Individuals invest capital across a range of assets like bonds, stocks, real estate, mutual funds, cryptocurrency, etc. The aim of all investments is to achieve consistent returns in a period. Although particular investments do not invite any tax, any profit that is made when selling such investments may be liable for tax. The amount of tax that has to be paid depends on the annual income of any investor and the period for which the investment was held. In view of this, investors must make a note of short-term capital gain, and any gain achieved by holding assets for the long term.
When you first open a demat account to invest in a number of securities, you likely do not figure the tax you will have to pay if you buy and sell the securities. However, whether you own stocks, cryptocurrency, mutual fund units, real estate, etc., you have to pay some tax if you sell these assets and gain a profit. This profit is termed as capital gain. The capital gain tax comes into effect when you have sold an asset for a higher price than which it was bought at. Capital gains are taxed under the laws of the Indian Income Tax Act (1961). Therefore, any capital gain is, in a broad sense, any capital you earn as a profit after you sell an asset.
You may invest in stocks, real estate or any upcoming IPO, but if you sell any investments like these for a profit, you make a capital gain. This is a term that is generally used for any profit from your investment. Within the broad purview of any capital gain you make, depending on how long you held your investment, there is short-term capital gain (for assets that were held for a stipulated short term) and long-term capital gain (for assets held over a stipulated long term). Both these sub-categories under “capital gains are taxed in different ways according to the regulations of the Income Tax Act (1961).
Sometimes, short-term capital gain is also known as “small gain/s”. Short-term capital gains and long-term gains are classified differently according to asset holding duration. Note the following:
When you open a demat account to invest in stocks or have any other assets, you should be aware of how you may be taxed in case you profit from the sale of your assets. This is important whether you invest in real estate, any upcoming IPO, or any other asset you may hold and then sell. Profits are taxed, and you must be prepared for the same.