Capital gains income arises from the sale of capital assets, such as property, stocks, bonds, or other investments. It is categorized based on the holding period of the asset into short-term capital gains (STCG) and long-term capital gains (LTCG). Here’s a detailed breakdown of how capital gains are taxed:
1. Short-Term Capital Gains (STCG)
Definition: Profits from the sale of a capital asset held for a period shorter than the specified holding period.
- Holding Period:
- For listed securities, mutual funds, and shares: Less than 12 months.
- For real estate property: Less than 24 months.
Tax Rate:
- Listed Securities, Mutual Funds, and Shares: Taxed at 15% under Section 111A.
- Other Assets: Taxed according to the individual’s income tax slab rate.
Taxation Example:
- If you sell shares held for less than 12 months and make a profit, the gain is taxed at 15% plus applicable cess.
2. Long-Term Capital Gains (LTCG)
Definition: Profits from the sale of a capital asset held for longer than the specified holding period.
- Holding Period:
- For listed securities, mutual funds, and shares: More than 12 months.
- For real estate property: More than 24 months.
Tax Rate:
- Listed Securities, Mutual Funds, and Shares: Taxed at 10% on gains exceeding ₹1 lakh, without indexation benefit, under Section 112A.
- Real Estate Property and Other Assets: Taxed at 20% with indexation benefit under Section 112.
Indexation: For LTCG on real estate and other assets, indexation adjusts the purchase price of the asset according to the Cost Inflation Index (CII) to account for inflation. This reduces the taxable capital gains.
Taxation Example:
- For Listed Securities, Mutual Funds, and Shares: If you sell shares held for more than 12 months and the gain exceeds ₹1 lakh, you pay 10% tax on the amount exceeding ₹1 lakh.
- For Real Estate Property: If you sell a property held for more than 24 months, you pay 20% tax on the indexed gains.
3. Exemptions and Deductions
For LTCG on Real Estate:
- Section 54: Exemption if you reinvest the capital gains in another residential property.
- Section 54EC: Exemption if you invest in specified bonds (e.g., NHAI, REC) within 6 months of the sale.
- Section 54F: Exemption if you invest in a new residential property.
For LTCG on Shares and Mutual Funds:
- Section 112A: Exemption up to ₹1 lakh in a financial year on gains from listed shares and equity mutual funds.
4. Special Considerations
- Carry Forward of Losses: Short-term capital losses can be set off against both short-term and long-term capital gains. Long-term capital losses can only be set off against long-term capital gains.
- Reinvestment: Certain reinvestments in specified assets can lead to tax exemptions.
Note: Tax laws and rates may be subject to changes, so it’s always advisable to consult a tax professional or check the latest updates from the Income Tax Department for the most accurate and personalized advice.
