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Finance GlossaryCapital Gains Tax
Capital Gains Tax
Definition of Capital Gains Tax
Capital gains are profits, which means they can be taxed. The rate of taxation is based on the type of asset (debt/equity) and holding period. Here is the list of ways capital gains are taxed in India:
| Asset Type | Gains Type | Holding Period | Tax Rate |
|---|---|---|---|
| Equity | Short Term Capital Gains | < 1 year | 15% |
| Long Term Capital Gains | > 1 year | 10% | |
| Debt | Short Term Capital Gains | < 3 years | As per I-T slab |
| Long Term Capital Gains | > 3 years | 20% |
Related Terms
Theta
Theta measures the rate at which an option loses value as time passes, assuming other factors remain constant. It reflects time decay, which accelerates as the option nears expiry. For option buyers, theta works as a cost over time, while for option sellers, it can be a favourable component of returns.
Paper Profit/Loss
Paper profit or loss ( Unrealised profit or loss) is the profit or loss on an investment that has not been converted into actual cash. Paper profit occurs when the current market value of a security is higher than its purchase price while when the current market value of a security is less than its purchase price, it is paper loss. The profit or loss is only realised when the investor sells the security, thus it is also called paper trading and virtual trading. Indian tax laws don't tax profits on paper until realised through sale.
Forward Market
The forward market is a place where forward contracts are traded. A forward is an over-the-counter derivative that carries a pre-agreed expiration date and price on which the contract must be exercised. It carries a right and an obligation.
Forwards are similar to futures but there is one major difference - forwards are unregulated instruments. Any entity writing a forward contract can customize the lot size and other details to fit their needs.
The forward market, as a whole, is an unregulated market whose typical participants include banks, vendors, and other large financial players.
Forwards are similar to futures but there is one major difference - forwards are unregulated instruments. Any entity writing a forward contract can customize the lot size and other details to fit their needs.
The forward market, as a whole, is an unregulated market whose typical participants include banks, vendors, and other large financial players.
Naked Option
Naked Option refers to an options position where the seller does not hold the underlying asset or a hedging position. This exposes the trader to potentially unlimited losses if the market moves sharply against the position. Naked options are generally considered high risk and are used by experienced traders only.
American Option
An American Option allows the contract holder to exercise the right any time before or on the expiry date. American style options contracts are not available in India.
Bullion
Bullion is used to refer to gold, silver, and other non-ferrous metals that have been designed to have high purity. These metals are generally molded into bars, coins, and other valuable items.
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