While filing your ITR (income tax return) for the assessment year (AY) 2021-22, it is imperative to look beyond Form 16 or gains from your business. Many assessees forget to add the profits or losses they incur by squaring off their mutual fund units and selling other capital assets.
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This article discusses the tax treatment for capital gains while filing ITR for AY 2021-22.
Capital Gain Meaning
People either own assets for a business, investment, or personal purposes. Section 2(14) of the Income Tax Act, 1961 defines a capital asset as a property of any kind held for investment or personal purposes, such as land, equity stocks, and jewellery.
Capital gain refers to profits generated by selling these assets. It can be –
- Long-term capital gain (Or)
- Short-term capital gain
If the assessee has sold a capital asset at a loss, such loss is known as a capital loss.
In case the assessee has generated profits from the sale of capital assets, they are liable to pay capital gains tax (subject to certain conditions) on it. It depends on the period of holding and the type of asset to calculate your capital gain tax.
How to Calculate Capital Gains Tax?
Short-term Capital Gains Tax (STCG)
Depending on the type of asset you have sold, if you have held it for any period shorter than one, two, or three years, any profit generated from the transaction is deemed short-term capital gains. While stocks and equity-oriented mutual funds are subjected to a 15% tax rate, STCG from any other asset is added to the assessee’s gross taxable amount (GTA) and taxable as per the applicable slab rate.
Short-term Capital Gain = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Cost of Transfer)
Long-term Capital Gains Tax (LTCG)
Depending on the asset in contention, if you hold them for over one, two, or three years before selling, any profit on liquidating such assets is known as long-term capital gains (LTCG). In addition, the assessee gets the benefit of indexation to bring the purchase and improvement cost to current levels.
Long-term Capital Gain = Full Value of Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement (if long term or ‘Cost of Improvement’ + Cost of Transfer)
Applicable Capital Gains Tax Rates
As mentioned above, capital gains tax depends on two factors –
- Type of asset (and)
- Period of holding
Applicable Capital Gains Tax Rates on Real estate
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Any profit from the sale of any immovable asset held for any period over two years is considered long-term capital gains. If your holding period is lower, you are liable to pay short-term capital gains tax (taxed at slab rate), whereas the LTCG rate is 20% (20.6% after adding cess) with indexation benefits.
You can get a 100% tax exemption under Section 54 of the Income Tax Act, 1961 if you fulfil specific criteria.
Applicable Capital Gains Tax Rates on Gold and Debt-oriented Mutual Funds
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The period of holding in consideration for gold and bonds is three years. So, if you have held these for any period below three years, you are liable to pay STCG on profits generated from them (taxed at slab rate). Whereas, if your holding period exceeds three years, you are liable to pay LTCG at 20% on the profits made.
Applicable Capital Gains Tax Rates on Shares and Mutual Fund Units
Any profit from the sale of mutual funds other than debt-oriented ones and equity shares held for over 12 months is subjected to long-term capital gains tax. The tax rate is 10% if the profits exceed ₹ 1 lakh in a financial year. On the other hand, any short-term capital gain generated from such sale is taxed at 15% under Section 111A of the Income Tax Act, 1961.
Things to Remember Before ITR Filing for AY 2021-22
Now that you understand a bit more about capital gains, here are some additional things you should do when tax filing for the AY 2021-22 –
- Link your Aadhaar and PAN card before 30th September 2021. It would enable you to e-verify your ITR application.
- Link your PAN card with a bank account. It would allow you to receive refunds directly into your bank account. Plus, you can also make cash deposits and open FDs without any limit in place.
- Collect Form 16/16A from your employer and verify the details with Form 26AS for ascertaining tax liability
- Check your capital gains tax outflow. Do not forget to include Section 54 deductions, if applicable.
- If your gross taxable income is below the lowest tax slab, you can submit Form 15G/15H to ensure that your bank does not deduct tax on the interest you receive from your investments.
- Download the latest financial year’s Form 26AS from the TRACES portal
- Keep additional documents such as interest certificates, donation certificates, home loan interest, and others while ascertaining your tax liability.