Q1. What are capital assets?
Capital assets mean properties of any kind held by a person whether or not connected with his business or profession. Certain properties are, however, excluded from the definition of capital asset. For details of such properties Section 2(14) of the I.T.Act may please be referred to.
Q2. What are Long Term and Short Term capital assets?
Capital assets are classified as Long Term or Short Term with reference to the period of holding of the assets till it is transferred. The classification is made on the following basis :-
Nature of Asset Short Term Capital Asset Long Term Capital Asset
(i) Shares in a company or any other security listed in a recognised stock exchange in India or a unit of a Unit Trust of India or a  unit of a mutual fund specified under section 10(23D). Held for not more than 12 months. Held for more than 12 months.

(ii) Assets other than assets mentioned in (i) above. 

Held for not more than 36 months. Held for more than 36 months.
Q3. How is capital gain computed ?

Subject to certain exceptions, capital gain is computed in the following manner :- Capital Gain = ( Full value of consideration received or accrued on transfer of capital asset) - ( Cost of acquisition of capital assets + Cost of improvement of capital assets + Expenditure incurred wholly and exclusively in connection with the transfer of capital asset such as stamp duty, registration charges, legal fees, brokerage etc.)

In respect of long term capital assets, cost of acquisition and cost of improvement should be worked out as under:-

Cost inflation index of the year of improvement The cost inflation index is notified by the Central Govt. for every year and it is given on Tax information page of this site.

Q4. How is capital gains on bonus shares to be computed ?
The cost of bonus shares is to be taken as Nil and the net sale proceeds of the bonus shares is to be treated as the capital gains. The period of holding of the bonus shares will be counted from the date of the allotment of bonus issue.
Q5. How is tax on capital gains to be computed ?
Short term capital gains are taxed in the same manner as income under other heads. Barring certain exceptions, long term capital gains are taxed at the flat rate of 20%. For full details of computation of tax where the total income includes long term capital gains, Section 112 of the Income-tax Act may please be referred.
Q6. What are the exemptions available in respect of capital gains ?

Depending upon the nature of the capital asset and the manner of utilisation of the consideration received on transfer, various exemptions are available. For full details, Sections 54, 54B, 54D, 54EA, 54EB,54EC, 54F, 54G and 54H of the Income-tax Act may please be referred. The provision of 54EA and 54EB has been withdrawn with effect from 1.4.2000 and new section 54 EC has been inserted.

Under Section 54EC investments should be made in: National Highways Authority of India & Rural Electrification Corporation Limited.

Q7. What is the Cost Inflation Index?
Financial Year Cost Inflation Index
2013-2014 939
2012-2013 852
2011-2012 785
2010-2011 711
2009-2010 632
2008-2009 582
2007-2008 551
2006-2007 519
2005-2006 497
2004-2005 480
2003-2004 463
2002-2003 447
2001-2002 426
2000-2001 406
1999-2000 389
1998-1999 351
1997-1998 331
1996-1997 305
1995-1996 281
1994-1995 259
1993-1994 244
1992-1993 223
1991-1992 199
1990-1991 182
1989-1990 172
1988-1989 161
1987-1988 150
1986-1987 140
1985-1986 133
1984-1985 125
1983-1984 116
1982-1983 109
1981-1982 100