Capital Gains

Types of capital gains

Under the Indian Income Tax Act there are two category of capital gains namely - long term capital gains and short term capital gains. The difference from the point of view of the assessee is the difference in the incidence of tax on these two types of capital gains. Ordinarily a capital asset held for 36 months or less is called a ' short term capital asset' and if the holding period of an asset increases to more than 36 months, the asset is known 'long term capital asset '. However, in relation to shares of a company, the units of Unit Trust of India or any specified Mutual Fund or any security traded in any recognised Indian stock exchange, the holding period for being considered as short term capital asset is twelve months or less. The capital gains on the transfer of the long term capital asset is termed Long Term Capital Gains and the capital gains on the transfer of short term capital asset is termed Short Term Capital Gains.

The short-term capital gain are included in the total income of an assessee and charged to tax along with the other incomes at the normal rates in force. A notified Foreign Institutional Investor however is required to pay tax at the rate of 30% on short term capital gains . For and from the assessment year 1993-94 the scheme of taxation of long term capital gains has been recast. There were a few modification in the provisions in subsequent years and the mode of computation of tax on long term capital gains and the rates of tax valid with effect from the assessment year 1997-98 are as described hereunder.