About Capital Gains Tax

Definition: Capital Gains Tax is levied on the profit that is received through the sale of a capital asset. It covers real estate, gold, stocks, mutual funds, and various other financial and non-financial assets.

Types: It is divided into long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) depending on how long one has held the investment in question.

Why is Capital Gains Tax so complicated?

Capital gains tax is complicated for a few primary reasons.

First, the rate changes from asset to asset. LTCG tax on stocks and equity mutual funds is 10% but on debt mutual funds is 20% with indexation.

Second, the holding period changes from asset to asset. The holding period for LTCG tax is two years in real estate, one year for stocks, and three years for debt mutual funds and gold.

Third, exemptions are available under complex conditions. For instance, buying a house after selling one can get you an exemption, but the new house must be bought within two years or built-in three years of the sale.

How is Capital Gains Tax different from Income Tax?

• Unlike income tax, the percentage of Capital Gains Tax does not change on the basis of the overall tax slab. For example, the LTCG tax excluding surcharge on equity is the same for gains of ₹10 lakh or ₹10 crores.
• Moreover, there is also a separate set of deductions that apply to LTCG which do not apply to ordinary income.

Source: Indian Economy (core)