What is Capital Gain ?

Capital gain refers to the profit earned when you sell securities at a higher price than you purchased them. It primarily occurs in the sale of valuable items, real estate, shares, and various securities. Globally, capital gains are subject to taxes, and in Nepal, capital gains tax (CGT) is mandatory on real estate and securities transactions.

Capital Gains Tax Rates in Nepal

The rates for capital gains tax on the stock market in Nepal vary based on the holding period:

- Less than 1 year: If you hold shares for less than 365 days, the tax rate is 7.5%.

- More than 1 year: If you hold shares for more than 365 days, the tax rate is 5%.

Tax Rates for Individual and Institutional Investors

- Individual Investors: Those who do not trade regularly or hold shares or property for more than one year pay 5% capital gains tax on their profits. If they sell within one year, the rate is 7.5%.

- Institutional Investors: Institutions pay 10% capital gains tax on profits from the sale of property or shares. This is an advance tax that can be adjusted against other regular business income and expenses at the end of the financial year.

Dividend Tax

When you receive cash dividends or bonus shares from a company, you must pay a 5% tax. For bonus shares, the calculation of capital gains is based on the date of receipt:

- Bonus Shares: If sold after 365 days, individual investors pay 5%, and if sold within 365 days, they pay 7.5%. Institutional investors pay 10%.

Calculating Capital Gains

Capital gains are calculated as follows:

{Selling Price} - Purchase Price = Capital Gain

Mergers and Tax

In the case of mergers or acquisitions, tax implications depend on transaction details, involved companies, and applicable tax laws. Typically, when one company's shares are merged into another's, there may be no immediate tax liability. However, the calculation of future capital gains may be based on different costs for the new shares received.