Capital Gains Tax – Everything About LTCG & STCG Tax In India


Capital Gains Tax

Capital gain is defined as a profit earned by making a sale of any of the capital assets. The profits earned through capital gains are calculated as income. This is the reason that one has to pay tax on the same which is also known as Capital gains tax. The tax earned through capital gain could be long-term or short-term. The percentage of tax applied varies from 10% to 15%.

According to the Income Tax Act, the capital gains tax is not applicable in case the individual inherits the property and is not selling the same. Some examples of Capital gain taxes are machinery, patents, house property, land, building, and vehicles.

Also Read: Tax Collected At Source (TCS) – Everything You Need To Know

Different Types of Capital Gain Tax

Short Capital Gain Tax

The short-term capital gains tax in India is levied on those assets that one can hold for 36 months or less. In case the property is immovable like land, building, or house property, you can only hold the sale for 24 months. If you are selling a house property after 24 months, then the profit earned in that case is considered as long-term capital gains. According to the Income Tax Act, any income earned will be considered as long-term capital gain if sold off after 31st March of the preceding financial year.

Examples of Short Term Asset

  • Equity shares of a company that are listed on the Stock Exchange of India
  • Securities like bonds, debentures, or any government securities are registered under the Stock Exchange Board of India.
  • UTI units
  • Mutual Funds

Steps to calculate the short term capital gains Tax

Take into account the full value of consideration 

Start deducting the following mentioned below:

  • Expenditure incurred while making capital asset transfer
  • Cost of acquisition
  • Cost of improvement 

The amount calculated after making deductions is considered as short-term capital gains= = Full value consideration minus expenses incurred exclusively for such transfer Less cost of acquisition Less cost of the improvement.

In short, Capital Gain =  FVC(  Acquisition transfer Costs + improvement cost)

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Long Term Capital Gain Tax

The long-term capital gain tax is levied in those scenarios where an individual is selling an asset after 36 months. In case, the asset is acquired as a gift, or will,  the inheritance or succession, the duration for which an individual holds the asset decides whether it falls under the category of short-term capital gains or long-term capital gains. In case an individual receives bonus shares, the period of holding is calculated from the date of bonus shares allotted.

Tax TypeConditionTax Applicable
Long Term Capital Gains TaxExemption making sales of equity related funds units or equity shares.20%
Long Term Capital Gains TaxWhen you are making a sale of Equity oriented units or equity shares10% or above- Above Rs 1 Lakhs
Short Term Capital Gains TaxIf the securities transaction tax is not applicableWhen the short term capital gains tax becomes part of your income tax return and the taxpayer is paying tax according to the income tax slab.
Short Term Capital Gains TaxWhen securities transaction tax is levied15%

Steps to calculate Long Term Capital Gains Tax

While Calculating the long term capital gains tax also, you need to start with the full value consideration.

Then make the following deductions,

  • The expenditure incurred in connection with the asset transfer.
  • Cost of acquisition
  • Cost of improvement

The number incurred from the above calculations makes the following deductions of exemptions under Section 54, 54B,  54F, and 54 EC.

Long Term Capital Gains Tax= Full Value of Consideration
Less: Expenses incurred for making asset transfer, Indexed cost of improvement, indexed cost of acquisition
Less: Expenses incurred from the full value of consideration

The long capital gains earned through the sale of equity shares or equity mutual fund, released after 31st March of the preceding financial year will get an exemption up to Rs 1 Lakh per annum. So approximately, the tax of @10% will be levied on Long Term Capital Gain Taxes without getting any indexation benefits.

In case of the sale of the house property– The expenses which need to get deducted from the sale of the house are:

  • Commission or brokerage paid for securing a purchaser
  • Stamp Papers cost
  • Travelling expenses incurred at the time of transfer 
  • In case it is an inherited property, expenditure is incurred with respect to the inheritance or will
  • In case of the sale of shares
  • Brokers commission
  • Securities Transaction Tax

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For selling Jewellery

In this case, all the broker services involved in getting a buyer for the jewellery are likely to be deducted. These expense deductions are not allowed from the sale price of the assets, you can claim only once.

Know about the index cost of improvement and acquisition in long term capital gains tax

  • The cost of acquisition and improvement gets indexed by applying CII. It’s done to adjust for inflation over the years of holding that capital gains asset. In that duration, if the cost base increases, the capital gains get decreased.
  • The indexed cost of acquisition is calculated as 
  • Cost of the acquisition or cost of inflation index for the year in which the asset is first held by the seller, or 2001-02, whichever is later X cost of inflation index transferred.

Also Read: New GST Rates In 2022

Example

Cost price of the house- Rs 35 LakhsFinancial year House purchased- 2010-2011Financial year house sold- 2019-2020Selling price of the property- Rs 60 LakhsInflation Cost-  289/184×35= 54Long Term Capital Gains- 60-54.97 Lakhs= Rs 5,03,000 

Terms you need to be aware of while calculating Capital Gains Tax

We all know that capital gains tax in India is different for every asset like long term capital assets and short term capital assets. Here we are discussing some terms that you need to be aware of while calculating the Capital Gains Tax.

Full Value Consideration– The consideration received by a seller when his or her capital assets are transferred. In that case, capital gains tax is applicable in that same year if no consideration has been received.

Acquisition Cost:  The value for which the capital asset is taken over by the seller.

Improvement cost expenses- It is a form of expenses incurred in improvising the capital like making alterations or additions in the capital asset. If the improvement expenses are incurred after 31st March of the preceding financial year, then there will be no consideration at the time of calculating capital gains tax.

If you still face any issues in understanding capital gains tax, you can take the help of an online Capital gains tax calculator.  

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