Jun 22, 2023

What is Capital Gains Tax?

by Godrej Properties Limited



Capital gain refers to profits or income earned from selling capital assets such as real estate, stocks, and other valuable assets such as jewelry, patents, vehicles, etc. The compulsory tax paid on this income is known as capital gains tax. Capital gains can be long term or short term and are taxed at different rates. In India, under the Income Tax Act, if an individual inherits a property that is then sold, the tax must be paid on the generated income.

Types of Capital Gains Tax in India

Short-Term Capital Gains: The gains earned from assets held for less than 36 months (or 24 months for immovable properties) are called short term capital gains and attract a short-term capital gains tax in India which is usually higher than long term capital gains tax.

  • Condition 1- When Securities transaction tax(STT) is not applicable
    • Applicable Tax -Regular Tax Slab Rates
  • Condition 2- When STT is applicable
    • Applicable Tax - 15%

Long-Term Capital Gains: Assets held for more than 36 months are classified as long-term assets. The profits earned from the sale of these assets are categorised as long-term capital gains and attract a long-term capital gains tax in India.

  • Condition - Sale of equity shares and units of equity-oriented mutual funds
    • Applicable Tax -10% for profits more than Rs 1 lakh
  • Condition - Others
    • Applicable Tax -20%

Equity and Debt Fund Taxation

Equity Mutual Funds with at least 65% equity exposure are taxed at 15% if held for less than a year. For holding periods over 12 months, gains up to INR 1 lakh are tax-free, and gains exceeding that are taxed at 10%.

Debt Mutual Funds with less than 65% equity exposure arholding them for more than 36 months attracts 20% tax with indexation benefit.

Capital Gains Tax Calculator

Calculate your capital gains and corresponding tax liability, using an online capital gains tax in India calculator. You will be required to input data such as:

  • Type of asset
  • Acquisition cost
  • Improvement cost (if applicable)
  • Expenses incurred during the asset transfer
  • Date of purchase
  • Date of sale
  • Your applicable tax slab rate, and other relevant details.

Based on these details, the calculator will generate the capital gains, as well as the short term capital gains tax and long term capital gains tax.

To reduce the burden of capital gains tax, individuals can employ various strategies. These include holding assets for a longer period, reinvesting the proceeds in new assets, utilising the Capital Gain Account Scheme, and understanding tax-saving options and exemptions available under the tax laws.

Frequently Asked Questions

1. Which sections of the Income Tax Act, 1961, provide exemptions for the capital gains you earn?

Answer: Exemption from capital gains tax can be sought under Section 54, Section 54B, Section 54EC, Section 54F

2. What is a mutual fund capital gains tax calculator?

Answer: The online mutual fund tax calculator helps determine the tax implications of dividends and capital gains earned from mutual funds.

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