Capital gain at its essence is an increase in a capital assets’ original value. Only when a sale takes place for the transfer of ownership of properties, capital gains tax will be applicable. Capital assets include land, building, vehicles, patents, trademarks, machinery, stock investments etc. Capital gains is particularly covered under the definition of income, hence it’s taxable in the year in which in the transfer of the capital asset takes place. Capital gains tax can be classified on the basis of short term gain and long term gain. The tax is not applicable on inherited properties as there is no sale taking place.
Importance of Capital Gain
The tax payable on the capital gain depends on how long the assets are being held before making a sale. They are classified as long term and short term and are taxed accordingly. It’s necessary to keep these taxes in mind whenever an asset is being sold.
Long term capital gains come from assets that have been held for more than 1 year before selling them. The tax rate for most taxpayers who report long term capital gains is 15% or lower.
Short term capital gains come from assets that have been owned for 1 year or less. They are subject to taxation just as ordinary income unlike long term gains and the taxation ranges from 10%-37%.
How to Invest in Capital Gains Profitably
- The most profitable way to invest to get better capital gains is by holding onto the assets for more than a year.
- Long term capital gains are generally taxed at a more favorable rate so you can minimize the capital gains tax.
- If an individual uses the entire sale proceedings of the capital asset to be bought, the house property then will not be taxed.
- Agricultural land in the rural areas are not considered as capital assets hence no tax will be applicable.
- To understand the capital gains, you must be aware of terms like full value consideration, the cost of acquisition and the cost of improvement as capital gain = Selling price- Purchasing Price
- If you ever experience a loss in your investment, you can take advantage of it by decreasing the taxes on your gains other investments.
Considering the present economic scenario, it is the right time to invest in capital assets like residential and commercial properties as you can take advantage by reducing your capital gains tax while holding onto your assets for a longer period of time to increase the long term capital gain.
Pyramid Lifestyle offers you a plethora of options to choose from residential properties ranging from apartments and row houses, and commercial properties consisting of shops & office spaces. Book your property before 31st March, 2021 and make the most of the capital gains before possession.