About HRA Calculation
House Rent Allowance, or commonly known as HRA, is an amount which is paid by employers to employees as a part of their salaries to employees for paying their house rent. This allowance is on the basis that the employee is renting a place for accommodation for his work purpose.
What is Capital Gains Tax?
The tax that an individual or company is liable to pay tax after selling an asset is known as Capital Gains Tax. You need not pay the tax if the asset you hold has appreciated in value. Capital Gains tax is to be paid only if you have sold the asset.
It is applicable to any asset that rises in value over time – be it stocks and shares, or a real estate property such as house, land or commercial space.
The entire value of sale is taxable under the income head termed as ‘Capital Gain’.
However if there is any loss at the time of selling the capital assets, in the context of purchase price can result in capital loss, which would of course be tax exempt. If you fill return loss can be carried forward upto 7 years
Capital gains tax is not applicable for inherited assets or assets acquired through gift or partition of HUF property.
Long-Term Capital gain (LTCG)
Capital gain is long term if the asset is held for greater than a specified period.
1 year for stocks/equity mutual funds/listed debentures or govt securities/zero-coupon bonds/units of UTI and
2 years for real estate
3 years for debt funds/any other assets.
Short-Term Capital gain (STCG)
The gain in any asset sold before the expiry of a above defined period is termed short term capital gain.
Calculation of Capital Gains
Now you must be wondering what this indexation is? Well, the value of money does not remain constant. It reduces as per inflation. What 10 rupees could buy 10 years ago can not be bought today. Hence indexation takes into account the effect of inflation to reduce your tax liability.
It is calculated using Cost Index Inflation (CII), an index maintained by the Income Tax Department.
For example, the cost inflation index for the running financial year 2018-19 was 280. Assume that you bought a debt fund in 2013 for Rs 100 and sold it in 2018 for Rs 150. Since you have sold it after three years, the gain is long term and a tax of 20% with indexation will apply. The Cost Inflation Index (CII) in FY 13 was 200 and the CII in FY 18 was 272. As a result your purchase price for tax purposes will rise to (272/200)*100 = 136 and your taxable gain will be 150 – 136 = 14.
The tax payable will be 20% of 14 = Rs 2.8.
Hence even though you have made a gain of Rs 50, your actual tax is not 20% of Rs 50 or Rs 10 but rather only Rs 2.8 after applying indexation.
Capital gains (LTCG and STCG) on Equity
Listed stocks, Equity funds as well as hybrid funds are taxed as equity.
In case of equity holding above 1 year will be treated as LTCG. Any fund held for a period of less than 1 year will be STCG.
Till the fiscal year 2017-18, LTCG on equity was tax free in the hands of the investor
Since April 2018, there is a tax of 11.648% (10% tax + 12% surcharge + 4% cess) on LTCG.
However, there will be a basic exemption of Rs.1 lakh available in this case and only LTCG above that limit will be taxed. So for an example your LTCG is 50000, no tax. But remember, this tax on LTCG will be imposed flat without the benefit of indexation.
The STCG (less than 1 year) will be taxed at a flat rate of 17.472% (15% tax + 12% surcharge + 4% cess).
What if you trade intra day?
Intra day trading is not taxed as LTCG or STCG. If you trade intra day I.e. you sell and buy shares on the same day then that is not considered as capital gains. It is considered as your business income and it will be taxed as your income by adding the. Into income from business or as income from other sources.