When an investor or trader sells a security at a higher price compared to its purchase price, the profit earned out of it is known as ‘Capital Gains’.
Let’s say, you bought shares of company ‘ABC’ at ₹50 Lac in 2018. In 2021, you sold those shares in the market at ₹75 Lac. In this scenario, your capital gain would be equal to ₹25 Lac. The capital Gain will not be realised until the shares are sold in the market.
The tax which is charged on capital gains is known as ‘Capital Gain Tax’.
The capital gains are charged differently on the basis of your holding period:
- Short-term Capital Gain
- Long-term Capital Gain