Monday, 24 February 2020 12:15

Understanding Long Term & Short Term Capital Gains & Their Tax Implication

Tax Implication Tax Implication

There are different investment opportunities for the investors and they include the stocks, bonds, real estate & gold etc. The investments made in these assets classes can be of two natures and they are short term and long term. The classification is based upon the holding period of these assets and the holding period of long term or short term also varies in these assets classes.

For example in real estate sector, the investment made for more than 3 years is classified as long term while in the stocks and the bonds the long term period consists of more than one year.

The capital gain is the profit which is being earned by the investors after making investment in different assets. These capital gains are also taxed according to the policies and regulations made by Governments or Central Banks of the countries. The net capital gain is calculated after deducting the amount of tax from the capital gain and the resulting figure is called the net capital gain.

The following table shows the holding period of different assets and the applicable tax rate on these assets.

The investors can also get the benefit of indexation. This rises due to the inflationary trend. Actually when the investment is made for long term, the principal value of the investment reduces due to the inflation. Due to this, the amount being invested if rises four times then purchasing power of money will definitely have went down 50% from the time the investment was actually made. Therefore in order to reduce the impact of inflation on the investment, indexation benefit is provided in calculating long term capital gains.