Difference between capital gains and total income

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    Difference between capital gains and total income
    Not many investors understand the implications of capital gains tax and what it means. One needs to understand the difference, and use benefits available for exemption from capital gains tax and act accordingly.

    Capital gains:

    Capital gains is the excess over and above the amount invested when you sell an asset.

    In simple words when an individual make profit from sale of his assets which is appreciated during the holding period, he needs to pay capital gains. It may be stocks, property, building, securities etc.

    The difference between the buy amount and sale amount cant be termed as capital gains.

    Say for example, Mr Pratham bought a land for Rs 10 lakhs in 2005. Now, in 2011 his property has appreciated to Rs 18 lakhs if he sells the same land for Rs 18 lakhs. In this case we will consider he falls under 20% tax bracket. The difference amount of Rs 8 lakh is capital gains and can use indexation benefits and pay capital gains

    Taxation:

    Now, Mr Pratham is eligible to Capital gains tax under the Income Tax Act. However, he can avoid paying capital gains on propery by investing the same in the proceeds from the sale of another property or in government specified bonds.

    Income:

    Income for individual usually refers to salary, wages, business gain, rent and interest received.  If a sale of an asset does not fall under capital asset, it is considered as income. Income for business person is the amount received after deducting all expenses.

    Taxation:

    Income tax levied on individual is based on income of the individual earned and will be taxed at prevailing rates.

    GoodReturns.in

    Read more about: income tax
    Story first published: Saturday, December 29, 2012, 10:12 [IST]
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