Why the short term / long term bifurcation is considered so important for taxpayers?
Answer
Answer
The taxability of capital gains depends on the nature of gain, i.e., whether short-term or long-term. Hence, to determine the taxability, capital gains are to be classified into short- term and long-term. In other words, the tax rates for long-term capital gain and short-term capital gain are different.
Computation of Short-Term Capital Gains
Short term capital gain is not the difference between the sell price and the buy price. But it also factors in some adjustments for the purpose of calculation of tax. Let us look at these adjustments. Short-term capital gain arising on account of transfer of short-term capital asset is computed as follows:
Particulars
Calculation of STCG
Full value of consideration (i.e., Sales value of the asset)
Rs. XXXXX
Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.)
Rs. XXX
Net Sale Consideration
Rs. XXXXX
Less: Cost of acquisition (i.e., the purchase price of the capital asset)
Rs. XXXXX
Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )
Rs. XXX
Short-Term Capital Gains
Rs. XXXX