There are two types of capital gains tax as per provisions of the IT Act, 1961. One is the Short-Term Capital Gains (STCG) tax, and the other is the Long-Term Capital Gains (LTCG) tax. LTCG tax is the tax that the government levies on the profit earned by selling off capital assets like shares or house property that has been in possession for a long duration. If you are planning to sell a capital asset that you have possessed for more than a year, then you must pay Long-Term Capital Gains tax. Read on to know the list of assets considered for LTCG tax, its rate and calculation, and more. Read on!
Long-Term Capital Gains refer to profits earned by persons when they sell any capital asset after holding it for a period of 1 year/2 years/3 years. So, one can earn LTCG from the following capital assets:
The amount you earn by selling off a property held by you for over 24 months is your Long-Term Capital Gain. Before March 31, 2017, one had to hold an immovable capital asset (house property, building, and land) for a period of more than 36 months to earn Long-Term Capital Gains.
If an investor sells equity shares after holding them for more than 12 months, the realised gains are referred to as Long-Term Capital Gains. However, the equity shares must be listed on the stock exchange.
If your investment in an equity-oriented mutual fund scheme is over one year old and now you plan to transfer it, the return you gain from its sale will be your LTCG. However, the government also provides an exemption of Rs.1 lakh in a year. So, if your amount exceeds this limit, LTCG is taxable at the rate of 10% without any indexation benefit.
On the other hand, in the case of debt-oriented funds, an LTCG tax of 20% is applicable on the realised returns post indexation benefit.
Besides listed stocks and equity-oriented mutual fund units, the following are considered long-term capital assets if the holding period is over 1 year:
This table represents the minimum holding period to earn LTCG from different capital assets:
|Asset type||LTCG duration|
|Immovable assets like real estate||> 2 years|
|Moveable assets like gold||> 3 years|
|Listed securities||> 1- year|
|Debt-based mutual fund units||> 3 years|
|Equity-based mutual fund units||> 1-year|
Rates of LTCG for different asset classes are as follows:
The rate of Long-Term Capital Gains Tax for profits earned from equity mutual funds is 10% without indexation benefits. However, profits of up to Rs. 1,00,000 are exempt from any kind of taxation.
Now, the sale of listed equity shares also attracts a tax of 10% on gains under LTCG provisions. For listed equity shares as well, there is an exemption of up to Rs.1,00,000.
However, for any gains or profits from the sale of unlisted shares, the rate of LTCG tax is 20% after considering indexation benefits.
In the case of debt instruments like bonds and mutual funds, the rate of taxation of LTCG is 20% after considering indexation benefits.
LTCG received from the sale of real estate assets is taxed at the rate of 20% with indexation. The same rate is applicable for gold and other metals as well.
After earning Long-Term Capital Gains, one must find the applicable tax rate to calculate the tax liability. The computation process is effortless when you have found the correct LTCG tax rate.
However, for this purpose, you may need three things, i.e., the cost inflation index, your selling price and the initial cost at which you made your investment. Remember, for finding the inflation index, you can refer to a government publication that informs about changes in asset price according to inflation.
If you want to save tax on your Long-Term Capital Gains, you can consider the following tips:
One of the best ways to save tax on your Long-Term Capital Gains is by investing in residential property. You will be able to claim tax exemption under Sections 54 and 54F.
According to Section 54, a HUF and an individual would get an exemption on their Long-Term Capital Gains if they construct or buy a new residential property. However, the only condition is that the person must either purchase it one year before or two years after selling off the previous property. Also, if the assessee plans to construct a new residential property, the construction must be complete within three years after the sale.
On the other hand, Section 54F says that if an individual or HUF uses the amount to buy or construct a house after selling their capital asset (excluding residential property), their total gain will get exempted.
By investing the entire amount gained in bonds issued by REC and NHAI, one can save their tax by availing of exemption under Section 54EC. The list of bonds that one can buy is provided on the official site of the Income Tax Department of India.
Another way of saving on tax is to avail of the Capital Gains Account Scheme. Under this scheme, investors enjoy exemption without purchasing a residential property. However, one can withdraw the amount from this account to purchase plots and houses.
If the withdrawal has taken place for any other purpose, one should use it before three years. In case one doesn’t utilise the amount within three years, their total profit will be subject to Long-Term Capital Gains tax as per the applicable rates.
Also Read: Taxation In Mutual Funds
Here are some differences between the two taxes on capital gains:
If you have sold or are planning to sell a capital asset that you have possessed for more than a year, you are liable to pay Long-Term Capital Gains tax. Before making the final call, calculate the amount of tax you need to pay in order to plan your finances. However, as mentioned in this article, you can also save on LTCG taxes.
Ans: No, in such a case, assessees do not have to pay any tax, and they can set off the loss amount with the cost of investment they made before. However, they must file their ITR to gain this benefit.
Ans: No, the exemption is only available if one uses their long term capital gains to buy or build a property in India. Also, the construction must get finished within three years of selling the previous property.
Ans: While calculating tax, we only take the indexed cost of acquisition. This is because the values get adjusted against the changes in inflation over the years during which a person holds a capital asset. So, for example, if an asset is held from 2001 to 2003, it will consider two years of inflation.
Ans: The tax exemption limits are as follows:
1. For resident Indians aged 80 years or above: Earnings up to Rs. 5,00,000 are tax-exempt
2. Resident Indians aged 60-79 years: Earnings of up to Rs. 300,000 are exempted from tax
3. Individuals aged below 60 years: No tax is applicable on an income of up to Rs. 2,50,000
4. HUF: Exemption is available if the annual income of an HUF is not more than Rs. 2,50,000.
5. NRIs: Earnings of up to Rs. 2,50,000 are tax-exempt
Ans: LTCG taxes will apply on gains accrued for the sale of any real estate property that is more than 24 months old and up for sale. LTCG has taxed at the rate of 20% plus the applicable surcharge with the benefit of indexation.
Individuals can deduct or reduce any cost incurred during the sale of property, cost of purchasing or owning that property, expenses incurred on improvement or modification of structure, etc.
Ans: No, the tax will not be applicable in case of losses incurred. LTCG is only levied on capital gains and that too first Rs.1 lakh is exempt from any taxation.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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