Tax on Investment

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The Burning Tale
Tax on Investment
With more people going on the internet, increasing awareness and presence of online portals has led to an increased interest in stock market investing.   But what about income from sale or purchase of shares? Many homemakers, retired people, spend their time gainfully buying and selling shares but are unsure of how this income is taxed. This can lead to unwanted complications when one incurs huge gains.
What is Capital Gain?
Income/Loss from sale of equity shares is covered under the head ‘Capital Gains’.
Long Term Vs Short Term Capital Gains (LTCG Vs STCG)

In capital gains, there are two elements. The first element is the cost basis. And the second element is the duration of the assets held.

On the basis of the duration of financial and capital assets held, we decide whether it’s a short or a long-term gain.
Indexation Benefit

Indexation is the process that takes into account inflation from the time you bought the asset to the time you sell it.

It is used to adjust the purchase price of an investment to reflect the effect of inflation on it. A higher purchase price means lesser profits, which effectively means a lower tax.

With the help of indexation, you will be able to lower your long-term capital gains, which brings down your taxable income.

Capital Loss

A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value &  is sold for a price that is lower than the original purchase price.

The income tax department allows losses to be offset within the heading ‘Capital Gains‘. Long-term capital losses can only be set against long-term capital gains. Short-term capital losses may be offset against both long-term earnings and short-term earnings.

Carry Forward of Losses

If you are unable to recover the entire capital loss in the same year, you can carry forward both the short-term and long-term loss for eight assessment years immediately after the assessment year in which the loss was first measured. When capital losses occur from a company, these losses may be carried forward, and it is not necessary to carry this onto the business.
Bonus: We have made a detailed video on how to set off your losses and how to minimise tax on investment return. Click here to watch the video.

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