Definition of Capital Gains
Capital gains refer to gains arising out of sale or transfer of capital assets. Similarly, any loss arising out of sale or transfer of capital assets is known as a capital loss. Capital gains are subject to capital gains tax payable in the year in which such sale or transfer takes place.

Definiton of Capital Assets
Capital assets include all moveable or immoveable property which is normally held for long-term and cannot be converted into cash easily. Hence, capital assets do not include trading goods, gold bonds, personal effects excluding jewelry, and agricultural land not falling within 8 kms from any notified municipal area. Examples of capital assets are: land, building, plant and machinery, shares, debentures, units of mutual funds etc.

Computation of Capital Gains
Capital gains can be computed by using the below mentioned formula:

	Consideration amount received from sale of capital asset		-----
Less :	The asset's actual cost (if acquired after April 1, 1981), or
	Asset's estimated market value as on April 1, 1981 (if acquired before April 1, 1981)	--
Less:	Cost of improvement (if any)	--
Less:	Expenses incurred on sale/transfer of capital asset	--	-----
	Capital Gain		----

Note: In case of long term capital assets, costs are adjusted as per cost inflation index for the year.

Difference between short term and long-term capital assets
Capital gains are classified into two types, namely, long term and short term. Capital assets which are held for a period more than 36 months are known as long-term capital assets, whereas capital assets held for a period less than 36 months are termed as short-term capital assets. Capital assets also include shares, debentures and units of mutual funds, but the period of holding in case of these assets is only 12 months and not 36 months. Profit on sale/transfer of long-term capital assets is tax-free whereas profit on short-term capital assets is taxable as regular income.

1. Long Term Capital Gain
   Gain arising from sale of capital assets like shares after a period of one year is known as long-term capital gain tax. In India, long term capital gain is exempt from tax.
   
   Exemptions from Long Term Capital Gain Tax
   In case of Individuals and HUF, long-term capital gains are exempt if the sale proceeds are reinvested in certain assets.
   Some examples:
   
   1. Profits on sale of residential house is reinvested in a new residential house
   2. Long term capital gains are invested in notified bonds
   These exemptions are subject to certain conditions and the reinvestment has to be made within the prescribed time.
   
   
2. Short Term Capital Gain
   Any profit/gain arising out of sale of capital assets (like shares etc.) before a period of oneyear is known as short-term capital gain. Short-term capital gains aretaxable at the rate of 10%.