Capital Gains Income

Capital gains tax is a tax imposed on the profits realized from the sale of capital assets such as stocks, bonds, real estate, and other investments. It is the tax applied to the difference between an asset's purchase price (or "cost basis") and its selling price.

When you sell an asset for more than you paid for it, you have a capital gain. Conversely, if you sell an asset for less than you paid for it, you have a capital loss. Capital gains tax is typically only applied to capital gains, not to the total amount received from the sale.

There are two types of capital gains: short-term capital gains and long-term capital gains. Such gains are taxable only in the year of transfer of the capital asset.

It is mandatory for taxpayers to file their income tax returns for capital gains by submitting the right ITR form to the Income Tax Department.

Capital assets are the property you own and can be transferred, like land, buildings, shares, patents, trademarks, jewelry, leasehold rights, machinery, vehicles, etc.

Assets that are not capital assets:

• Consumable stock or raw materials used in business/profession
• Personal belongings like clothes, furniture, etc.
• Agricultural land in rural areas
• Special bearer bonds, certain gold bonds issued by the government
• Gold deposit bonds and certificates issued under the Gold Monetisation Scheme

Capital gains are divided into short-term capital gains (STCG) and long-term capital gains (LTCG).

Short-term capital gains are the profits you earn when you sell off your capital assets within one year of holding them. The holding period varies depending on the asset.

• If Security Transaction Tax (STT) is applicable → Tax rate: 20%
• If STT is not applicable → Taxed as per your income slab rate

Long-term capital gains are the profits you earn when you sell off your capital assets after holding them for a certain period.

• LTCG is taxed at 20% (except on the sale of equity shares and equity-oriented funds)
• For listed equity shares & equity-oriented funds → 12.5% on gains above ₹1.25 lakh

Assets held for less than or equal to 24 months. In some cases, the holding period is reduced to 12 months.

Examples:

• Immovable property (land, buildings, unlisted shares) → 24 months
• Equity shares, UTI units, zero-coupon bonds, equity-oriented mutual funds → 12 months

Assets held for more than 24 months. In some cases, more than 12 months.

Examples:

• Equity shares (listed) → 12 months
• Equity shares (unlisted) → 24 months
• Land or building → 24 months
• Debt mutual funds → 24 months
• Zero coupon bonds → 12 months

1. Tax on Capital Gains (Before 23/07/2024):

• LTCG on listed equity shares and equity-oriented mutual funds (STT paid) → 10% on gains above ₹1 lakh
• Other LTCG → 20%
• STCG (STT applicable) → 15%
• STCG (STT not applicable) → Taxed as per slab rate

2. Tax on Capital Gains (On or After 23/07/2024):

• LTCG on listed equity shares and equity-oriented funds → 12.5% on gains above ₹1.25 lakh
• Land/Building (Individuals & HUFs) → 12.5% without indexation OR 20% with indexation
• Land/Building (Others) → 12.5% without indexation
• Other LTCG → 12.5%
• STCG (STT applicable) → 20%
• STCG (STT not applicable) → Taxed as per slab rate

Short-term Capital Gains (STCG):
STCG = Sale Value – (Cost of Acquisition + Transfer Expenses + Cost of Improvement)

Long-term Capital Gains (LTCG):
LTCG = Sale Value – (Transfer Expenses + Indexed Cost of Acquisition + Indexed Cost of Improvement + Exemptions)

Indexed Cost Formula:

• Indexed Cost of Acquisition = (Cost of Acquisition × CII of year of transfer) ÷ CII of year acquired
• Indexed Cost of Improvement = (Cost of Improvement × CII of year of transfer) ÷ CII of year improved

For land/building sold by individuals or HUFs:

• 12.5% tax without indexation
• 20% tax with indexation
• (Choose whichever is more beneficial)

• Section 54: Sale of house property → Buy another house (up to ₹2 crore, once in a lifetime).
• Section 54B: Sale of agricultural land → Buy new agricultural land.
• Section 54EC: Reinvest in NHAI/RECL/IREDA bonds within 6 months.
• Section 54F: Sale of asset other than house → Buy a new residential property.
• Section 54D: Compulsory acquisition of industrial land/building → Exemption available once in a lifetime.
• Amendment to Section 54 & 54F: Exemption capped at ₹10 crore.

If unable to reinvest capital gains before the ITR filing deadline, you can deposit the amount in a Capital Gain Account Scheme (CGAS) to claim exemptions later.

• If you have capital gains, you must file ITR-2 or ITR-3.
• From FY 2024-25, LTCG under section 112A up to ₹1.25 lakh can also be reported in ITR-1 or ITR-4.