Capital Gains Tax in India: Types, Calculation, & Ways to Save
What is Capital Gain Tax?
Capital gains tax is levied on the profits made from the sale of capital assets like real estate, stocks, bonds, etc.
The tax is applied to the difference between the selling price and the purchase price of the asset
Types of Capital Gains
Short-Term Capital Gains (STCG):
STCG applies to assets sold within one year (or a different holding period depending on the asset).
Tax rate: 15% when STT (Security Transaction Tax) is applicable. For others, it’s taxed based on income slab rates.
Long-Term Capital Gains (LTCG):
LTCG applies when the asset is sold after a holding period specified for each asset type.
Tax rate: 20% for most assets, except equity shares and mutual funds where it is 10% on gains above ₹1 lakh (after Budget 2024).
Capital Assets
These are assets that can be sold and transferred, such as land, buildings, shares, and jewelry.
Exclusions include raw materials, personal belongings like clothes, and agricultural land in rural areas.
How to Calculate Capital Gains Tax
For Short-Term Capital Gains:
Calculation: Full Value of Consideration – Cost of Acquisition – Cost of Improvement = Capital Gains.
For Long-Term Capital Gains:
Involves adjusting the cost with the Cost Inflation Index (CII) to account for inflation.
Also allows for deductions like expenses incurred in the sale and exemptions under sections 54, 54EC, etc.
Tax Rebate and Exemptions
Section 87A provides a rebate for individuals earning less than ₹12 lakh, but capital gains are excluded from this rebate.
Exemptions under sections like 54 (reinvestment in residential property), 54B (sale of agricultural land), and 54EC (reinvestment in bonds like NHAI bonds) are available to reduce tax liability.
Capital Gains Tax Rates
Short-Term: Generally taxed at 15% for equity shares and mutual funds, and normal tax rates for others.
Long-Term: Rates range from 10% for listed equity to 20% for real estate.
Ways to Save on Capital Gains Tax
Invest in assets eligible for exemptions under Section 54, 54F, 54EC, etc.
Use indexation to reduce tax on long-term capital gains.
Reinvest gains in specific assets such as agricultural land or government bonds to claim exemptions.
Filing ITR for Capital Gains
ITR-2 and ITR-3 must be filed to report capital gains or losses.
Ensure that exemptions and deductions are properly accounted for during the filing.
Recent Amendments in Budget 2025
The Section 87A rebate for those earning up to ₹12 lakh has been increased but does not apply to capital gains.
Capital Gains Exemption Cap: The maximum exemption available under sections like 54 and 54F is capped at ₹10 crore.
This guide provides a solid understanding of capital gains tax in India, offering insights into the types of assets, the calculation methods, applicable rates, and available exemptions to minimize tax liabilities effectively.
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Frequently Asked Questions
Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types - short-term capital gains and long-term capital gains.
The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.
Given below are a few examples of capital assets -
- Land
- Building
- House property
- Patents
- Trademarks
- Vehicles
- Leasehold Property
- Machinery
- Jewellery
Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types - short-term capital gains and long-term capital gains.
The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.
Given below are a few examples of capital assets -
- Land
- Building
- House property
- Patents
- Trademarks
- Vehicles
- Leasehold Property
- Machinery
- Jewellery
Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types - short-term capital gains and long-term capital gains.
The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.
Given below are a few examples of capital assets -
- Land
- Building
- House property
- Patents
- Trademarks
- Vehicles
- Leasehold Property
- Machinery
- Jewellery