Generally, every individual owns some kind of assets in various forms such as gold, shares, property, jewellery, etc. Thus, it is very important for individuals to be aware of tax implication on the loss/gain arising from the sale of such assets. The capital gains tax depends on the period for which the asset is held and is computed under the head of capital gains. As the capital gain tax rate depends on the holding period, further in this article we will elaborately discuss the computation of tax on short and long term gain from sale of asset.
Capital Gains tax is generally divided into two categories i.e. Long term capital gain and Sort Term capital gain.
Long term capital gain tax is applicable if the asset is sold after holding it for the tenure of 36 months from the date of acquisition.
For example, if an individual sells a house in FY 2018-2019 after a time period of 24 months from the date of acquisition, then the profit earned will be termed as long term capital gains.
Short term capital gain tax is applicable in case the asset is sold within the time period of 36 months from the date of acquisition.
For example, if an individual sells a house in FY 2018-2019 within a time period of 24 months from the date of acquisition, then the profit earned will be termed as short-term capital gains tax.
However, the classification of short term and long term capital gain differs in case of mutual funds/shares. In case of equity-oriented mutual funds and listed shares, long term capital gain is applicable if it is sold after the holding period of 1 year and short term capital gain is applicable if it is sold within 1 year.
Let’s take a look at the applicable tax rate on income from these assets such as gold, jewellery, property, shares, etc. based on the period for which they are held.
|Assets||Asset Duration||Tax Rate|
|Short Term||Long Term||Short Term||Long Term|
|Immovable Property i.e House Property||Less than 2 years||More than 2 year||Income tax slab rate||20.8% with indexation|
|Movable Property i.e. Gold, jewellery||Less than 3 years||More than 3 years||Income tax slab rate||20.8% with indexation|
|Equity Oriented Mutual Funds||Less than 1 year||More than 1 year||15.60%||Exempt|
|Listed Shares||Less than 1 year||More than 1 year||15.60%||Exempt|
|Debt Oriented Mutual Funds||Less than 3 year||More than 3 year||Income tax slab rate||20.8% with indexation|
*The above mentioned tax rates excludes 10% surcharge on income between Rs.50 lakhs- Rs.1crore & 15% on income above Rs.1 crore.
* CGT is applicable only for shares which are sold through the stock exchange in India on which the security transaction tax (STT) has been paid.
Based on the income tax slab rates applicable to the individuals, the short term capital gains are taxed. For example, if the short-term capital gain is Rs.6 lakhs and the individual fall in the 30% tax bracket then he/she has to pay 31.20% on Rs.6 lakhs i.e. Rs.1,87,200.
The loss/profit earned from the sale of asset is computed by deducting the expense incurred for the improvement of asset, purchase cost and expenses incurred specifically in connection with the sale of asset.
In case of the short-term capital gain on equity-oriented mutual funds/listed shares (if sold within the duration of 1 year). Short term capital gain will be taxed @15.60% (including health and education cess). However, in case of sale of unlisted share, STCGT will be taxed according to the tax slab rate applicable to the individual.
Including the health and education cess, the long term capital gains are taxed at the rate of 20.8% with indexation. Basically, indexation is a technique through which the cost of the asset is adjusted according to the inflation index. The long term capital gains are calculated similarly to short term capital gains. However, the cost of improvement and purchase cost are replaced with indexed cost of improvement and indexed cost of acquisition.
Previously, in the case of equity-oriented mutual funds/listed shares, long term capital gain was exempted if it was sold after the completion of 1 year. However now, long term capital gain tax is applicable if the asset is sold after holding it for the tenure of 36 months from the date of acquisition. The LTCGT is applicable for the shares listed on Indian stock exchange whether it is foreign company or an Indian company and the shares should be sold through the platform of Indian stock exchange only.
According to the amendment made to Section 54, under budget 2019, the assesses can avail tax exemption by investing in long-term capital gains from the sale of up to two house property. Earlier, the provision of investment was limited up to 1 house property with the same conditions. However, the profit gains on the sale of house property should not exceed more than 2 crores.
Helpful Resources: Income Tax Calculator