Capital Gains Taxation in India: Types, Rates and Exemptions
Capital Gains Tax in India refers to the tax that is applied to the profits earned from the sale of capital assets such as property, stocks, mutual funds, and gold. The tax plays a significant role in the functioning of the Indian Economy.There are two types of Capital Gains Tax in our country, India. One is Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) depending on the period a person held that asset. This article will discuss the taxation of capital gains and exemptions available.
Short Term Capital Gains
This tax is imposed on the individuals who sell an asset after a short period of owning it. The holding period under STCG is as follows regarding different assets-
- Equity Shares & Equity-Oriented Mutual Funds-Less than 12 months.
- Debt Mutual Funds & Bonds-Less than 36 months.
- Real Estate (Immovable Property such as Land, House, etc.) – Less than 24 months.
- Unlisted Shares-Less than 24 months.
- Other Capital Assets (Gold, Jewelry, etc.) -Less than 36 months.
The Short Term Capital Gains Tax Rates depend on the mentioning of the assets under Section 111A.
The Equity Shares & Equity-Oriented Mutual Funds (covered under Section 111A) are charged with 15% tax rates.
Apart from these other assets such as Debt Mutual Funds, Real Estate, Gold, Bonds, and others are taxed as per the individual’s Income Tax Slabs Rates.
Long Term Capital Gains
Another type of tax is Long Term Capital Gains. They are charged on the assets which are held by the individuals for a longer period as compared to the Short Term Capital Gains.
The holding period of the Long Term Capital Gains are as follows-
- Equity Shares & Equity-Oriented Mutual Funds- More than 12 months.
- Debt Mutual Funds & Bonds- More than 36 months.
- Real Estate (Immovable Property – Land, House, etc.)- More than 24 months.
- Unlisted Shares-More than 24 months.
- Other Capital Assets (Gold, Jewelry, etc.)- More than 36 months.
The tax rates of Long Term Capital Gains are comparatively less than Short Term Capital Gains on assets. The tax rates imposed under LTCG are mentioned below-
- Equity Shares & Equity-Oriented Mutual Funds (under Section 112A): 10% (plus surcharge & cess) on gains exceeding ₹1 lakh (without indexation benefit).
- Debt Mutual Funds, Real Estate, Gold, Bonds, and Other Assets (under Section 112): 20% (plus surcharge & cess) with indexation benefit.
- Unlisted Shares (for Residents): 20% with indexation.
- Unlisted Shares (for Non-Residents): 10% (without indexation benefit).
Exemptions of Capital Gains
The Indian government also gives opportunities to Indian citizens to claim exemptions from Short Term Capital Gains and Long Term Capital Gains under various sections. These sections are given below-
- Section 54- Exemption on Sale of Residential Property- If a person owning a residential property decides to sell their property and reinvest the money in purchasing some other residential property. In such a scenario the individual and Hindu Undivided Families can claim a tax exemption from the Indian Government. However, the new property has to be purchased within two years of selling the previous one or in case of construction, it must be constructed within three years.
- Section 54F- If a person sells an asset except for a residential property and invests the whole profit in purchasing another residential property. They can benefit from the tax exemption. In case the amount invested is partial, the tax exemption also gets reduced accordingly.
- Section 54EC- This section offers an exemption on tax when the money is invested only on specific bonds mentioned by the government. It applies only to long-term capital gains (LTCG) arising from the sale of land or building (real estate). The taxpayer must reinvest the LTCG in specified bonds within 6 months from the date of transfer such as NHAI, REC, PFC, IRFC and so on. The maximum investment limit is ₹50 lakhs per financial year.
- Indexation Benefits- These Indexation Benefits are only available on the assets under LTCG. Individuals owning these assets can redeem tax benefits by adjusting the purchase price using the Cost Inflation Index.
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Hence, it can be concluded that both Long Term and Short Term Capital Gains are major taxes imposed on the assets owned by the individuals. Although, the Indian government has also given tax relief to taxpayers by providing prominent exemptions. Reach out to TaxDunia to optimize your tax savings. We offer personalized solutions to cater unique needs of diverse clients.
