1. What is Capital Gains?
Profit or gain arising from the sale of assets such as property, gold, jewellery or shares is called as capital gain. Capital Gains are divided into two categories:
a. Long term Capital Gain
If the asset is sold after holding it for a period of 36 months from its date of acquisition, then profit arising from the sale is called as Long term capital Gain.
For instance if you sell house in FY 2017-18 after a period of 24 months from the date of acquisition, then profit arising will be termed as long term capital gain.
b. Short term Capital GainIf the asset is sold within a period of 36 months from its acquisition, then it is called as short term capital Gain.
For instance if you sell house in FY 2017-18 within a period of 24 months from the date of acquisition, then profit arising will be termed as short term capital gain.
However the classification of Long term and Short term Capital gain is different in case of Shares/Mutual funds. In case of Listed Shares and Equity Oriented Mutual Funds, Long term capital gain arises if they are sold after holding it for a period of 1 year only and Short term capital gain if sold within 1 year.
Now let’s analyse the tax rate applicable to income from these assets such as property, gold, jewellery, shares etc. based on the duration for which they are hold.
2. Tax Rate Chart for Income on Sale of Assets
|Asset||Duration of the Asset||Tax Rate|
|Short Term||Long Term||Short Term||Long Term|
|Immovable Property e.g. House property||Less than 2 year||More than 2 year||Income Tax Slab rate||20.6% with Indexation|
|Movable Property e.g. Gold/Jewellery||Less than 3 year||More than 3 year||Income Tax Slab rate||20.6% with Indexation|
|Listed Shares*||Less than 1 year||More than 1 year||15.45%||Exempt|
|Equity Oriented Mutual Funds||Less than 1 year||More than 1 year||15.45%||Exempt|
|Debt Oriented Mutual Funds||Less than 3 year||More than 3 year||Income Tax Slab rate||20.6% with Indexation|
(Tax rates mentioned above are excluding surcharge @10% on income between Rs 50 lakhs- to Rs1crore & 15% on income above Rs 1 crore)
* Applicable only for the Shares sold through stock exchange in India on which Security transaction tax (STT) has been paid.
3. Calculation of Tax on Short term and Long term gain from sale of assets
a. Short term Gain/Loss
Short term Capital gain are taxed as per the income tax slab rates applicable to the individual. For instance, if short term capital gain is Rs 6lakhs and the person falls in 30 % tax bracket then he has to 30.9% on Rs 6 lakhs i.e. Rs 1,85,400.
Gain /loss from the sale of the asset is calculated by deducting the purchase cost , cost incurred for improvement of the asset and expenses incurred exclusively in connection with the sale from the sale proceeds of the asset.
In the case of Short term capital gain on Listed shares/Equity oriented Mutual funds (if sold within a period of 1 year), it will be taxable at the rate of 15.45%.But in case of sale of Unlisted Shares i.e. Sale not made through Indian stock exchange will be subject to tax as per the income tax slab rate applicable to the individual.
b. Long Term Capital gain/Loss
Long term capital gains are taxed at the rate of 20.6 % with indexation. Indexation is basically a technique to adjust the cost of the asset according to the inflation index. It will increase your cost and reduce your gains and thereby tax liability. So under long term capital asset, benefit of indexation is available plus the person who fall in the tax bracket of 30% also get the advantage of paying the lower tax rate of 20%.
Long term capital gains are calculated in the same way as short term capital gains but the purchase cost and cost of improvement are replaced with indexed cost of acquisition and indexed cost of improvement.
The calculation of Indexed cost can be done with the help of following formula:
Cost Inflation Index of the year in which asset was first held by the seller or 1981-82 whichever is later
Cost Inflation Index of the year in which improvement cost is incurred
In case of Listed Shares/ Equity oriented Mutual funds, long term capital gain (if sold after a period of one year) is exempt. But it is applicable only for the shares listed on Indian Stock exchange whether it is an Indian company or foreign company. And the shares must be sold through Indian stock exchange platform only.