Capital Gain Tax & Rates in India, Capital Assets, Rules
Know How to Calculate Capital Gain Tax, Capital Assets, Tax rate, rules and much more
Capital Gain Tax: Whenever you sale an asset whether it is land, house, mutual fund or others, you need to pay capital gain tax to the government. The Indian government levy capital gain tax to citizen of India on gain or profit from sale of assets. In this article, we will see a complete guide on impact on income from capital gains Tax. We will know capital gain Definition, Capital gain types, how to calculate Capital Gain Tax in India and much more.
Table of content
- Capital Gain Tax in India
- What are capital Assets?
- Capital Asset Types
- Long-Term Capital Gains Tax rate and Short-Term Capital Gains Tax rate
- Capital gain Tax on Equity and Debt Mutual Funds
- Calculate Capital Gain Tax
Capital Gain Tax in India, Capital Gain Definition
First, we will see the definition of capital gain
Any profit or gain that arises from the sale of a ‘capital asset’ comes under the category ‘income’. The government of India levy tax on any income as per income slabs. Hence you need to pay tax for that amount in the year in which the transfer of the capital asset takes place. This tax is called capital gains tax.
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There are two types of Capital Gains
- Short-term capital gains tax (STCG)
- Long-term capital gains tax (LTCG)
Now, let’s learn about Capital Gains Tax in India
In India, when you transfer ownership of an inherited property in blood relation, you do not need to pay any tax, as it is not sale of asset. The transfer of inherited property in defined as gift and exempted from taxable category. However, if you sale the inherited property you will need to pay capital gains tax. Also, if you gain on the sale of debt funds and equity funds there are other tax rules.
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What are capital Assets? Definition of capital assets
Capital Assets are precious or valuable things which we own, capital assets can be tangible or intangible. Examples of some capital assets are Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry etc. Capital Assets also includes having rights in or in relation to an Indian company or rights of management or control or any other legal right.
There are certain things which do not fall under capital asset category. You can the list of non-capital assets below
- Goods or stock, consumables items, or raw material, for the purpose of business or profession
- Personal belongings like clothes and furniture
- Agricultural land in Indian rural areas
- Specific gold bonds issued by the central government such as 6½% gold bonds (1977), 7% gold bonds (1980), National Defense gold bonds (1980)
- Special bearer bonds (1991)
- Gold deposit bond issued under the gold deposit scheme (1999)
- Deposit certificates issued under the Gold Monetization Scheme, 2015
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Types of Capital Assets in India
As mentioned above in this article, there are two types of capital assets in India. Let’s see Capital asset type information in detail.
1. Short-term capital asset (STCG)
When a person holds an asset for a period of 36 months or less, the assets is a referred as short-term capital asset. For immovable properties such as land, building and house property from FY 2017-18, the period is 24 months. For example, when you sell a property after holding it for 24 months and gain profit or income, this will fall under a long-term capital gain, if property is sold after 31st March 2017. However, the period of 24 months is not applicable to movable property such as jewelry, debt-oriented mutual funds etc.
There are some assets which fall under the short-term capital assets category even when you hold them for 12 months or less. The rule is applicable if the date of transfer is after 10th July 2014. You can see the list of such assets below –
- Equity or preference shares of listed company on NSE / BSE or on a recognized stock exchange in India
- Bonds, debentures, and other govt securities listed on a recognized stock exchange in India
- Units of UTI
- Equity oriented mutual fund units
- Zero coupon bonds
2. Long-term capital asset (LTCG)
When you hold an asset for more than 36 months, it will fall under long-term capital asset. However, Land, building and house property and other such capital assets shall be considered as long-term capital asset if the owner holds it for a period of 24 months or more (from FY 2017-18). There are some assets which fall under long term capital asset category even if you hold them for a period of more than 12 months. You can see the list of such assets below –
- Equity or preference shares in a company listed on a recognized stock exchange in India
- Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
- Units of UTI
- Units of equity oriented mutual fund
- Zero coupon bonds
Note: If you acquire an asset by gift, will, succession or inheritance, to determine category of capital asset, period for which the asset was held by the previous owner is considered. However, in case of bonus shares or rights shares, the period from the date of allotment of bonus shares or rights shares will decide the category of asset.
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Long-Term Capital Gains Tax Rate and Short-Term Capital Gains Tax Rate
As per the government’s taxation rules the rates are different for long term capital gain and short term capital gain. Let’s see both the tax rates below –
1. Long Term Capital Gain Tax Rate
- On sale of Equity shares/ units of equity oriented fund the applicable tax rate is 10% over and above Rs 1 Lakh
- Except on sale of equity shares/ units of equity oriented fund the applicable capital gain tax rate is 20%.
2. Short Term Capital Gain Tax Rate
- When Securities Transaction Tax (STT)is not applicable, the short-term capital gain adds to your income tax return, and you need to pay income tax according to income tax slab rates.
- When Securities Transaction Tax (STT) is applicable the applicable capital gain tax rate is 15%.
Capital gain Tax on Equity and Debt Mutual Funds
When you gain profits on the sale of debt funds and equity funds, the taxation rules are different from as mentioned above in this article for equity or property. Equity Fund is a fund which invests more than 65% of the investments in equities. The revised capital gains tax rates are applicable from 11 July 2014. Let’s see the tax rates below –
- Capitan Gain Tax rates on or before 10 July 2014
- Debt Funds: The short term capital gains tax rate was applicable as per income tax slabs and Long term capital gain tax rate was 10% without indexation or 20% with indexation whichever is lower.
- Equity Funds: The short term capital gains tax rate was 15% for individuals and there was no tax on Long term capital gain.
- Capital Gain Tax Rates Effective 11 July 2014
- Debt Funds: The short term capital gains tax rate was applicable as per income tax slabs and Long term capital gain tax rate was 20%.
- Equity Funds: The short term capital gains tax rate was 15% for individuals and for Long term capital gain tax rate was 10% over and above Rs 1 lakh without indexation.
- Capital Gain Tax Rules for Debt Mutual Funds
If you hold Debt mutual funds for more than 36 months, it will be treated as a long-term capital asset. When you redeem the debt mutual fund within three years, the capital gains adds to your income and tax as per your income tax slab rate will be applicable.
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How to calculate Capital Gain Tax?
Let’s see the step by step process to calculate short term capital gain tax and long term capital gain tax calculation.
Calculate Short term capital gain
- Start with the full value of consideration
- Deduct Expenditure incurred wholly and exclusively in connection with such transfer, Cost of acquisition, and Cost of improvement
The remaining amount is a short-term capital gain and tax will be applicable as per tax rates mentioned above in this article.
Short-term capital gain = Full value consideration Less: Expenses incurred exclusively for such transfer Less: Cost of acquisition Less: Cost of improvement
Calculate Long-Term Capital Gains
- Start with the full value of consideration
- Deduct the following Expenditure incurred wholly and exclusively in connection with such transfer, Indexed cost of acquisition, and Indexed cost of improvement
- Deduct exemptions provided under sections 54, 54EC, 54F, and 54B from the remaining amount.
Long-term capital gain= Full value consideration Less
Expenses incurred exclusively for such transfer
Indexed cost of acquisition
Indexed cost of improvement
Expenses that can be deducted from full value for consideration
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