Capital Gain Tax

A capital asset is any property or ownership right that can be converted into money. It generally refers to assets held for investment or personal use and not for use in your business. Examples of capital assets include:

• Land and Buildings
• Stocks and Shares
• Debentures and Bonds
• Jewellery (except for inherited ones)
• Vehicles (except used for business purposes)

Classification of Capital Assets

Capital assets can be broadly classified into two categories based on the holding period when sold:

• Long-term Capital Asset: An asset held for more than the minimum specified holding period (varies depending on the asset type). In most cases, it's more than one year.
• Short-term Capital Asset: An asset held for less than the minimum specified holding period.

Capital Gains Tax Rates

Capital gains tax is levied on the profit earned from the sale of a capital asset. The tax rate depends on the type of capital asset and how long it was held (short-term or long-term).

• Long-term Capital Gains (LTCG): Generally taxed at 20% with indexation benefit (adjusting cost for inflation). However, there are exceptions with lower rates for specific assets like equity shares and equity-oriented mutual funds (taxed at 10% on gains exceeding Rs. 1 lakh per year).
• Short-term Capital Gains (STCG): Taxed at a flat rate of 15% if Security Transaction Tax (STT) applies. If STT doesn't apply, the tax rate is based on your income tax slab.

Short-term vs. Long-term Capital Loss

Capital losses can be incurred when you sell a capital asset for less than its purchase price. These losses can be used to offset capital gains, potentially reducing your tax liability.

• Short-term Capital Loss: Can only be set off against short-term capital gains.
• Long-term Capital Loss: Can be set off against both short-term and long-term capital gains. Any remaining loss can be carried forward for up to eight years to offset future capital gains.