Income Tax capital gains exemption: All you need to know; Check income tax calculator

Income Tax calculation for AY 2019-20: Capital gains or losses form one of the trickiest parts of income tax calculation. For most of the lay taxpayers are not even aware of what all translates into capital gains or loss. As per the Income-Tax department's official website, "Any profit or gain arising from transfer of a capital asset during the year is charged to tax under the head 'Capital Gains'”.

But, what is capital asset? It can defined as any kind of property held by a taxpayer. It doesn't matter if they are connected with his/her business or profession or not. Securities held by Foreign Institutional Investors (FIIs) are also considered as capital assets. Yes, the property being a capital asset, may or may not be connected with the business or profession of the taxpayer. 

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However, following items are not considered as capital assets, hence exempted from tax calculation purpose:

- Any stock-in-trade, consumable stores, or raw materials held by a person for the purpose of his business or profession. Example: Motor car for a motor car dealer or gold for a jewellery merchant are not capital assets. 

Securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 will always be treated as capital asset, hence, such securities cannot be treated as stock-in-trade.

- Personal effects of a person such as movable property, wearing apparels and furniture held for personal use, by a person or for use by any member of his family dependent on him. There are some exceptions too: Jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art are not treated as personal effects and, hence, are included in the definition of capital assets.

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- Agricultural Land in India, but not being a land situated within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000; Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

A. Not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;

B. Not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or

C. Not being more than 8 KMs , if population of such area is more than 10 lakhs.

IT department says, "The population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year."

- 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government.
- Special Bearer Bonds, 1991, issued by the Central Government
- Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.
- Deposit certificates issued under the Gold Monetisation Scheme, 2015.

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Capital Gains Exempted under Section 10 of Income Tax Act

The Section 10 of Income Tax Act lists out incomes that are exempt from tax. These are: 

- Section 10(33): Long-term or short-term capital gain arising on transfer of units of Unit Scheme, 1964 (US 64) referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after 1-4-2002.

- Section 10(37): An individual or Hindu Undivided Family (HUF) can claim exemption in respect of capital gain arising from the transfer of agricultural land situated in an urban area by way of compulsory acquisition under any law or a consideration for such transfer is determined or approved by the Central Government or the Reserve Bank of India. This exemption is available if the land was used by the taxpayer (or by his parents in the case of an individual) for agricultural purposes for a period of 2 years immediately preceding the date of its transfer. Such income has arisen from the compensation or consideration for such transfer received by an assessee on or after the 1st day of April, 2004.

Tax exemption: Capital Gain vs Capital Losses

We all know that tax needs to be paid on any short term or long term capital gains. But very few know that capital losses can be balanced off against gains. For example: If you make a a long-term capital gain of Rs 30 lakh by selling property and long-term capital loss of 10 lakh by selling stocks, then the total taxable amount for you would be Rs 12 lakh. 

(Inputs from Income Tax website)