Identify the relationship between the following statements.

A) Capital gain is the difference between the money received from selling the asset and the price paid for it.

B) Capital gain also includes a gain that arises on "transfer" (includes sale, exchange) of a capital asset and is categorized into short-term gains and long-term gains. 

The correct answer is A and B are true. B is relevant to A..

Key Points

• Capital gain is defined as the difference between the selling price of a capital asset and the price paid for its acquisition.
• A capital asset refers to property held by an individual, such as land, buildings, shares, mutual funds, etc.
• Capital gain includes profits arising from the transfer of a capital asset, which encompasses sale, exchange, or relinquishment.
• Capital gains are categorized into short-term (assets held for a short duration) and long-term gains (assets held for a longer duration).
• The statement in B is relevant to A as it provides further classification and explanation of capital gains, aligning with the definition mentioned in A.

Additional Information

• Short-term capital gain: Occurs when a capital asset is sold within a specified short-term period (e.g., less than 36 months for certain assets).
• Long-term capital gain: Happens when a capital asset is sold after holding it for a longer period, usually more than 36 months (exceptions exist, e.g., shares and mutual funds).
• Indexed cost of acquisition: In the case of long-term capital assets, the cost can be indexed to account for inflation, reducing taxable gains.
• Capital gains are taxed differently under the Income Tax Act, 1961, with short-term and long-term gains subject to varying tax rates.
• A transfer of a capital asset includes sale, exchange, relinquishment, or even extinguishment of rights, as per Section 2(47) of the Income Tax Act.