Before we get into the technicalities of LTGC tax, let’s get into the basics and ask ourselves why we need to educate ourselves on the importance of taxes and what are its long-term benefits. Learning about the long-term and global consequences of tax-paying is essential because it helps us understand the potential impacts of our actions and decisions and how they may affect future generations.
On a global level, taxes can fund international development projects and aid programs that help reduce poverty and improve people's lives in developing countries. Taxes can also fund initiatives addressing global challenges such as climate change and disease outbreaks. Additionally, taxes can be used to support the international institutions and organisations that play a crucial role in maintaining global stability and security, such as the United Nations, World Health Organization, and World Trade Organization.
Let’s have a look at the Indian Tax System:
The Income Tax Act of 1961 is the primary legislation governing income taxation in India. It lays out the rules and regulations for the assessment and collection of income tax, including the different types of income that are taxable, the tax rates, and the exemptions and deductions that are available. The Act also lays out the procedures for assessing, appealing and enforcing the tax.
The Act applies to all individuals, Hindu Undivided Families (HUFs), companies, firms, and other entities resident in India and liable to pay income tax. The Act also applies to non-residents with income sourced in India or that accrues or arises in India.
The Income Tax Act provides for several types of taxes, such as income tax, wealth tax, and gift tax. The Act also provides various exemptions, deductions, and tax incentives to encourage certain activities or sectors, such as agriculture, rural development, and social welfare.
The Act is administrated by the Central Board of Direct Taxes (CBDT) and the department of income tax (DIT), which is responsible for enforcing the provisions of the Act and collecting taxes. The Act is amended periodically to align with the changing economic scenario and government policies.
Now, moving on to LTGC. LTCG stands for Long-term Capital Gain Tax, and it is a tax imposed on the profit realised from the sale of a long-term capital asset. A long-term capital asset is an asset the taxpayer holds for more than 36 months before its sale.
Example: If an asset is purchased for Rs.5,00,000 and sold for Rs. 8,00,000. The capital gain will be 8,00,000-5,00,000 = 3,00,000, and LTCG tax will be 20% on the capital gain of 3,00,000 if the capital gain is more than Rs. 1 Lakh.
There are also exemptions and deductions available on LTCG tax under the income tax act, which can help to reduce the tax liability. It is always recommended to consult with a tax professional to determine the exact LTCG tax liability and the best course of action. So, know your taxes and pay your taxes.
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