Partner With Us

Income Tax vs. Capital Gains Tax: What's the Difference?

We all pay taxes in some or the other form-direct or indirect. When we buy a soap or a packet of chips from a store, we pay some tax indirectly. Our monthly salaries or income in businesses are also taxed, beyond a certain basic exemption limit. As citizens of this country, taxation is something we are all familiar with.

In India, we have a comprehensive Income Tax Act, a legislation that covers everything pertaining to taxation. We pay an income tax on our annual earnings. There is a basic exemption limit, and those earning an amount lower than this limit are exempted from paying taxes. Then again, some of us may have come across the term Capital Gains Tax. Let us take a look at both these concepts and the key differences between them.

Income Tax

Say, you are employed at an IT firm and have a fixed monthly salary. Your annual income comes under the taxable bracket amount. Under the Income Tax Act, you are liable to pay taxes on the taxable portions of the income in line with the outlined tax slabs.

At the end of each financial year, we are required to file our income tax returns and declare all our earnings. There are certain types of income sources or categories that are exempted from taxation to boost savings habit among people and help citizens build a retirement corpus. These reliefs are granted to taxpayers under several sections of this Act.

There are five main heads of income which are covered by the Income Tax Act. The incomes from salary, business or profession, house property rentals, capital gains on sale of assets, and other sources (interest income on bank deposits, lotteries, etc.) are all subject to income tax.

Capital Gains Tax

The income that you earn from sale or transfer of any capital assets- mutual funds, shares, property, etc.- comes under the ambit of capital gains. This type of income is subject to Capital Gains Tax. So, to put it simply, Capital Gains Tax is a subset of Income Tax.

Capital Gains Tax is categorised into two types: Short-Term Capital Gains (STCG) Tax and Long-Term Capital Gains (STCG) Tax. The period or duration for which a capital asset is held determines whether it falls under short-term capital assets or long-term capital assets. Thus, income from the given asset sale is accordingly taxed as STCG or LTCG. These assets are taxed at different rates as laid down by the tax department.

Disclaimer :ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, filing of tax related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. The content is solely for informational and educational purpose. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

Most Popular

  • 27 Sep 2021
  • ICICI Securities

The Five Rules of Investing in Equities

Investment in equity should be made by following certain rules. There are five rules of equity investments. They arise from an understanding of the stock market and mitigate the chances of making mistakes and incurring losses.

  • 27 Sep 2021
  • ICICI Securities

Investment Rules: 5 Thumb Rules of Investing in Market

While you work for money, suitable investments make your money work for you. How you take control of your finances determines the growth of your wealth and additional income streams. Click here to read about the five golden rules you can follow while investing.

  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

Open an Account

Sign Up for Free


Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend



Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app