Capital gain is the profit that you earn by selling a capital asset. Long-term capital gain is the profit earned from selling a capital asset that you have held for more than 12 months. In India, long-term capital gains are taxed at a lower rate than short-term capital gains. They are also exempt from tax if they are reinvested in certain specified assets. If you are thinking of selling a capital asset, it is important to understand how long-term capital gains tax works. This will help you minimise your tax liability and maximise your profits.
What is long term capital gain?
Long-term capital gain is defined as the profit earned from the sale of a capital asset held for more than 12 months. The long-term capital gains tax rate in India is 20% for equity shares and mutual funds, and 10% for other assets such as property and gold.
In order to calculate your long-term capital gain, you must first determine your cost basis, which is the original price of the asset plus any improvements made to it. For example, if you purchase a stock for Rs. 100 and sell it one year later for Rs. 150, your long-term capital gain would be Rs. 50.
If you hold an asset for more than 12 months but less than 36 months, it will be considered a short-term capital gain and taxed at your marginal tax rate. However, if you invest in certain types of assets, such as listed shares or bonds, you may be eligible for indexation benefits, which adjust your cost basis for inflation and can lower your tax liability.
How is long term capital gain taxed in India?
In India, long term capital gain is taxed at a rate of 10%, 20% or 30% depending on the type of asset and the holding period. For shares and mutual funds, the holding period is 12 months. For property, the holding period is 36 months.
For shares and mutual funds that are listed on a stock exchange and held for more than 12 months, the long-term capital gains tax rate is 10%. For unlisted shares and mutual funds, the long-term capital gains tax rate is 20%.
For property that is held for more than 36 months, the long-term capital gains tax rate is 30%.
What are the eligible investments for long term capital gains?
Assuming that you are referring to the investments eligible for long-term capital gains tax benefit in India, these include:
Physical assets such as property, shares, jewelry, etc. held for more than 3 years
Equity mutual funds held for more than 1 year
Debt mutual funds held for more than 3 years
Certain other financial instruments such as bonds and NCDs held for more than 3 years
Do note that there are certain conditions and exceptions associated with each of these investments. For instance, shares and mutual fund units must be transferred through a recognized stock exchange to be eligible for long-term capital gains tax benefit. Similarly, physical assets such as property must be sold through a registered real estate agent. So, it is important to consult with a financial advisor before making any decisions.
What is the holding period for long term capital gains?
The holding period for long term capital gains is 3 years.
How to calculate long term capital gains?
Long-term capital gains in India are taxed at a lower rate than short-term capital gains. To calculate your long-term capital gain, you will need to:
1. Determine the purchase price of your asset: This is the price you paid when you first acquired the asset.
2. Determine the selling price of your asset: This is the price you received when you sold the asset.
3. Subtract the purchase price from the selling price: This is your capital gain.
4. Multiply your capital gain by the long-term capital gains tax rate: This is the amount of tax you will owe on your long-term capital gain.
Long-term capital gain in India is a profit that you earn from selling an asset that you have held for more than 12 months. The tax on long-term capital gains is lower than the tax on short-term capital gains, making it an attractive option for investors. If you are thinking of investing in assets such as property or shares, it is worth considering a long-term investment plan to maximise your profits.