How is short-term capital gain taxed?
Very simple. A short-term capital gain is added to your total income.Depending on which tax bracket you fall under, you will be taxed. How is long-term capital gain taxed? Tax on long-term capital gain (other than shares and mutual fund units), is more complicated. This is because inflation is taken into account. This is good because it reduces the amount of capital gain and the amount you end up paying as tax. Let’s say Mr Mani purchased a house of Rs 2,50,000 (Rs 250,000) on June 20, 1996. He sells it on January 20, 2005, for Rs 4,50,000 (Rs 450,000). Since the house was sold over 36 months after being bought, the capital gain will be long term. First, you calculate the Cost Inflation Index. These indices are fixed and declared by the Central Government every year (see table below). This is called indexation. Cost inflation index: Index of the year it was sold / index of the year it was bought 2004-05 index / 1996-97 index 480/305 = 1.57377 Indexed cost of acquisition = Buying cost x
