Question

Explain Capital gains and losses versus ordinary gains and losses what's your understanding?

Answer 1

EXPLANATIONS OF EACH TERMS-

• CAPITAL GAIN

Capital gain refers to the profit or gain from the sale of capital assets like shares,bonds, security, at selling price more than its cost price.

Capital gains are further classified into two -

1] SHORT TERM CAPITAL GAINS - If you hold the capital assets for less than one year of purchase, and sell within one year , on more than its cost price, it refers to Short term capital gains.

2] LONG TERM CAPITAL GAINS - If you hold the capital assets more than one year of purchase and sell after one year on more than its cost price, the gain will called as long term capital gains.

• CAPITAL LOSSES

Capital losses refers to the loss from the sale of Capital assets like Shares,bonds for less than its cost price.

• ORDINARY GAINS

Ordinary gains refers to the profit, occurs from the normal operations of business, it refers to any income like wages, interest income etc. It occurs from the sale of Non-capital assets like property held for sale to customers etc.

• ORDINARY LOSSES

Ordinary losses refers to the losses occurs from the normal operations of business, when expense exceed income.

THE BASIC DIFFERENCE BETWEEN ORDINARY GAINS AND LOSSES & CAPITAL GAINS AND LOSSES-

• CAPITAL GAINS AND LOSSES occurs from the sale of capital assets while on the other side, ORDINARY GAINS AND LOSSES occurs from the sale of non capital assets.

•  ORDINARY GAINS AND LOSSES occurs from the normal operations of business but CAPITAL GAINS AND LOSSES doesn't.