“Tax Smart: Navigate Capital Gains with Confidence”
Capital gains tax is the tax on the profit which you get for selling the capital assets. The capital assets are stocks, mutual funds, bonds, and certain others. They are like the income tax yet concerning the investments you made. The tax rate confides on how much you retain on the tax value. In this blog, we will see elaborate on what is capital gains tax and know the considerations to contemplate. Capital gains tax is known as the tax which you pay on building profits through selling the possessions. The assets would be bonds, stocks etc.
These were the tax employed to boost the value of the asset during liquidation, also they are acquired by computing the difference across the buying amount and the selling cost. The capital gain tax gains could be short-term and long-term gains. The short-term gains were taxable at your slab rate if they have been kept below one year. In addition, the long-term gains tax is retained for a period beyond one year. Generally it is minimal based on the person’s income.
Capital Gain Tax in India
Capital Gain taxes enforce to the profits which you earn on selling the resources. The types of Capital Gain tax were mentioned below;
Short-Term Capital Gains (STCG)
For instance, when you sell a stock upon online investing later on three months of purchasing, it will be accountable for STCG taxes. Short-term capital gains were taxed as per your individual income tax slab rate. But, keep reminiscing that the Securities Transaction Tax (STT) is remitted upon the buying.
What is Long-Term Capital Gains Tax in India?
When assets are kept for more than a year, they are subject to long-term capital gain tax, or LTCG tax. These resource sales proceeds are recognized as long-term capital gains. For example, when held for more than a year, the preference shares, stocks, UTI units, securities, equity-based mutual funds etc come into this group.
When an equity share or equity-oriented mutual fund earns more than Rs 1 lakh annually, the long-term capital gains (LTCG) are subject to a fixed 10% tax rate despite the added advantage of the indexing process while the LTCG, on the other assets, is taxed at 20% along with indexation gain while taking inflation into account when calculating costs. Diverse assets have distinct STCG tax and LTCG tax.
How to Calculate Capital Gains?
Capital gains were estimated upon the type of capital gain (STCG or LTCG). The formula used for calculating the short-term capital gain and long-term capital gain were mentioned below;
- Short-Term Capital Gain- Now here we shall see an example, when you buy and sell a stock in a 3-month period you may buy huge stock at ten lakh so;
Stock bought around Rs 10,00,000
Sold at-Rs 15,00,000
The profit will be Rs 5,00,000
Short-tem Capital gain= sell price-buy price
It is the profit of yours
Rs 15,00,000-10,00,000
=Rs 5,00,000
Thereby the short-term capital gain will be Rs 5,00,000
- Long-term Capital Gain- Now let me explain it with a simple example, while you buy and sell the stock upon holding them for greater than 12 months period, then we may keep like that. You purchased huge amount of stock at ten lakhs.
So stock bought at Rs 10,00,000
Sold at Rs 15,00,000
The profit will be Rs 5,00,000
Indexation Benefit-While the Cost Inflation Index (CII) during the purchase is 250 and during the time of sale it would be 280, the indexed purchase price is;
Indexed Purchase price= (Purchase price x CII at sale) / CII at purchase
Indexed purchase price= (Rs 10,00,000 x 280) / 250
Indexed purchase price= Rs 11,20,000
The adjusted profit upon indexation is
Adjusted profit= Sale price – Indexed purchase price
Adjusted profit= Rs 15,00,000-11,20,000
=3,80,000
So adjusted profit will be Rs 3,80,000
Thereby the long-term capital gain following the indexation benefit is Rs 3,80,000.
Thus, there exist legal ways to conserve short-term and long-term tax.
Key Features of Finance Act 2024
- Income Tax Amendments
- Capital GainsTax- Now, Taxpayers have the option of continuing with the existing tax system, which gives a higher rate with the advantage of indexation, or lowering their tax rate to 12.5% without the indexing procedure.
- Taxation on Share Buyback- Despite the repeal of Section 115QA’s buyback tax, expenditures for share buybacks have been designated as dividends and are subject to shareholder taxation.
- IFSC Tax Incentives– Increased tax benefits for financial institutions in International Financial Service Centres (IFSC).
- Goods and Service Tax Adjustments- On dates determined by the government, several GST-related regulations will go into effect, possibly with revisions to the GST framework.
- Equalization Levy- On August 1, 2024, the 2% Equalisation levy on e-commerce services was abolished.
- Reassessments and TDS Provisions- The reassessment methodologies have been altered and the time limit for TDS Default legal action has been Lowered.
The Government intends to reinforce the entire fiscal framework, give taxpayers greater liberty, and streamline tax rules are reflected in these reforms. To carry out government economic plans and oversee the nation’s financial stability, the Finance Act 2024 is essential.
FAQs
- What are the possible ways to avoid capital gains tax in India?
There exist 3 effective ways to conserve on the capital gain tax on the sale of property. They are;
Invest in CGAS( Capital Gains Account Scheme) endowing in Capital Gains Account Scheme (CGAS) is another way to save the Capital Gains Tax on property sales.
Set off whole capital losses
Invest on bonds
- How much capital gain is tax-free on the property?
Capital Gains Tax Exemption Limit from April 2023, The Capital Gains Tax Exemption below section 54 to 54F is hooded at ten crore rupees. There used to be no such cap. Cumulative Requirements: To qualify for the exemption, each of the aforementioned requirements must be fulfilled.
- Do Senior citizens need to pay capital gains tax in India?
The base exemption limit for capital gains tax is increased to three lakh for senior citizens and 5lakhs for super senior citizens. The investments yielding returns upon protracted period, explicitly a minimum of 1-3years were graded as long-term capital gains (LTCG).
- What is the period of holding for capital gains?
Long-term Capital Gains were formerly exempt when sold upon a year in the context of equity-oriented mutual funds and listed shares. Currently, nevertheless, if an asset is sold after being owned for 36 months following the day of execution, long-term capital gain tax is payable.
- Which income comes under capital gain?
The capital gain is indicated as the net profit that an investor makes upon selling a capital asset surpassing the price of buying the whole value obtained from selling a capital asset is considered as taxable income.
- What is property gain tax in India?
Taxation on long-term capital gains from the sale of residential property is 20%. The entire amount of taxes payable will be Rs 12,97,800 with an estimated capital gain of Rs 63,00,000. There will be taxes due on this huge sum of money.
- What is the capital gains tax rate in India?
| Tax Type | Condition | Applicable Tax |
| Long-Term Capital Gains Tax (LTCG) Short-term Capital Gains Tax | Sale of ; -Listed Equity Shares -Units of Equity-oriented Mutual Funds -Others -When Securities Transaction Tax(STT) is not applicable -When STT is applicable | 10% over & above Rs 1 lakh 20% -Normal slab rates -15% |
Final Thoughts
The capital gains tax is the one which you need to pay to the government while you obtain profits on diverse assets like houses or stocks. The tax you pay is based on how long you retained and the amount you sold the investments on the thorough know-how of these rules aids you in managing your investments in a better way and make a good financial strategy.
Capital Gains Tax: Know the Rules, Maximize Your Returns