In India, tax on capital gains is assessed and collected based on the provisions laid out in the Income Tax Act, 1961. Capital gains tax applies to the profit earned from the sale of capital assets such as property, stocks, and bonds. Here’s a detailed overview of how capital gains tax is assessed and collected: 1. Types of Capital Gains: Short-Term Capital Gains (STCG): Gains arising from the sale of a capital asset held for less than 36 months (12 months for certain assets like listed securities, units of equity mutual funds, and others) are considered short-term. Long-Term Capital Gains (LTCG): Gains from the sale of a capital asset held for more than the specified holding period (36 months or 12 months for specified assets) are considered long-term. 2. Assessment of Capital Gains: Calculation of Capital Gains: Selling Price: The price at which the asset is sold. Cost of Acquisition: The purchase price of the asset, which may include any expenses incurred in acquiring the asset (e.g., registration fees). Cost of Improvement: Any costs incurred to improve the asset, which can be added to the cost of acquisition. Indexed Cost of Acquisition: For LTCG, the cost of acquisition can be adjusted for inflation using the Cost Inflation Index (CII) provided by the government. Formula: For STCG: STCG = Selling Price − Cost of Acquisition STCG=Selling Price−Cost of Acquisition For LTCG: LTCG = Selling Price − Indexed Cost of Acquisition LTCG=Selling Price−Indexed Cost of Acquisition 3. Tax Rates: Short-Term Capital Gains Tax: STCG is taxed at the individual's applicable income tax slab rates or at a flat rate of 15% for specific assets like equity shares and mutual funds. Long-Term Capital Gains Tax: LTCG exceeding ₹1 lakh in a financial year is taxed at 20% with indexation benefits. Gains up to ₹1 lakh are exempt from tax for individuals and Hindu Undivided Families (HUFs). 4. Reporting and Filing: Taxpayers must report capital gains in their income tax returns (ITR). Details regarding the sale, purchase, and calculation of capital gains must be disclosed accurately in the appropriate schedules of the ITR. 5. Collection of Tax: Tax Deducted at Source (TDS): For the sale of certain assets, TDS may be deducted at the time of the transaction. For example, the buyer is required to deduct TDS at the rate of 1% on the sale of immovable property if the consideration exceeds ₹50 lakh. For securities transactions, TDS is generally not applicable as capital gains are taxed under the income tax provisions. Self-Assessment Tax: Taxpayers must compute and pay any tax on capital gains during the assessment year through self-assessment. 6. Exemptions and Deductions: Section 54: Exemption on LTCG arising from the sale of a residential property if the proceeds are reinvested in another residential property within a specified period. Section 54EC: Exemption on LTCG if the amount is invested in specified bonds issued by NHAI or REC within six months of the transfer. Section 80C: Investments in specified assets may qualify for deductions, although this is more applicable to other income categories than capital gains. 7. Assessment Process: The Income Tax Department may conduct assessments if discrepancies are found in the declared capital gains. This can lead to scrutiny or audits of the taxpayer's financial records. Conclusion: Capital gains tax in India is assessed based on the duration of asset holding and calculated based on the profit from the sale of capital assets. The tax rates vary for short-term and long-term gains, and there are specific exemptions and deductions available to taxpayers. Accurate reporting in income tax returns and adherence to TDS regulations are essential for compliance.