Capital Gain refers to the gain or profit made by selling a capital asset at a higher price than the cost. A capital asset can be shares, immovable assets such as land and building and movable assets such as jewelry and paintings. While calculating the gain there are indexing adjustments allowed both in USA and India for cost inflation.
In India, capital gain on immovable property, which is the focus of discussion here, is considered short term capital gain if an asset is held for less than 24 months, and long term capital gain if asset is held for at least 24 months. Assets like shares or mutual fund units have a shorter period of 12 months for being defined as short term or long term and the default period for determining short or long term for capital assets is 36 months.
The short term capital gain (STCG) on property is taxed at normal rates but long term capital gain (LTCG) is charged at a lower rate of 20%. There are ways to get exemptions to the long term capital gain. These are contained in Section 54 (old asset: residential, new asset: residential), 54EC (old asset: any asset, new asset: specified bonds) and 54F (old asset: any asset, new asset: residential) of the Indian Income Tax Act and they relate to reinvestments of long term capital gain amount in specified assets, example, purchase or construction of residence or invest in government approved bonds within a specified period (example, reinvest within 2 or 3 years of sale depending on asset type) and held for a specified period (usually 3 years). Refer Income Tax website for details and practical examples on capital gain taxability in India.
In USA, capital gain is short term if asset held for less than 1 year, and long term if held longer before sale. The short term capital gain is taxed similar to India at normal tax rates of income but long term capital gain gets a lower tax rate of 15% or 20% based on income level.There is an investment tax addition for higher incomes which makes the rate effective as 23.8% in 2018. State taxes will also apply on capital gains based on taxability in the state of residence of the tax payer. Similar to India there are some exemptions but of a different kind. For primary residence of tax payer where taxpayer has lived for at least 2 of 5 years prior to sale, there is an exclusion of $250,000 single and $500,000 married. Capital gain is reported in Form 1040 Schedule D. For more details refer Topic No. 409 Capital Gains and Losses in IRS site.
In both countries there are rules for setoff of capital gains and loss and also for the carry forward of loss to subsequent years for claim later again gains of same income type.
When a sale of asset is taxed in more than one country, say in both India and USA because of foreign income taxability, there are double taxation rules that apply and relief under country specific tax laws and DTAA (Double Taxation Avoidance Treaties).
