Capital Gains Tax in Theory and Practice

Dr. S.M. Jawed Akhtar

doi:https://doi.org/10.17492/vision.v1i1.2417

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Capital Gains Tax in Theory and Practice

S.M. Jawed Akhtar

https://doi.org/10.17492/vision.v1i1.2417

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Published Online: June 24, 2014

Author Details ( * ) denotes Corresponding author

1. * S.M. Jawed Akhtar, Associate Professor, Department of Economics, Aligarh Muslim University, Aligarh, Uttar Pradesh, India (drsmjawed@gmail.com)

Capital gains arise from the sale of assets other than those held in the ordinary conduct of business. For example, gains from the sale of a house by the house owner are capital gains while gains from appreciation in the value of houses held by a real estate dealer are ordinary gains of business. A decrease in the value of an asset is called a capital loss. In India, capital gains tax is levied within the framework of Indian Income Tax Act, 1961. Sections 45 to 55A of the Act relate to the taxation of capital gains. Since capital gains are not annual accruals from a given source but represent appreciation in the market value of assets over a period of time, they are treated on a different footing. The preferential treatment is given to long-term capital gains only. This paper examines the various theoretical issues associated with the taxation of capital gains and the present system of taxing capital gains in India.

Keywords

Capital gains, Inflation indexing, Transfer of assets

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The Institute for Fiscal Studies, The Structure and Reform of Direct Taxation, Report of a Committee Chaired by Professor J. E. Meade (London: George Allen and Unwin, 1978), p. 132.
R. A. Musgrave and P. B. Musgrave, Public Finance in Theory and Practice (New York: McGraw-Hill Book Company, 1985), pp. 338-39.