What is Capital Tax Gains In India?

Capital Tax Gains is a tax levied on the profit earned from selling capital assets, such as real estate, stocks, and bonds. Capital Tax Gains in India are categorised into short-term and long-term, with differing tax rates. Short-term capital gains from assets held for less than a year are taxed at higher rates, while long-term capital gains from assets held longer often benefit from lower tax rates. Recent updates in the Union Budget can impact this Capital Tax Gains rate and benefits, influencing investment decisions and financial planning. Understanding these tax implications helps in effective tax management and investment strategy.

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What is Capital Tax Gains In India?

1. Long-Term Capital Gains (LTCG)

• Definition : Gains earned from the sale of assets held for more than a specified period are considered long-term capital gains.
• Holding Period :
  • Equity Shares and Equity Mutual Funds : Held for more than 12 months.
  • Other Assets (e.g., Real Estate, Debt Mutual Funds) : Held for over 24 months.
• Tax Rates :
  • Equity-Linked Assets : As of the latest update, LTCG is taxed at 12.5%.
  • Non-Equity Assets : Also taxed at 12.5% as per the new rules introduced in Union Budget 2024.
• Indexation : Previously, taxpayers could adjust the purchase price of an asset for inflation (indexation). However, this benefit has been removed as per the latest budget changes.

2. Short-Term Capital Gains (STCG)

• Definition : Gains earned from the sale of assets held for a period shorter than the specified holding period are considered short-term capital gains.
• Holding Period :
  • Equity Shares and Equity Mutual Funds : Held for 12 months or less.
  • Other Assets : Held for 24 months or less.
• Tax Rates :
  • Equity-Linked Assets : Taxed at 15%.
  • Non-Equity Assets : Taxed at 20% (as per the latest budget updates).

3. Exemptions and Deductions

• Exemptions : Certain Capital Tax Gains exemptions are made under specific sections of the Income Tax Act, such as exemptions for gains reinvested in specified assets or schemes.
• Deductions : Deductions may be available under sections 54, 54EC, and 54F for reinvestment in new assets.

4. Reporting and Compliance

• Filing : Capital gains must be reported in the income tax return for the respective financial year.
• TDS : In some cases, Tax Deducted at Source (TDS) is applicable, and taxpayers must ensure compliance with tax deduction norms.

New Budget 2024-25 Rules For Capital Tax Gains

• Previously, the LTCG tax rate was 10% for equity-linked assets and 20% for other asset types. The new budget has consolidated these rates into a single flat rate of 12.5%. This adjustment represents a 2.5% increase for equity-linked assets and a 7.5% reduction for non-equity assets.
• In addition, the budget has removed indexation benefits for financial and non-financial assets, which were previously used to adjust the cost of assets for inflation. The short-term capital tax gains have also increased to 20%, up from the previous rate of 15%.

What is the Current tax rule for LTCG?

Capital Assets Meaning

Long-Term Capital Gain Tax

• Zero coupon bonds (regardless of whether they are quoted or not)
• Units of the Unit Trust of India (UTI) (regardless of whether they are quoted or not)
• Units of equity-based mutual funds (regardless of whether they are quoted or not)
• Securities listed on a recognised stock exchange in India
• Preference shares or equities held in a company listed on a recognised stock exchange in India

Short-Term Capital Gain Tax

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