A capital gains tax is a tax on the profit realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.
For people who are miser and do not like to pay lot of taxes , govt has provided some relief to them. Govt says that If you don’t want to pay tax on your capital gains, you can do following things to save your taxes.
Invest your Capital Gains in Real Estate : If you invest your Capital Gains in Real estate within 2 yrs, you will get the the exemption.
Invest in Capital Gain Bonds : There are some specific bonds issued under sec 54EC, some of them are NHAI or REC bonds. You have to invest in these bonds within 6 months. Generally the lock in period is around 3+ yrs. interest on NHAI or REC bonds is around 5-5.5% .
Please note that the Capital Gains tax is not same for everyone. It can vary from one person to other person depending on which tax bracket he/she belongs to. It will also depends whether Tax with Indexation or without Indexation works out to be cheaper for him or not.
There are some asset classes where you have the choice of using Indexation or not . This is true for debt funds and FMP’s. So the current rate is either 20% with Indexation or 10% without Indexation for Long term Capital Gains .
For Tax without Indexation, you simply find out normal profit (sale price – cost price) and then calculate the tax.
So you can calculate tax using both ways and then choose the one which is lower 🙂 .
Capital Gain = Sell Price – Indexed Purchase Price