Difference Between Income Tax and Capital Gains Tax – Income tax is paid on income from employment, interest, dividends, royalties, or self-employment. Taxes are widely known as financial gains. which is paid to those government persons. He is known to derive monetary inflows from his salary, wages and profits made from property. Usually a tax is obtained coercively. In the sense that no person shall voluntarily pay taxes.
And only because they are bound by law to make such payments to the government. A tax may be direct or indirect and the rate of tax that an individual is required to pay will depend on that tax bracket. in which they come on the basis of their income, or capital gains. The following article explores two forms of taxes, income tax and capital gains taxes. The article clearly states. What is each form of tax? and outlines the difference between these two forms of taxation.
Difference Between Income Tax and Capital Gains Tax
| Income Tax | Capital Gains Tax |
| Income tax has a wider scope when compared to capital gains tax. | Capital gains tax has a narrower scope when compared to income tax. |
| The income tax has a completely variable structure, and it is totally dependent on the specific tax bracket. | The rate for capital gains tax is completely dependent on the actual period of ownership of an asset. |
| The income tax is defined as a direct tax that is imposed by the government upon their citizens based on the income or profits which they earn in a financial year. | The capital gains tax, on the other hand, is defined as a tax on the profit that a person or a company earns when they decide to sell or transfer capital assets, and earn profits from them as a result. |
| The source for the earnings that is taxable under the income tax includes wages, salaries, royalties, interest, rents, product sales, etc. | The source for earnings that is taxable under the capital gains tax includes stocks, shares, bonds, property, etc. The capital gains tax is a subset of the income tax. |
| There are five main heads of income that are covered under the income tax. | There are two main categories under the capital gains tax. |
| Business or profession House property rentals Salary Sources like interest income on lotteries, bank deposits Income from capital gains on sale of assets | Long term capital gains tax Short term capital gains tax |
What is Capital Gains Tax?
A capital gain then occurs. When an investor/individual makes profit from appreciation in the value of an asset. Capital gains are profits associated with assets such as stocks, land, buildings, investment securities, etc. Capital gains are received by individuals. When they are able to sell their property at a price higher than that value. on which he had purchased the property. The difference between the purchase price and the higher selling price is called the capital gain. Capital gains, which are made by individuals.
Are subject to taxation and will depend on the tax bracket (the category into which capital gains fit). eg. A person buys a piece of land for $100,000 over 10 years, the value of the land has appreciated by $500,000, and he makes a profit of $400,000. According to the notional tax bracket, (330,000-450,000) he is subject to a 20% capital gains tax, and therefore must pay 20% of his profits as tax to the government.
What is Income Tax?
Income tax is one such tax. Which is levied by the government on the income of any person. A person who earns more. He will fall in a higher tax bracket and, therefore, will be subject to a higher level of taxation. As tax is levied on the income of an individual. The same happens for any company as well. The tax levied on the income of a company is known as corporate tax.
But there is an important difference between corporate tax and income tax. That corporate tax is charged from the net income of the company. Whereas income tax is that. Where the entire income of the individual will be taxed. Income tax is a major source of income for the government. And so, any person who is legally employed. and his salary which falls in the relevant tax bracket. The government should pay tax on its income.
What Is the Difference Between Income Tax and Capital Gains Tax
Both income tax and capital gains tax are financial burdens imposed on an individual. Which on the other hand serve as the main source of income to the government. There is another important similarity. That capital gains should be realized, for it to be taxed. This means that the person must actually receive the appreciated cash in order to receive the tax. And the value of the property sold cannot be appreciated.
Because even though the value of the property has increased if he has not sold that asset. Cannot receive cash. And hence, one cannot pay taxes to the government. Same is the case with income tax. Unless the income is in the hands of the company/individual, the income received cannot be taxed. Taxable income comes from many sources like salary, wages, interest, royalty, rent, product sales, etc.
Conclusion
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