Capital Gain

In finance, the term capital gain is used to define profit incurred by disposing a capital asset such as bond, real estate, precious metals, collectibles or stock. In such a situation, the amount realized on disposing the asset is usually higher than the purchase price and is calculated as the difference between a higher selling price and the acquired price of the asset. It can either be a short term or a long term gain and should be claimed on income taxes. On the other hand, there can be a capital loss if there is a decrease in the value of the asset compared to the price in which it was purchased. Generally, there is tax relief or exemptions on capital gains to encourage entrepreneurship or to compensate the effects of inflation. However, such gains and losses are not taken into account during National Income Accounting as they do not generate any new production activity.

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Edited and Updated 31st May 2014

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