Capital gains tax in India is the tax levied on profits earned from the sale of capital assets such as property, stocks, or mutual funds. The gain is considered income and is taxable in the year the asset is transferred. There are two types of capital gains based on the holding period of the assets:
- Short-Term Capital Gains (STCG): For assets held for less than 12 months in case of equity shares, units of equity-oriented mutual funds, and units of business trust. In case of other assets, the holding period is 24 months.
- Long-Term Capital Gains (LTCG): For assets held over 12 months in case of equity shares, units of equity-oriented mutual funds, and units of business trust. In case of other assets, the holding period is 24 months.
Capital Gains Tax Rates
Long-Term Capital Gains and Short-Term Capital Gains
For the transfers happened on or after, July 2024 tax on Capital Gains are to be taxed as follows
| Tax Type | Condition | Applicable Tax |
| Long-Term Capital Gains Tax (LTCG) | Sale of: – Listed Equity shares (If STT has been paid on purchase and sale of such shares) – units of equity oriented mutual fund (If STT has been paid on sale of such units) | 12.5% over and above Rs 1.25 lakh |
| Land or Building or Both | Two options are available to individual and HUF taxpayers:12.5% without indexation20% with indexationOther persons:12.5 % without indexation | |
| Others | 12.5% | |
| Short-Term Capital Gains Tax (STCG) | When Securities Transaction Tax (STT) is not applicable | Normal slab rates |
| When STT is applicable | 20%. |
Meaning of Capital Assets
- Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
- This includes having rights in an Indian company. It also includes the rights of management or control or any other legal right.
Exceptions to 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 Monetization Scheme, 2015 and Gold Monetization Scheme, 2019 notified by the Central Government.
Classification of Capital Assets
STCA ( Short-Term Capital Asset )
An asset held for a period up to 24 months is a Short-Term Capital Asset. So, if you sell the asset within a period of 24 months of purchasing, then it would be called as a Short-Term Capital Asset.
Some assets are considered Short-Term Capital Assets when these are held for 12 months or less. 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
LTCA (Long-Term Capital Asset)
An asset held for more than 24 months is a long-term capital asset. So, if you sell the asset after a period of 24 months of purchasing, then it would be called as a Long-Term Capital Asset.
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).
However, below-listed assets if held for a period of more than 12 months, shall be considered as Long-Term Capital Asset.
- Equity 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
Note: Capital gains from the sale of units of a specified mutual fund acquired on or after April 1, 2023, and market-linked debentures will always be treated as short-term capital gains under section 50AA, regardless of how long they have been held.
Note:
- In case an asset is acquired by gift, will, succession or inheritance, the period for which the asset was held by the previous owner is also included in determining whether it’s a short term or a long-term capital asset.
- In the case of bonus shares or rights shares, the period of holding starts from the date of allotment of bonus shares or rights shares respectively.