Capital gains occur when you sell an asset for more than you paid. Buy a stock at $50, sell at $80 — your capital gain is $30 per share. Buy a house for Rs 50 lakh, sell for Rs 80 lakh — Rs 30 lakh capital gain. It is the profit from price appreciation, distinct from income (dividends, rent, interest).
Tax treatment differs by holding period: short-term capital gains (STCG) — assets held less than 1-3 years, taxed at higher rates. Long-term capital gains (LTCG) — held longer, taxed at lower rates. In India, equity LTCG above Rs 1.25 lakh is taxed at 12.5% (Budget 2024). In the US, LTCG rates are 0%, 15%, or 20% depending on income.
Smart tax strategies: tax-loss harvesting — selling losing investments to offset capital gains and reduce taxes. If you have Rs 5 lakh in gains and Rs 2 lakh in losses, you pay tax only on Rs 3 lakh net gains. Warren Buffett's Berkshire Hathaway holds stocks for decades, deferring capital gains taxes indefinitely — one reason his wealth compounds so efficiently.