Capital Gains Tax (CGT) is tax on profit from selling assets like stocks or property. Tax rate varies by asset type, holding period, and local tax laws.
Capital Gains Tax (CGT) is a tax levied on the profit or gain realized from the sale of an asset, such as real estate, stocks, or bonds. The tax is based on the difference between the sale price and the original purchase price of the asset. The rate of CGT varies based on the asset type, holding period, and tax laws in the respective country.
There are two types of capital gains:
Short-Term Capital Gains (STCG): Gains on assets sold within a short period, typically less than 36 months, are subject to higher tax rates.
Long-Term Capital Gains (LTCG): Gains on assets held for longer than the specified period, generally taxed at a lower rate.
Example: Suppose Investor A buys 100 shares of a company at ₹500 per share, totaling ₹50,000. After 2 years, the investor sells the shares at ₹700 each, receiving ₹70,000.
Capital Gain: ₹70,000 (sale) - ₹50,000 (purchase) = ₹20,000
If the holding period is over 36 months, this gain qualifies as Long-Term Capital Gain (LTCG) and might be taxed at a lower rate, say 10%.
LTCG Tax: ₹20,000 * 10% = ₹2,000
Thus, Investor A will pay ₹2,000 as capital gains tax on the profit of ₹20,000 earned from the sale of the shares.
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