Definition: Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price.
Description: When the selling price of an asset exceeds its cost price or purchase price, it will result in a capital gain. Capital gains can be of two types: realised and unrealised. 1) Realised capital gain can be described as the gain made on an investment that has been sold for a profit.
2) Unrealised capital gain can be described as the gain on an investment that has not been sold yet but can make profit if sold later. In financial parleys, capital gain generally refers to realised capital gain. Capital loss is the reverse of capital gain, i.e. it results in a loss when the investment is sold. In simple terms, the difference between the selling price and cost/purchase price of an investment can be described as capital gain/loss. If the selling price is higher than cost price, it results in a capital gain and when the selling price is lower than the cost price, it leads to capital loss. Example: Suppose a person purchased 100 shares of Rs 100 each at a total cost of Rs 10,000. (Case 1: Capital Gain) After some time, say one year, if he sells those shares for Rs 130 each with the total selling price of those 100 shares being Rs 13,000, it would result in a profit of Rs 3,000. This amount is called capital gain. (Case 2: Capital Loss) But if after one year, the person sells those shares for Rs 80 each, thus realising Rs 8,000 on those 100 shares, he will suffer a loss of Rs 2,000. This amount would be called capital loss.
