Capital Gain  and Advance Tax Computation

Capital gain


Capital gain is the profit earned on the sale of a capital asset such as property, stocks, mutual funds, or other investments. To compute the capital gain, you need to know the cost basis of the asset, which is the original purchase price plus any additional expenses incurred such as brokerage fees, commissions, and closing costs.

To calculate capital gain, you subtract the cost basis of the asset from the sale price.

The computation of capital gain involves the following steps:

  • Determine the cost of acquisition: This includes the actual cost of purchase of the asset, including any expenses incurred in acquiring the asset, such as brokerage fees, stamp duty, and legal fees. If the asset was inherited, the cost of acquisition is considered to be the fair market value of the asset at the time of inheritance.
  • Determine the cost of improvement: If any improvements or additions were made to the asset after it was acquired, the cost of improvement is added to the cost of acquisition. This includes expenses such as renovation costs, repairs, and any other expe9nses that have increased the value of the asset.
  • Determine the net sale price: The net sale price is the sale price of the asset less any expenses incurred in selling the asset, such as brokerage fees, legal fees, and advertising expenses.
  • Calculate the capital gain: The capital gain is calculated by subtracting the cost of acquisition (including the cost of improvement) from the net sale price. If the result is a positive number, it is considered a capital gain.
  • Determine the tax liability: Capital gains are taxed at different rates depending on the type of asset and the holding period. Short-term capital gains (assets held for less than 1 year) are taxed at the ordinary income tax rate, while long-term capital gains (assets held for more than 1 year) are taxed at a lower rate.

However, there are some important considerations when calculating capital gain, such as:

  1. Holding period: If you held the asset for more than one year before selling it, the gain is considered a long-term capital gain and taxed at a lower rate than short-term capital gains.
  2. Adjusted basis: The cost basis of the asset may need to be adjusted for certain events such as dividends, stock splits, or corporate mergers.
  3. Losses: If you sold a capital asset at a loss, you can use that loss to offset other capital gains or even ordinary income up to a certain limit.

It's important to consult with a tax professional or financial advisor to ensure that you are correctly calculating and reporting your capital gains.

Advance tax 

Advance tax is a system of paying income tax in advance, rather than in a lump sum at the end of the financial year. This system is designed to ensure that taxpayers pay their taxes in a timely manner, and also helps the government to collect tax revenue more efficiently. The computation of advance tax is as follows:

  1. Estimate your taxable income for the financial year: The first step in computing your advance tax is to estimate your taxable income for the financial year. This can be done by taking into account your salary, business income, capital gains, and other sources of income.
  2. Deduct applicable deductions and exemptions: Once you have estimated your taxable income, you can deduct applicable deductions and exemptions. This includes deductions under Section 80C for investments made in various instruments such as PPF, ELSS, NSC, and so on.
  3. Calculate your tax liability: After deducting the applicable deductions and exemptions, you need to calculate your tax liability based on the tax slabs and rates applicable to your income.
  4. Determine the due dates for payment: The due dates for payment of advance tax depend on the type of taxpayer you are. For individuals, the due dates are generally 15th June, 15th September, 15th December, and 15th March.
  5. Calculate the amount of advance tax to be paid: Based on the tax liability calculated in step 3, you need to calculate the amount of advance tax to be paid. This amount needs to be paid in installments on or before the due dates mentioned in step 4.
  6. Pay the advance tax: Finally, you need to pay the advance tax as per the due dates mentioned in step 4. You can pay the advance tax online through the government's tax portal or through designated banks.

It is important to note that if you fail to pay the advance tax as per the due dates, you may be liable to pay interest and penalties as per the Income Tax Act. It's important to consult with a tax professional or financial advisor to ensure that you are paying correct tax amount.

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