Every individual owns some asset be it in the form of any property, gold, jewellery or shares. And so one must be aware of tax implications on the gain/loss arising from the sale of such assets. Tax liability on Sale of property, shares, jewellery depends on the holding period of the asset and is calculated under the head ‘Capital Gains’.
Profit or gain arising from sale of assets such as property, gold, jewellery or shares is called a capital gain. Capital Gains are divided into two categories:
If you sell the asset after holding it for more than 12/24/36 months(variess from asset to asset- see table below), then the profit arising on sale will be termed as LTCG.
If the asset is sold within a certain holding period from its acquisition, then it is called a short-term capital gain (STCG). For instance, if you sell a house within 24 months of acquiring it, then profit arising will be termed as STCG. However, the classification of long-term and short-term capital gain is different in case of shares/mutual funds. In the case of listed shares and equity-oriented mutual funds, long-term capital gain arises if they are sold after holding it for one year only and short-term capital gain if sold within one 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 held.
|Asset||Holding Period of Asset||Tax Rate|
|Immovable Property, e.g. House property||Less than 2 years||More than 2 years||Income tax slab rate||20.8% with indexation|
|Movable Property, e.g. Gold/Jewellery||Less than 3 years||More than 3 years||Income tax slab rate||20.8% with indexation|
|Listed Shares*||Less than 1 year||More than 1 year||15.60%||LTCG up to Rs 1 lakh- non-taxable,|
More than Rs 1 lakhs -10% without indexation.
|Equity-Oriented Mutual Funds||Less than 1 year||More than 1 year||15.60%||LTCG up to Rs 1 lakh- non-taxable,|
More than Rs 1 lakhs -10% without indexation.
|Debt-Oriented Mutual Funds||Less than 3 years||More than 3 years||Income tax slab rate||20.8% with indexation|
(Tax rates mentioned above are excluding surcharge at 10% on income between Rs 50 lakh and Rs 1 crore and at 15% on income above Rs 1 crore)
* Applicable only for the shares sold through the stock exchanges in India on which a security transaction tax (STT) has been paid.
Short-term capital gains are taxed as per the income tax slab rates applicable to the individual. For instance, if the short-term capital gain is Rs 6 lakh and the person falls in the 30% tax bracket, then he/she has to pay 31.20% on Rs 6 lakh, i.e. Rs 1,87,200. Gain/loss from the sale of the asset is calculated by deducting the cost of purchase, cost incurred for improvement of the asset and expenses incurred exclusively in connection with the sale from the sale proceeds of the asset.
Short Term Capital Gain = Sale Consideration – Cost of acquisition- Cost of improvement (if any) – Expenses incurred exclusively for the sale of the Asset.
In the case of a short-term capital gain on listed shares/equity-oriented mutual funds (if sold within a period of one year), it will be taxable at the rate of 15.60% (including health and education cess @4%). 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.
Long-term capital gains are taxed at the rate of 20.8% (rate including health and education cess @ 4%) 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, the benefit of indexation is available plus the person who falls 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 the indexed cost of acquisition and indexed cost of the improvement.
Long Term Capital Gain = Sale consideration –Indexed cost of acquisition- Indexed cost of improvement (if any)-Expenses incurred exclusively for the sale of the Asset-Exemption u/s 54, 54F, 54EC if any availed.
The calculation of Indexed cost can be done with the help of following formula:
Indexed Cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year of sale / CII of the year in which the property was first held or FY 2001-2002, whichever is later
If the property was acquired before 1st April 2001, in that case, the actual cost of the property or the FMV of the property as on 1st April 2001, as opted by the taxpayer, should be deemed to be the cost of acquisition.
Indexed Cost of Improvement=Cost of improvement * CII of the year or sale / CII of the year in which improvement took place
Note: Improvement cost incurred prior to FY 2002-02 should not be considered.
Before, In the case of Listed Shares/ Equity oriented Mutual funds, long-term capital gain (if sold after a period of one year) was exempt. But it was applicable only for the shares listed on the Indian Stock exchange whether it is an Indian company or a foreign company. And the shares must be sold through the Indian stock exchange platform only.