Capital Gains Tax India
In simple words, gain means that there has been an increase in the value of a property or an asset. Capital gains are the profit or gains earned by an individual on selling upon his capital assets like house, residential plots, vehicles, bonds, stocks, etc. These gains come under the ‘income’ earned by an individual and thus are taxable according to the rules set by the Income Tax Authority of India.
Capital Gains Tax India – Meaning
Capital gains tax India or CGT is the tax levied on the income earned by the person on selling his capital assets like his house, residential land, vehicles, etc. It is to be noted that the Income Tax Department of India does not levy CGT if the property is passed down as inheritance, will or the person has received it as a gift. Since these processes do not include any kind of selling, hence they are free from taxation. Nevertheless, the capital gains tax would be charged if the new owner sells the property.
Announced with the 2019 budget, an amendment is made under section 54, wherein the assessee can avail an exemption on capital gains if he reinvests the income in purchasing or building two house properties, which was earlier available for only one house. This provision comes with some conditions and is only applicable if the capital gains are less than INR 2 crores.
What is Capital Asset? What are the types of Capital assets In India?
The definition of a capital asset can be any property that is owned by the assessee and is either used for his business or personal needs. All types of movable or immovable and tangible or intangible properties are included in the list of capital assets. For example, house, land, building, jewellery, patents, bonds, vehicles, machinery, etc.
Types of Capital Assets in India:
1. Long-term capital assets
When any of the above-mentioned assets are held by the assessee for a time period more than 36 months before they are sold, then the assets are considered as long-term capital assets.
2. Short-term capital assets
When the assets are held by the assessee only for a period of 36 months or less, then they are considered as short-term capital assets.
For assets like equity shares, securities, equity-oriented mutual fund units, and zero-coupon bonds, the time period is limited to 12 months or less.
Tax Applicability On Short and Long Term Capital Gains
Type of Tax
|Applicable Conditions||Applicable Tax|
|Long-term capital gains tax||When units of equity-oriented mutual funds or equity stocks are sold.||
Long-term capital gains tax
|When units of equity-oriented mutual funds or equity stocks are sold.||10% over and above INR 1 lakh|
|Short-term capital gains tax||The situation where securities tax is not relevant||
The STCGT is directly added to the income-tax returns of the taxpayer which he pays as per his tax slab.
Short-term capital gains tax
|The situation where securities tax is applicable||
Tax Applicability on Debt Funds and Equity Funds
|Applicable from 11th July 2014||Applicable on or before 10th July 2014|
|Short-term gains||Long-term gains||Short-term gains||
|According to the rates of the tax slab, the taxpayer falls in||Taxed at a flat rate of 20% after indexation||According to the rates of the tax slab, the taxpayer falls in||Either 10% without indexation or 20% without indexation, whichever be the lowest|
|Equity Funds||15%||Taxed at a flat rate of 10% after capital gains of INR 1 lakh||15%||
Important Terms to be aware of the following:
When talking about capital gains, you must be aware of the following terms:
1. Cost of acquisition: The amount at which the capital asset was received by the seller is known as the cost of acquisition.
2. Cost of improvement: The cost incurred towards alterations or additions made to the capital assets for its improvement before selling it is called the cost of the improvement.
3. Full Value Consideration: The amount of consideration received by the seller after making the transfer of his capital assets to the buyer.
Calculating Short Term Gains:
To calculate the short-term capital gains, you need to follow the given steps:
- Step 1: Estimate the full value of consideration
- Step 2: Deduct these values from the amount estimated: cost of acquisition, cost of the transfer, and cost of the improvement. The value calculated will give you the short-term capital gain
Calculating Long Term Gains:
To calculate the long-term capital gains, follow the given steps:
- Step 1: Estimate the full value of consideration
- Step 2: Deduct the following values from the amount estimated: indexed cost of acquisition, indexed cost of the transfer, and indexed cost of the improvement.
- Step 3: Finally deduct exemptions u/s 54, 54EC, 54F, and 54B from the amount calculated. The resulting value will give you long-term capital gain.
How to get an Exemption on Capital Gains Tax India?
- As the agricultural lands in rural areas of India are not considered capital assets, hence there is no capital gains tax applicable on them.
- An individual can be exempted from the long-term capital gains tax if he reinvests the entire amount to purchase or construct a new house property. This provision comes with a number of terms and conditions that should be well-read and followed by the assessee.
- An individual can be exempted from capital gains tax payment if he invests the amount in the Capital Gains Account Scheme (CGAS). To be eligible for the exemption, the individual will have to invest in the scheme as per the specifications made by the bank.
- An individual can become eligible for tax deductions if he invests in any of the capital bonds sold by NHAI or RECL. This deduction shall be made under section 54EC and will only be applicable to long-term capital assets.
The capital gains tax India was introduced in 1956 and since then, there have been several amendments made to incorporate tax exemptions and deductions in it. The above-given information about the capital assets and the rates at which taxes would be levied on them shall help you to calculate your capital gain tax. However, you can also use the online CGT calculators to help you through the process. Moreover, investing in one of the tax-saving schemes can give you dual benefits.
If you find yourself unable to calculate capital gains tax in India, you can always get help from tax experts. A skilled professional will be able to get you through the process in the best possible way.