Question

Which of the following measure is NOT used for managing credit risk

a. Netting arrangements

b. Margin and collateral requirements

c. Capital gain tax

d. Periodic Settlements

Answer 1

Capital gain-

The income tax rules define gain in two broad categories; namely short term capital gain (STCG) and long term capital gain (LTCG). If investors buy and sell assets within 3 years, this comes under short term capital gain. If investors buy real estate, keep it for more than 3 years and sell, it comes under long term capital gain.

For short term capital gain, the gain from asset is added to the investors income and taxed as per the income slab they fall under. For example, if an investor falls under the tax slab of 30%, the gain will also be taxed at the rate of 30%.

For long term capital gain, tax calculation involves what is known as indexation. The acquisition cost or cost of acquiring the asset is recalculated based on indexation. Indexation is a concept, which factors inflation in its calculation by using a factor called cost inflation index (CII). The cost inflation index number is published every year by Reserve Bank of India (RBI) and people can use it to find out the taxable gain on the transaction