Capital gains in India refer to the profit earned from the transfer (sale) of a capital asset. Such gains are taxable under the Income Tax Act, 1961. Here’s a comprehensive summary of capital gain taxation in India:
1. Meaning of Capital Asset
Capital Asset includes:
✅ Land
✅ Building
✅ Shares & Securities
✅ Mutual Funds
✅ Jewellery
✅ Debt Instruments, etc.
Excludes:
- Stock-in-trade
- Personal effects (excluding jewellery, paintings, etc.)
- Rural agricultural land in India
2. Types of Capital Gains
a) Short-Term Capital Gains (STCG)
When the asset is held for a short period before transfer:
| Asset Type | Holding Period for STCG |
|---|---|
| Equity shares (listed) | Up to 12 months |
| Units of Equity Mutual Funds | Up to 12 months |
| Listed Securities (other than equity shares) | Up to 12 months |
| Immovable Property (Land/Building) | Up to 24 months |
| Other assets | Up to 36 months |
b) Long-Term Capital Gains (LTCG)
When the asset is held for a longer period before transfer:
| Asset Type | Holding Period for LTCG |
|---|---|
| Equity shares (listed) | More than 12 months |
| Units of Equity Mutual Funds | More than 12 months |
| Listed Securities (other than equity shares) | More than 12 months |
| Immovable Property (Land/Building) | More than 24 months |
| Other assets | More than 36 months |
3. Tax Rates on Capital Gains
a) Short-Term Capital Gains
| Asset Type | Tax Rate |
|---|---|
| Equity shares & Equity Mutual Funds (STT paid) | 15% + applicable surcharge & cess |
| Other STCG | Added to total income, taxed as per slab |
b) Long-Term Capital Gains
| Asset Type | Tax Rate |
|---|---|
| Equity shares & Equity Mutual Funds (STT paid) | 10% on gains exceeding ₹1 lakh (no indexation) |
| Other LTCG (e.g., land, building, unlisted shares) | 20% with indexation benefit |
4. Indexation Benefit
Available for long-term assets (except for listed equity shares and equity-oriented mutual funds). It adjusts the purchase price based on the Cost Inflation Index (CII), thereby reducing taxable gains.
5. Exemptions under Capital Gains
Popular Exemptions:
| Section | Exemption Available On |
|---|---|
| 54 | LTCG on sale of residential property, if reinvested in another residential property (conditions apply) |
| 54EC | LTCG on sale of land/building, if invested in specific bonds (NHAI, REC, etc.) within 6 months (limit ₹50 lakh) |
| 54F | LTCG on sale of any capital asset (other than residential property) if entire consideration invested in residential property |
6. Capital Gains in Special Cases
- Sale of Inherited Property: Capital gain arises in the hands of the inheritor upon sale; holding period of the previous owner is included.
- Gifted Assets: Transfer by gift is not taxable, but capital gains apply when the recipient sells the asset.
7. Set-Off & Carry Forward of Capital Losses
- STCL can be set off against both STCG & LTCG.
- LTCL can be set off only against LTCG.
- Unadjusted losses can be carried forward for 8 assessment years, subject to filing the return within the due date.
8. Capital Gains under New Regime
Capital gains are taxable as per the above rules. The concessional tax regime under section 115BAC (new regime) does not affect capital gains tax rates.
9. TDS on Capital Gains
In certain cases, TDS applies:
- On sale of immovable property exceeding ₹50 lakh – 1% TDS
-
NRIs – TDS applies on sale proceeds as per relevant rates