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Capital gains are profits earned when individuals sell capital assets (stocks, real estate or bonds) for a price more than the purchase price. These gains are subject to taxation in India. The tax imposed on capital gains referred to as Capital Gains Tax.
In this article, we will have a detailed understanding regarding what is capital gains tax in India, including capital gains tax types, capital gains tax rate and more.
Capital assets are assets owned by an individual such as real estate, buildings, houses, cars, jewelry, patents, trademarks and leasehold rights. This also includes owning stakes or having ties to Indian businesses. Apart from these, capital assets also refer to any other legal rights such as control rights or management.
There are certain items which aren’t considered as capital assets by the Government of India such as:
Let’s understand what capital gains tax means. As capital gains are counted as income, it falls under taxable income’s ambit. The tax which is levied on capital gains is called capital gain tax.
However, simply searching what capital gains tax is not enough if you want to have a deep understanding of this tax concept. According to the existing rules, there are two main factors on which the capital gains tax differs. First, the investment tenure. Second, the type of capital asset which is being sold for profit.
In the further sections of this article, we will discuss the concept of short term and long term capital gains as well as the different capital gains tax rates in the country.
Capital Gains Tax is applicable on a wide range of capital assets, including the following:
The capital gains income tax can be divided into two types i.e., long term capital gain tax and short term capital gain tax. Let’s understand both these types of capital gain tax.
Long term capital gains means the profit that you make from an investment over a long period. LTCG are the capital gains made from long term capital assets which are held for a period of 1-3 years. Such gains are taxable under the Income Tax Act and are known as "long-term capital gains tax".
Whether the capital gains made can be considered long term capital gain or not is determined by the period for which you hold your capital assets. The following assets or investments can help you get long term capital gains.
Assets such as land, buildings and house property are all included under property category. If such immovable properties are possessed by you for over 2 years i.e., 24 months, and you sell them for profit, it will be considered as long term capital gains.
Have you invested in any company shares which are recognized and listed on stock exchange and kept them for over 12 months? If so, then the profit made from selling such shares is also considered as long term capital gain.
It isn’t just equity and preference shares sale that are considered as long term capital gains. Sale of securities like bonds and debentures held for more than 12 months is also counted as long term capital gains.
Do you belong to a farmer’s family and own agricultural land which isn’t located in a rural area? If yes, then the proceeds received on selling such a land will be considered as long term capital gain, which means the proceeds will be taxable under the Income Tax Act.
It isn’t just long term capital gains which are taxable under the Income Tax Act. The gains made in the short term are also eligible for tax. Short Term Capital Gains Tax or STCG Tax refers to the tax levied on the profits or gains made by an individual when they sell a capital asset in the short term. A short term duration refers to a period less than 36 months. However, for certain assets, this period is between 12-24 months.
The table below shows the capital gains tax rate on long term capital gains and short term capital gains based on the investment type:
|
Investment Type |
Holding Period for Long Term Capital Asset |
Long Term Capital Gain Tax (LTCG) |
Short Term Capital Gain Tax (STCG) |
Remarks |
|
Stocks |
> 1 years |
10% of the capital gain |
15% of gain |
Long Term Gain Tax is only applicable in case the total Long-term gain/ profit in a financial year crosses Rs. 1 Lakhs. |
|
Unit Linked Insurance Plan (ULIP) |
> 5 years |
10% of the capital gain |
15% of gain |
Long Term Tax is only applicable provided that the total Long-term profit in a financial year exceeds Rs. 1 Lakhs. |
|
Equity Oriented MFs (MFs that invest at least 65% of their Portfolio in Stocks) |
> 1 years |
10% of the capital gain |
15% of gain |
Long Term Tax is only applicable provided that the Long-term profit in a financial year exceeds Rs. 1 Lakhs. |
|
Rest of the Mutual Funds |
> 3 years |
20% along with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
- |
|
Government and Corporate Bonds |
> 3 years |
20% along with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
- |
|
Gold |
> 3 years |
20% along with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
- |
|
Gold ETF |
> 1 years |
10% of the capital gain |
Gains are taxed based on applicable income tax rates |
Long Term Tax is only applicable if the total Long-term profit in a financial year is more than Rs. 1 Lakhs. |
|
Immovable Property (such as land, buildings and houses) |
> 2 years |
20% with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
- |
|
Movable Property (such as jewelry, royalty, and machinery) |
> 3 years |
20% with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
Tax is not applicable for long-term profit which gets reinvested in approved assets. |
|
Stocks which are privately held |
> 2 years |
20% with inflation indexation benefits |
Gains are taxed based on applicable income tax rates |
- |
If you have sold any capital assets such as stocks, bonds or real estate, then the profit that you’ve made from selling them is known as capital gain. All the taxpayers must file an ITR for capital gains and submit it to the Income Tax Department. If you need assistance with ITR filing for capital gains, you can get in touch with Registrationwala.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
