Capital Gains and Income from Other Sources
This domain covers transfers of capital assets, holding periods, cost adjustments and exemptions, together with residual income taxed under “other sources”.
Core rules
- Capital gain arises on transfer of a capital asset. Short-term or long-term status depends on the asset: listed securities and units generally 12 months; unlisted shares and immovable property 24 months; other capital assets 36 months. Periods are counted from acquisition to transfer.
- Short-term gains are taxed at applicable rates. Long-term gains are taxed under the prescribed regime, with indexation available only where the law allows it. Improvements, transfer expenses and eligible exemptions under sections 54, 54B, 54EC, 54F and 54GB reduce the gain where conditions are met.
- Other sources include interest, dividend, rent from plant and machinery, winnings and gifts. Gifts exceeding ₹50,000 in a year from non-relatives are taxable unless covered by specified exemptions. Family pension gets a statutory deduction subject to limits and regime.
- Interest on compensation, securities and tax refunds is generally taxable under other sources, subject to specific exceptions.
Worked example
Unlisted shares are bought for ₹1,00,000 and sold after 30 months for ₹2,50,000. The holding period exceeds 24 months, so the gain is long-term. The gain is ₹1,50,000 before expenses and exemptions. If the shares were sold after 10 months, the gain would be short-term and taxed differently.
Traps
Use the correct holding-period rule for the asset; do not assume indexation is always available; check whether section 54 etc. requires reinvestment within time; remember the ₹50,000 gift limit; do not tax relatives’ gifts without checking the definition.