A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Capital Gains Tax (CGT) is a tax levied by the government on the disposal of capital assets that have increased in value since you acquired them; including property and shares Incomes such as salary, rent and business income are regular and recurring incomes. These are earned in return for providing a particular service such as skills in case of the salaried, professional service or service in the form of permission to use property. However, these do not cover all sources of income.
Incomes can arise out of the sale of capital assets such as your house, jewelry, land or even equity shares and mutual fund units. The profits that you make on such sale transactions will be charged to tax as capital gains. One may be liable to pay Capital Gains Tax for properties in the following situations: When one sells or exchanges an asset or when one transfers or gives away an asset, when one receives money due to an asset. The fact that a taxpayer's main residence is exempt from the tax is almost certainly the most widely known feature of CGT on property. But, as always with tax, although true, it is loaded with ifs and buts. If more than one property is owned and available, i.e. not rented out, then the individual can elect for whichever they wish to be the main residence, provided that they have used the relevant property as a residence and notice is given within two years of having any particular combination of residences.
Capital Gains Tax can be quite complex and it is wise to seek professional advice as to how much tax you may be liable for. Additionally, losses made on assets that would be liable for Capital Gains Tax can be set against the overall taxable gains, potentially reducing them. Spousal transfers of assets are exempt from Capital Gains Tax, and each spouse in a marriage benefits from their own AEA, while joint assets have their taxable gains and losses divided between spouses. One has to pay short-term or long-term capital gains tax on the profits made on the sale of a house, depending on how long the property was owned before the sale. A house refers to a residential property and does not include commercial property and plots of land. Capital gains are considered part of income and are taxed at marginal rate of tax when the gain has been added to other income.