Summarize

Simplifying... Inshort

In India, capital gains tax varies based on how long you've held an asset and its type.
Assets sold within 36 months (or 12 for shares and mutual funds) are considered short-term and have different tax rates than those held longer.
You can dodge some taxes by reinvesting gains in specific ways, and it's crucial to keep detailed records for accurate calculations.

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Refer to this guide

Understanding Capital Gains Tax in India

By Anujj Trehaan

Dec 17, 2024

01:18 pm

What's the story

Capital Gains Tax is a tax on the profit that you make when you sell certain types of assets. In India, these assets include stocks, bonds, real estate, and more. The rate of tax depends on how long you held the asset before selling it. This article will help you understand the rules for Capital Gains Tax in India, by explaining its most important aspects.

Classification

Types of capital gains

In India, capital gains are categorized as either short-term (STCG) or long-term (LTCG) based on the holding period of the asset. STCG pertains to assets sold within 36 months of acquisition, except for shares and mutual funds where the limit is 12 months. LTCG is for assets held for periods exceeding the above-mentioned limits. The classification as short-term or long-term has implications for the applicable tax rates.

Rates

Tax rates for different assets

The tax rates for STCG and LTCG vary depending on the type of asset. STCG on equities or equity-oriented mutual funds are taxed at 15%, while LTCG exceeding ₹1 lakh are taxed at 10% without the benefit of indexation. For non-equity assets like property, STCG are taxed under the individual's income tax slab, while LTCG attract 20% tax but with the benefit of indexation.

Relief measures

Exemptions and deductions available

Various exemptions under sections ranging from Section 54 to Section 54F of the Income Tax Act enable taxpayers to avoid capital gains if they reinvest them in certain ways within a stipulated period. For example, by purchasing another property or specified bonds, you can claim an exemption on long-term capital gains tax incurred from the sale of real estate.

Compliance

Reporting and payment tips

Taxpayers are required to disclose capital gains in their returns by filling out Schedule CG in Form ITR-2 or ITR-3. You are required to pay advance tax if your tax liability, including capital gains, goes beyond ₹10,000. Maintaining a record of acquisition, any improvement costs, and sale details is key to accurately calculating gain or loss and adhering to Indian tax laws.