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An Introductory Guide on Long Term Capitals Gains Tax Rates
Long Term Capital Gain Tax (LTCG) is the tax levied on profits earned from selling a capital asset held for more than a specific period, usually more than 12 or 24 months depending on the asset type. Assets such as property, shares, and mutual funds fall under this category. The long-term capital gain tax rate may vary depending on the nature of the asset and applicable exemptions.
Capital assets include real estate, listed shares, bonds, and mutual funds. For instance, <b>long term capital gain tax on property applies when you sell a residential or commercial property after holding it for more than 24 months. Similarly, gains from listed shares and equity-oriented mutual funds become taxable after a holding period of 12 months.
The profit that you earn by selling capital assets is referred to as Capital Gains. This profit is categorized as income and is therefore taxed accordingly. Capital gains can be short-term or long-term, and the tax levied is short-term capital gains tax or long-term capital gains tax, respectively.
Real estate, company stocks, debentures, government securities, bonds, Mutual Fund units, etc., are examples of capital assets. Depending on the type, these assets attract long-term capital gains tax when held for a year or 3 years.
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Long-term capital gains are taxed at a flat rate of 12.5%. This single rate applies across all asset classes, including property, listed and unlisted shares, bonds, debentures, mutual funds, exchange-traded funds, gold, and other capital assets.
For equity-related investments such as listed shares, equity mutual funds, and units of business trusts, the first INR 1.25 lakh of long-term gains in a financial year is exempt from tax. Any amount above this exemption is taxed at 12.5%. Indexation is not available for these assets.
Suppose you bought 100 shares of a listed company at INR 1,500 each and sold them at INR 2,500 each.
Particulars
Amount (INR )
Purchase cost
1,50,000
Fair-market value (as per rules)
1,90,000
Sale value
2,50,000
Long-term capital gain
60,000
Here, the gain of INR 60,000 falls within the INR 1.25 lakh exemption limit. No tax is payable.
If your total equity gains in the year amount to INR 2,00,000:
Profits from selling listed equity shares held for more than 12 months are subject to long term capital gain tax on shares. Gains up to INR 1.25 lakh in a financial year are exempt. Any amount above this is taxed at a flat 12.5% without indexation.
Example: Suppose you bought listed company shares worth INR 2,00,000 and sold them after 18 months for INR 3,50,000. The gain is INR 1,50,000. Since the first INR 1,25,000 is exempt, only INR 25,000 is taxable. At 12.5%, the tax liability is INR 3,125.
Gains from equity-oriented mutual funds held for more than 12 months are subject to long term capital gain tax on mutual funds. The first INR 1.25 lakh of such gains in a year is exempt, and any amount above this limit is taxed at 12.5% without indexation. Debt and other mutual funds are now taxed at the same rate.
Example: Suppose you invested INR 2,00,000 in an equity mutual fund and sold the units after 18 months for INR 3,50,000. The gain is INR 1,50,000. After the INR 1,25,000 exemption, INR 25,000 is taxable at 12.5%, leading to a liability of INR 3,125.
If you sell a residential or commercial property after holding it for more than 36 months, you need to pay long term capital gain tax on property. The gain is taxed at a flat 12.5% without indexation.
Example: You bought a property for INR 40,00,000 and sold it later for INR 75,00,000. The taxable gain is INR 35,00,000. At a 12.5% rate, the tax payable is INR 4,37,500.
To calculate liability, you need three key details: the sale price, the purchase price, and how long you held the asset. If it qualifies as long term, the rules for long term capital gain tax apply.
Step 1: Find the indexed cost of acquisition – Adjust the purchase price using the Cost Inflation Index (CII).
Step 2: Subtract the indexed cost from the sale price – The difference is your long-term capital gain.
Step 3: Apply the long-term capital gain tax rate – For most assets, this is 20% with indexation. For listed shares and equity mutual funds, it is 12.5% on gains above INR 1 lakh without indexation.
Step 4: Check exemptions – You may reduce tax by reinvesting gains in assets allowed under the Income Tax Act.
To make this easier, you can use a long-term capital gain tax calculator. It provides quick estimates by adjusting for inflation, the type of asset, and the relevant tax rate.
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The computation of long-term capital gain tax depends on several key factors:
The Income Tax Act allows certain long-term capital gain tax exemption that can lower or defer your liability on long term capital gain tax. These exemptions apply when you reinvest the gains in specified ways.
If you sell a residential property and reinvest the capital gains in another residential property within the prescribed time, you can claim exemption. The new property must be purchased within two years or constructed within three years from the date of transfer.
You can claim exemption by investing the capital gains in specified bonds, such as those issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC). The investment must be made within six months of the sale, and the bonds have a lock-in period of five years.
If you are unable to reinvest the gains before the due date for filing your income tax return, you may deposit the amount in a Capital Gains Account Scheme (CGAS). This deposit keeps the exemption valid until you are ready to use the funds for the permitted purpose.
Your gains from selling capital assets are considered as income. Like any other income in India, you are liable to pay tax on capital gains as well, and long-term capital gains tax is no exception to the rule. Depending on the type of sale, the long-term capital gains tax rates will differ. However, you must check the tax benefits available to you before filing your returns.Start your investment journey with DBS Bank. Open your savings account through online account opening on the website or the DBS digibank app and manage your money with ease.
*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.
