Document
Index

Capital Gains for Beginners

By Mohammed S Chokhawala

|

Updated on: Jul 4th, 2024

|

10 min read

Assets like stocks, bonds, property, mutual fund units, etc., are great investment options that generate capital gains when sold/redeemed. Thus, they are called capital assets, and the profits generated from their sale are liable for taxation under the head capital gains.

So, if you are thinking of investing in such assets, it is important to know about capital gains tax, its types, and available exemptions. Keep reading for a deeper insight! 

What is Capital Gains Tax?

As mentioned above, when you gain profits from the sale of capital assets, there are tax implications. This is called capital gains tax. Now, based on the time period you hold on to these assets, there can be two types of applicable capital gains tax:

  • Short-term capital gains tax or
  • Long-term capital gains tax

Short-term capital gains tax

When you sell your capital assets after holding them for a period of less than or equal to 36 months, it would be considered a short-term asset. Thus, profits from its sale are liable for short-term capital gains (STCG) tax. This is applicable to movable properties. For immovable ones, the holding period threshold is 24 months and for listed securities and equity-oriented funds the holding period threshold is 12 months.

The applicable tax rate can vary as per the asset class. 

Long-term capital gains tax

Now, when you sell assets after holding them for a tenure of more than 36 months, they fall under long term assets. Thus, profits from their sale attract long term capital gains (LTCG) tax. In this case as well, the tax rate would depend on the asset class. 

It is also to be noted that the holding period threshold for some assets may differ such as for immovable properties the holding period should exceed 24 months and for listed securities and equity-oriented funds it should exceed 12 months.

Capital Gains Tax Rules for Different Asset Classes

The capital gains tax rules could vary from one asset class to the other. These rules have been discussed below:

  • Equity shares

Equity shares can be divided into three categories - listed domestic, unlisted domestic and foreign. Find their applicable capital gains tax rates in the table below:   

Equity Share Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Listed Domestic Equity Shares

Less than or equal to 12 months

STCG

15%

Above 12 months

LTCG

10% if the amount exceeds Rs.1 lakh within a financial year 

Unlisted Domestic Equity Shares

Less than or equal to 24 months

STCG

Individual’s applicable income tax rate

Above 24 months

LTCG

20% with indexation benefits

Foreign Equity Shares

Less than or equal to 24 months

STCG

Individual’s applicable income tax rate

Above 24 months

LTCG

20% with indexation benefits

  • Debt Instruments

Debt or fixed-income instruments can either be listed or unlisted. Their applicable capital gains tax rates are:

Debt Instrument Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Listed Debt Instruments

Less than or equal to 12 months

STCG

Individual’s applicable income tax rate

Above 12 months

LTCG

20% with and 10% without indexation benefits 

Unlisted Debt Instruments

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits

  • Real Estate Investments

In case of real estate, the applicable capital gains tax rates are as follows:

Investment Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Real Estate

Less than or equal to 2 years

STCG

Individual’s applicable income tax rate

Above 2 years

LTCG

20% with indexation benefits 

  • Gold Investments

When it comes to investing in gold, individuals prefer Sovereign Gold Bonds (SGBs), gold mutual funds, Gold ETFs and digital gold. They are an attractive alternative to traditional gold investments. Check out their capital gains tax rates in the table below:

Investment Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Sovereign Gold Bonds (SGBs)

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits 

Gold Mutual Funds

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits 

Gold ETFs

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits 

Digital Gold

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits 

  • Mutual Funds

When it comes to mutual funds, they can be divided into equity, debt, equity hybrid, debt hybrid and international funds. Their applicable capital gains tax rates are as follows: 

Mutual Fund Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Equity Mutual Funds

Less than or equal to 12 months

STCG

15%

Above 12 months

LTCG

10% if the amount exceeds Rs.1 lakh within a financial year 

Debt Mutual Funds

Always Short Term 

STCG

Individual’s applicable income tax rate

Equity Hybrid Funds

Less than or equal to 12 months

STCG

15%

Above 12 months

LTCG

10% if the amount exceeds Rs.1 lakh within a financial year

Debt Hybrid Funds

Always Short Term 

STCG

Individual’s applicable income tax rate

International Funds

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits

  • Exchange Traded Funds

Exchange Traded Funds (ETFs) are categorised into index, sectoral, gold and international. Find their capital gains tax rates in the table below: 

ETF Type

Holding Tenure

Type of Capital Gain 

Applicable Tax Rate

Index ETFs

Less than or equal to 12 months

STCG

15%

Above 12 months

LTCG

10% if the amount exceeds Rs.1 lakh within a financial year

Sectoral ETFs

Less than or equal to 12 months

STCG

15%

Above 12 months

LTCG

10% if the amount exceeds Rs.1 lakh within a financial year

Gold ETFs

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits

International ETFs

Less than or equal to 3 years

STCG

Individual’s applicable income tax rate

Above 3 years

LTCG

20% with indexation benefits

 

What are the Tax Exemptions on Capital Gains?

You can avail tax benefits on capital gains under the following sections of the IT Act:

  • Section 54

Under Section 54 of the IT Act, when you sell a residential property and invest the proceeds for buying another house, it is exempt from taxation. However, there are certain conditions. You have to buy the new property within 1 year before the transfer is complete or 2 years after. Moreover, you can avail this benefit if the new residential property’s construction finishes within 36 months from the date of sale of the old one.  

  • Section 54EC

If you reinvest the profits from the sale of a long-term asset into securities of the National Highways Authority of India (NHAI) or Rural Electrification Company (REC), it is liable for tax exemption under Section 54EC. But, the reinvestment must take place within 6 months of the sale and a maximum investment upto Rs.50 lakhs only can be made during a financial year.

  • Section 54EE

Investing capital gains in funds specified by the central government can also help you avail tax deductions. You have to complete the investment within 6 months from the sale of your capital asset and the amount must not exceed Rs.50 lakh. 

You can read more about such exemptions in our article here

Final Word

Please note that, as per updates announced in the 2023 Budget speech, all debt mutual fund investments after 1 April 2023 will not receive the tax benefit associated with LTCG. Only short-term capital gains tax will be applicable as per the investor’s applicable tax slab. 

Related Articles

Capital Gains Tax

Long-term capital gains

Short-term capital gain

Tax on Long-term Capital Gains on Equity Funds

Short Term Capital Gain on Shares

Capital Gains Exemption

Section 54F

Can't get yourself started on taxes?
Get a Cleartax expert to handle all your tax filing start-to-finish

Frequently Asked Questions

What is the meaning of capital gains?

The profit earned from the sale of capital assets is called capital gains. Capital assets would include assets like shares, land, buildings etc

How are capital gains calculated?

Capital gains is calculated by reducing the cost of acquisition or the purchase price and the cost of improvement of any of a capital asset from its sale price. The rate of capital gains tax varies for different asset classes. Based on the asset class, the applicable rate has to be applied on the capital gains to calculate the capital gains tax.

How much capital gains is tax free?

Capital gains is taxed at a fixed rate as already discussed in detail in the above article. Long term capital gains on sale of listed equity shares is exempt upto Rs 1 lakh. Besides this, exemptions can also be claimed to reduce or avoid capital gains tax.

What is the applicble income tax slab for short-term capital gains?

The income tax slab applicable to short-term capital gains (STCG) is based on the taxpayer's regular slab rates. However, for listed equity shares, the STCG is charged at a fixed rate of 15%.

How do I avoid capital gains tax on sale of property?

One can avoid or reduce the capital gains tax on sale of property by availing the benefit of exemptions. Further, it is important to note that such exemptions can be availed only when the nature of the capital gains is long term.

About the Author

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption