CAPITAL GAIN TAX Meaning and
Definition
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Capital Gains Tax refers to a tax levied on the profit earned from the sale of a capital asset such as stocks, real estate, bonds, or other investments. It is based on the difference between the purchase price (known as the cost basis) and the selling price of the asset. Essentially, it is the tax imposed on the increase in the value of an investment.
When an individual or entity sells an asset for more than what it was initially purchased for, a capital gain is realized. This gain is subject to taxation by the government to generate revenue. The capital gains tax rate generally depends on several factors including the holding period of the asset, the individual's tax bracket, and the type of asset being sold.
Usually, long-term capital gains, which are realized from assets held for more than one year, are taxed at a lower rate than short-term capital gains, which are earned from assets held for less than a year. The tax is charged on the specific portion of the gain and not the entire sale amount.
Capital gains tax plays a crucial role in a nation's tax system, as it aims to encourage long-term investment and economic growth while ensuring that individuals contribute a fair share of their investment returns to the government.
