The earnings you make by selling or transferring certain assets, such as stocks, mutual funds, real estate, or other investments, are referred to as capital gains. As a first-time filer, it's crucial to identify whether you have earned any capital gains during the financial year.
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Classification of Capital Gains
Under the Income Tax Act, capital gains are categorized as either "short-term" or "long-term" based on the holding period of the asset. If you held the asset for less than 24 months, it is considered a short-term capital gain. If you held it for 24 months or more, it is classified as a long-term capital gain.
Taxation of Capital Gains
Short-term capital gains are subject to tax at your applicable income tax slab rate. On the other hand, long-term capital gains may be taxed at a special rate, depending on the asset type. For example, long-term gains from the sale of listed equity shares or equity-oriented mutual funds are currently exempt from tax up to a specified limit.
Reporting Capital Gains
To include capital gains in your tax return, you need to file Schedule CG along with your income tax return. The schedule requires you to provide details such as the nature of the asset, sale consideration, cost of acquisition, and any deductions or exemptions applicable. It is important to maintain accurate records of the transactions and supporting documents.
Utilizing Exemptions and Deductions
Certain exemptions and deductions are available to reduce the tax liability on capital gains. For example, under Section 54, you may be eligible for an exemption if you reinvest the sale proceeds from a residential property into another property. Similarly, deductions under Section 54F are available for investment in a new residential property, provided you meet the specified conditions.
As a first-time tax filer in India, including capital gains in your tax return requires proper understanding and compliance. Additionally, exploring exemptions and deductions can help minimize your tax liability. It is a good idea to seek guidance from a tax professional or refer to the Income Tax Department's guidelines for specific details related to your circumstances.
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