Capital gains tax

Capital gains tax

Subject: Economy

Section: Fiscal Policy

Under the Income Tax Act, gains from the sale of capital assets, both movable and immovable, are subject to ‘capital gains tax’. It covers real estate, gold, stocks, mutual funds, and various other financial and non-financial assets.

According to the Income Tax Act, if a person inherits property and does not sell it, no capital gains tax is required. However, if the person who inherited the property decides to sell it, he or she will have to pay tax on the earnings.

Exclusions:

The following items are not considered capital assets:

• Any stock, consumables, or raw materials stored for business or profession.
• Personal items held for personal use, such as clothing and furniture
• Agricultural land in India’s rural areas
• The central government’s 6½% per cent gold bonds (1977) or 7 per cent gold bonds (1980) or national defence gold bonds (1980).
• Special bearer bonds (1991)
• A gold deposit bond or deposit certificate issued under the Gold Deposit Scheme (1999) or the Gold Monetisation Scheme (2015).

Types:

Short-term capital gains tax

• Normally if an asset is held for less than 36 months, any gain arising from selling it is treated as a short-term capital gain (STCG).
• The term for immovable assets, such as real estate, buildings, and land, has been decreased from 36 to 24 months.

Long-term capital gains tax

• If the asset is held for 36 months or more. However, Shares and equity mutual funds with a holding period of 12 months or more qualify as ‘long-term’.
• Current tax laws state LTCG arising on the sale of listed equity shares or equity oriented mutual funds are exempt from tax if one pays Securities Transaction Tax (STT) on the sale transaction.
• Any of the assets listed below are considered long-term investments if you own them for more than a year:
  • Zero-Coupon Bonds (not dependent on whether they are quoted or not)
  • Units of the Unit Trust of India (UTI) (not dependent on whether they are quoted or not)
  • Units of equity-based mutual funds (not dependent on whether they are quoted or not)
  • Securities that are listed on a recognised Indian stock market. Government securities, bonds, and debentures are examples of such securities.
  • Preference shares or stocks held in a corporation that is listed on a recognised stock exchange in India.

Tax rates: