Capital Gains Tax Rate – Income Tax

Capital gains refer to the income obtained by a taxpayer from capital appreciation in the assets sold. Capital gains under Income Tax applies when a taxpayer sells capital assets and derives a profit. In the technical terminology of the Income Tax Act, capital gains are understood to arise on the profitable transfer of a capital asset. A transfer includes a sale, transmission through will or inheritance, and other modes wherein a property of one assessee gets transferred to another assessee. A profitable transfer means a transfer in which the consideration received for the transfer exceeds the original cost of the capital asset.  A capital asset means an asset which the taxpayer has purchased not for use as stock-in-trade, but for capital purposes. The profit on a sale of capital assets is treated as income from capital gains. Capital gains are divided into two types under the Income Tax Act, namely long-term capital gains and short-term capital gains. In this article, we describe both types of capital gains.

Capital Gains Rate for Land & Building

The period of holding of an asset and the type of asset determine if capital gains are long term or short term in nature. In case of land, building, apartment or other types of immovable assets, if a person sells it after holding it for 36 months (3 Years), then the resultant gain would be termed as long-term capital gains. Long-term capital gains rate for land, building and apartment is taxable at a reduced rate of 20%. Further, the benefit of cost inflation index can also be used to reduce tax liability when the capital gains is long-term in nature.

Capital Gains Rate for Gold & Jewellery

If a person holds gold, diamond, jewellery and precious stones for 36 months before selling, then the gain from the sale can be treated as long-term capital gains. The capital gains rate applicable for gold and jeweller is 20%.

Capital Gains Rate for Shares, Mutual Funds and Financial Securities

The holding period for financial assets like shares, mutual funds and financial securities are different from that of immovable assets and jewellery. When any shares, debentures or financial securities are sold by an assessee after holding it for a minimum period of more than 12 months, the resultant profit will be treated as a long-term capital gain.

Short Term Capital Gains on Equity Shares

Short-term capital gains on equity shares and equity-oriented mutual funds are taxable under the income tax act. The short term capital gains are subject to income-tax of 15% if the securities were subject to Securities Transaction Tax. If sales of financial securities were outside of a recognised tax exchange, then the taxpayer will be charged long-term capital gains or short-term capital gains depending on the period of the holding of the said securities. For foreign Institutional Investors (FIIs), the long-term capital gains and short-term capital gains are taxed at the rate of 10% (without indexation) and 30% respectively.

Long Term Capital Gains on Equity Shares

Long-term capital gains on equity shares and units of equity-oriented mutual funds are exempt from long-term capital gains, provided the sale is chargeable to Securities Transaction Tax (STT). Thus, long-term capital gains on selling listed securities and equity-oriented mutual funds which attracted securities transaction tax remain completely tax-free. However, this facility is available only until 31.03.2018. With effect from the financial year 2018-19, long-term capital gains on any sale of securities is exempt from tax only to the extent of one lakh rupees. If the long-term capital gains on the sale of listed securities exceed one lakh rupees, the difference between the amount of capital gains and one lakh rupees will be taxable at the rate of 10%. However, the taxpayer will not be permitted to avail the benefit of indexation on the sale of securities. There may be instances wherein a taxpayer wishes to transfer unlisted securities. In such cases, the long-term capital gains arising from the sale of the securities are taxed @ 20% after adjusting the inflation-effect by indexing the cost of acquisition.

Capital Gains Set-Off

Currently, it is not possible to set-off long-term capital loss against the short-term capital gains and thus the long-term capital loss arising to taxpayers will have to be set-off only against the long-term capital gain arising to such taxpayers. Further, capital loss cannot be adjusted against any other income of the assessee for the year. However, loss from long-term or short-term capital loss can be carried forward for eight years.

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