taxable; this includes any land rent, agricultural product income, and farm building essential for agricultural productivity.

The farm income exemption covers this under Section 10(1).

5. Program for Voluntary Retirement

The money given to them is not taxable up to five lakh under Section 10(10C) of the tax exemption. It is only applicable to those employees who are retiring willingly. 

6. Wedding presents

If any money given to you during your marriage is tax-free under Section 56(2) of the tax code.

7.  Equity mutual funds

It’s a hard one since it’s linked to the stock market, which is constantly fluctuating. Pro-tip: file your tax return on time so you can be compensated if you incur any losses.

8. Pursue higher education 

They can take advantage of scholarships for studies that are tax-free and covered under income tax section 10(16) to save money.

9. Interest income earned on NRE 

Interest income earned on NRE (Non-Resident External Account) accounts is not taxable since our government encourages NRIs (Non-Resident Indians) to invest.

10. Interest from savings accounts

This section TTB is for elderly citizens and TTA is for persons under 60 years of age, and you can save in a post office account or a cooperative society to get a tax exemption.

11. Medical Assistance 

 Medical treatment for a designated disease for yourself or a relative qualifies you for a tax deduction under section 80DDB of the Internal Revenue Code.

12. Expenses for medical treatment 

If you have paid any medical expenses for a disabled person, you may be eligible for a tax deduction under section 80U.

13. Medical treatment for handicapped people 

 If you have incurred expenses for handicapped dependent relations under section 80DD, you can claim a deduction of $125,000

14. Medical Insurance

Medical Insurance is a type of insurance that covers a person’s medical expenses.Do you have a regular medical insurance premium? Do you know that under Section 80D of the Income Tax Act, you may be able to save money on your taxes?

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15. Educational Loan 

Because India is a developing country, Indians are permitted to take out loans for education, which are exempt from taxation under section 80E.

16. Long-term capital gain

On the sale of a residence, the long-term capital gain (LTCG) is calculated. If you have sold a property and received any gain, that sum is deemed LTCG and is not taxed under section 54 of the Income Tax Act.

17. Income Tax Act 

 Only if you meet the conditions set forth in sections 24 and 80EEA of the Income Tax Act can you make use of this benefit.

18. Assured Fund

You can avoid tax if you get money from a provident fund after 5 years.

19. National Pension Scheme

If contributions to the NPS are made, there is an additional benefit in terms of tax savings (National Pension Scheme) If you have done so, you can claim a tax deduction under section 80CCD (1B).

20. Donations to charitable or non-profit organizations 

Donations to charitable or non-profit organizations can also help you save money on taxes under Section 80G of the Act.

21. Financial contributions to political parties

If you have made any non-cash donations to political parties, you may be eligible for exemptions under section 80GGC.

22. Inflation-adjusted interest on electric vehicle purchases

Because electric vehicles do not use fuel and thus indirectly benefit the environment, our government has set aside a maximum of Rs. 1,50,000 to be exempted if you acquire an EV under Section 80 EEB.

23. Profits in partnership enterprises

 As a partner in any firm, you can benefit from tax savings because your firm has already paid tax on profits earned from operating partnership firms.

24. Business travel or accommodation expenses

Hotel and travel expenses connected to business will be reported as business expenses by business people. As a result, the sum is not taxed.

25. Price of food
This can also be claimed as a business cost.

You should pay tax because the government is ultimately working for us and we should be responsible for it, but if you are qualified for any exemptions, you should take advantage of them.

ELEVEN PERSONAL FINANCE RULES WE ALL MUST KNOW

ELEVEN PERSONAL FINANCE RULES WE ALL MUST KNOW

1) Rule of 72 (Double Your Money)
2) Rule of 70 (Inflation)
3) 4% Withdrawal Rule
4) 100 Minus Age Rule
5) 10, 5, 3 Rule
6) 50-30-20 Rule
7) 3X Emergency Rule
8) 40℅ EMI Rule
9) Life Insurance Rule
10) Rule of 144
11) Revolving Credit Formula:- (1+i%)^12-1.

1) Rule of 72

No. of years required to double your money at a given rate, U just divide 72 by interest rate
Eg, if you want to know how long it will take to double your money at 8% interest, divide 72 by 8 and get 9 years.

At 6% rate, it will take 12 years
At 9% rate, it will take 8 years

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2) Rule of 70

Divide 70 by the current inflation rate to know how fast the value of your investment will get reduced to half its present value.

The inflation rate of 7% will reduce the value of your money to half in 10 years.

3) 4% Rule for Financial Freedom

Corpus Required = 25 times of your estimated Annual Expenses.

Eg- if your annual expense after 50 years of age is 500,000 and you wish to take VRS then the corpus with you required is 1.25 crore.

Put 50% of this into fixed income & 50% into equity.

Withdraw 4% every year, i.e.5 lacs.

This rule works for 96% of the time in 30 years period

4) 100 minus your age rule

This rule is used for asset allocation. Subtract your age from 100 to find out, how much of your portfolio should be allocated to equities

Suppose your Age is 30 so (100 – 30 = 70)

Equity : 70%
Debt : 30%

But if your Age is 60 so (100 – 60 = 40)

Equity : 40%
Debt : 60%

5) 10-5-3 Rule

One should have reasonable returns expectations

10℅ Rate of return – Equity / Mutual Funds
5℅ – Debts ( Fixed Deposits or Other Debt instruments)
3℅ – Savings Account

6) 50-30-20 Rule – about the allocation of income to expense

Divide your income into
50℅ – Needs (Groceries, rent, EMI, etc)
30℅ – Wants / Desires (Entertainment, vacations, etc)
20℅ – Savings (Equity, MFs, Debt, FD, etc)

At least try to save 20℅ of your income. You can definitely save more…

7) 3X Emergency Rule

Always put at least 3 times your monthly income in Emergency funds for emergencies such as loss of employment, medical emergency, etc.

3 X Monthly Income

In fact, one can have around 6 X Monthly Income in liquid or near liquid assets to be on a safer side.

AIS displays ALL of your digital financial transactions that the IRS is aware of.

8). 40℅ EMI Rule

Never go beyond 40℅ of your income into EMIs.

Say if you earn ₹ 50,000 per month. Then you should not have EMIs of more than ₹ 20,000.

This Rule is generally used by Finance companies to provide loans. You can use it to manage your finances.

9) Life Insurance Rule

Always have Sum Assured as 20 times of your Annual Income.

20 X Annual Income

Say you earn ₹ 5 Lacs annually, you should at least have 1 crore insurance by following this Rule.

10) Rule of 144 –

No of years it takes to double your money at a given rate when investment is done via SIP. E.g . If the rate is 15% then sip corpus will double in 144/15= 9.6 years.

11) Revolving Credit Formula:- (1+i%)^12-1.

Example:- If a credit card Company charge’s 3% per month as interest. The Compound Annual cost is = (1+3%)^12-1 = 42.6%

These rules are equally useful for young, youth and old. Hope you will find them simple, useful and handy.