What is Capital Gains Tax In India: Types, Tax Rates, Calculation, Exemptions & Tax Saving

What is Capital Gains Tax in India?

Any profit or gain that arises from the sale of a ‘capital asset’ is known as ‘income from capital gains. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax. There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG).

Capital Assets By Definition

Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.

The following do not come under the category of capital asset:

a. Any stock, consumables, or raw material, held for the purpose of business or profession

b. Personal goods such as clothes and furniture held for personal use

c. Agricultural land in rural(*) India

d. 6½% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds (1980) issued by the central government

e. Special bearer bonds (1991)

f. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015 and Gold Monetisation Scheme, 2019 notified by the Central Government.

*Definition of rural area (effective from AY 2014-15) – Any area which is outside the jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is considered a rural area. Also, it should not fall within a distance given below

Distance

(to be measured aerially) Population

(as per the last census).

2 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 10,000 but not more than 1 lakh

6 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 1 lakh but not more than 10 lakh

8 kms from local limit of municipality or cantonment board If the population of the municipality/cantonment board is more than 10 lakh

Types of Capital Assets?

1. STCA (Short-term capital asset ) An asset held for a period of 36 months or less is a short-term capital asset.

The criteria is 24 months for unlisted shares (those shares that are not listed in a recognized stock exchange in India) and immovable properties such as land, building, and house properties from FY 2017-18. For instance, if you sell a house property after holding it for a period of 24 months, any income arising will be treated as a long-term capital gain, provided that the property is sold after 31st March 2017. 
The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc.

Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is). These assets are:

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, whether quoted or not
Units of equity oriented mutual fund, whether quoted or not
Zero coupon bonds, whether quoted or not

2. LTCA (Long-term capital asset ): An asset held for more than 36 months is a long-term capital asset. They will be classified as a long-term capital asset if held for more than 36 months as earlier.

Capital assets such as land, building and house property 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).

Whereas, below-listed assets if held for a period of more than 12 months, shall be considered as long-term capital asset.

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, whether quoted or not
Units of equity-oriented mutual funds, whether quoted or not
Zero coupon bonds, whether quoted or not
income from House Property and Taxes

Budget 2023 update: It is proposed that the cost of acquisition of a property should not include any home loan interest claimed as an income-tax deduction by the seller throughout the holding term for computing capital gains from the sale of a residential property.

Income tax on house property: On Owning a house one day – everybody dreams of this, saves towards this and hopes to achieve this one day. However, owning a house property is not without responsibilities. Paying house property taxes annually is one of them. If you want to learn how to save tax on home loan interest, this guide is for you. It also talks about how to report home ownership in your income tax return.