2025-06-14
Understanding The Basics Of Capital Gains Tax
Decode Capital Gains Tax: The Essentials You Should Know
From stocks,
bonds, options, swaps, to real estate properties there are numerous assets that
can be great investment options for different individuals. While which one suits best for you
depends on your risk appetite and purchasing power, but when investment in
assets are concerned there is one thing that investors and common individuals
shall understand and always look for is ‘TAX’- the universal concern of every
man on earth.
For example,
you buy a land and 5 years down the lane you decide to sell it off. You got it
sold and got the money. But before 31st July
when you sit on your desk to file your ITR you realize that you could have saved more tax if you would had invested in an another
property. Hence especially for first timers it’s important to do a tax
assessment before investing in a capital asset.
If you are someone
who is new to the world of investing or taxation or you are someone
potentially first time buying or selling a land or real estate
or some other capital asset, then this blog is for you.
It would
explain to you the basics of capital gain tax in detail and help you gauge the
risk borne and tax payable by you, also enabling you to plan and choose the
best investment option feasible for you.
What is capital
gains tax?
Capital gains
tax is the tax payable by an Assesse (taxpayer) on profit gained from sale of his owned capital assets
whether tangible or intangible. Understand that there is a
difference between gains and revenue. Revenue is recurring in nature whereas
Gains occur only once on sale of the asset.
Hence this tax is only applicable when you
sell your capital assets.
What are capital
assets?
Before
understanding capital gains tax we must understand what capital assets are.
Capital gain tax is applicable on sale of capital assets. Examples of capital
assets include-land, building, house property, vehicles, patents, trademarks, leasehold
rights,
machinery, shares,
bonds, gold, ETF’s
etc. It includes
all kinds of properties as stated,
whether movable or immovable, tangible or intangible with certain exceptions as
follows:
1)
Agricultural land
2)
Inventory
3)
Government bonds, and other
investment products issued by central government (exemption u/s 80C)
What are the different types of Capital gain Tax in India?
There are only two types of capital gain taxes – Short term capital gains tax (STCG) and Long term capital
gain tax (LTCG).
STCG – If the asset is sold within 12 months (for listed assets e.g. shares) or
24 months (for unlisted assets e.g. real estate) STCG is applicable.
LTCG – If the asset is sold after 24 months of purchase then LTCG is applicable.
Current tax rates applicable after Budget 2024 and Calculation of Tax and Taxable Income classified as Capital
gains.
Let us have
a look current tax rates
for STCG and LTCG after the budget 2024
|
Particulars |
STCG |
LTCG |
|
Listed equity or equity-
oriented funds |
20% |
12.5% (no tax up to INR1.25 lakhs) |
|
Unlisted equity and equity-oriented
funds |
Slab rate |
12.5% |
|
Listed debt assets |
Slab rate |
12.5% |
|
Debt oriented funds (65%+ investment in debt) |
Slab rate |
Slab rate |
|
Other funds and assets |
Slab rate |
12.5% |
|
Property |
Slab rate |
20% with indexation 12.5% without indexation* |
*Indexation refers to the technique of accounting for the effect
of inflation. It determines
the acquisition prices
after considering the inflation index.
The inflated price is adjusted from the current price.
*Note that no indexation benefits are be available on assets
or property purchased on or after 23 July,2024 as per the recent budget 2024,
However for property(real estate) purchased before the date, option has been
given to compute LTCG as per old or new regime, whichever seems beneficial
according to you*.
*Slab rate is the rate as per the
income tax slabs on the total taxable income of the assesse; the entire gains
are taxable as per the tax slabs.
*Note that no exemption
limit is available for STCG. If the total income
of the assesse is within threshold of ? 250000 (old regime) or ? 300000
(new regime), there shall be no tax liability. If not the case, then the STCG
are taxable at rate of 20%.
These changes
were made by the government in the recent Finance act, 2024 to reduce
volatility and with view that rates were too low allowing HNI’s to reap most
benefits than middle class.
Let us have a look at how STCG & LTCG and the tax liability on them is calculated as per tax rates.
Here is how you can
calculate your tax liability on short
term capital gains:
COMPUTATION OF STCG AND TAX LIABILITY
Let’s say you
purchased 2000 shares of a listed company at ?100 per share in July 2024. Now you sell the same shares at a profit of ?75 per share i.e., a share price of
?175 in October
2024. Furthermore, you paid a brokerage of ?2,000. Initial
investment amount = ?100 x 2000 = ?200000
Full value of consideration = ?175 x 2000 = ? 350000 Investment holding period = 4 months
< 1 year
Hence it will be considered as a short
term capital gain
Here’s how you can calculate
your short term capital gains and tax liability -
|
PARTICULARS |
? |
? |
|
The full value of consideration |
350000 |
|
|
Less: Expenses relating to transfer |
|