If you’re planning to sell any kind of movable or immovable property anytime soon, then you should be familiar with and have ample knowledge about Capital Gain Tax, the types of capital gain tax, the current tax rates of wealth gain and the tax you have to bear while you’re selling a capital asset.
In this article, we have got you all covered!
Wealth Gain Tax
Capital Gain is defined as any profit that an individual receives while selling a capital asset. The profit that is made comes under the purview of income. Therefore, a tax is levied on the income that is received. Thus, Wealth/ Capital Gain Tax may be defined as the tax that is imposed on the profit earned by selling any sort of capital assets such as residential plots, vehicles, stocks, bonds and even collectables such as artwork.
Any transaction involving such capital assets is taxable under the Income Tax Act of India and might also include cess or any other surcharge applicable on the sale.
The Wealth Gain Tax can be primarily categorized into two types:
- Short-term Capital Gains Tax
- Long-term Capital Gains Tax
Short-term Capital Gains Tax
The profit earned by selling any asset such as jewellery, debt-oriented mutual funds et cetera after holding it for less than 36 months is known as Short-term Capital Gain.
In the case of property, the duration for holding the assets is 24 months or less. Whereas, assets like shares listed on a recognised stock exchange, government securities, debentures, UTI units, Zero-coupon bonds, equity-oriented mutual funds et cetera that have been owned for less than 12 months are considered to be Short-term Capitals.
Thus, the tax levied on the profit gained by selling such assets is known as Short-term Capital Gains Tax.
STCG Tax on Shares
The STCG tax rates on shares, it has been divided into two categories:
- STCG that are covered under section 111A:- A rate of 15% will be charged as income tax on the shares that are included in this category. For example, gains earned through the sale of equity shares and equity-oriented mutual funds enlisted in a recognised stock exchange or units of a business trust.
- STCG that are not covered under section 111A:- The income tax on shares that fall under this category is decided as per the income tax slab of the taxpayer.
This includes gains earned through the sale of equity shares that are not enlisted in a recognised stock exchange, shares which are not equity shares, debt-oriented mutual funds, bonds, debentures, government securities and assets which are not shares.
STCG on shares are not exempted from tax. However, there are certain income levels under which individuals are exempted from paying income tax on STCG on shares. They are:-
- Individuals of 80 years and above with an annual income of upto Rs. 5 lacs.
- Individuals between 60-80 years with an annual income of Rs. 3 lacs.
- Individuals below 60 years with an annual income of Rs. 2.5 lacs.
- Hindu Undivided Families with an annual income of Rs. 2.5 lacs.
Only the above-mentioned individuals are eligible for adjusting their exemption limits against SCTG that are covered under section 111A.
STCG Tax on Property
A taxpayer is liable to pay an STCG tax on the profit gained upon selling a property as per his applicable income tax slabs.
The benefit of indexation or exemption/ savings is not allowed on a property transaction classified under SCTG.
Long-term Capital Gains Tax
Long-term capital gain is derived from assets such as zero-coupon bonds, UTI units, equity-based mutual funds, stocks, debentures et cetera that are held for more than 12 months before selling them. The tax levied on the profit gained by such an asset is known as Long-term Capital Gain Tax or LTCG Tax.
However, in the case of jewellery, debt-oriented mutual funds and other such assets are considered as “long-term” only if they are owned for more than 36 months. Although for immovable assets such as house property, building and land, the duration has been reduced from 36 months to 24 months.
LTCG Tax rates
Long-term Capital Gains are taxed according to graduated thresholds of taxable income at 0%, 15% or 20%.
For instance, the government imposes 10% LTCG Tax on the sale of units of equity-oriented funds, whereas it levies 20% LTCG Tax on the sale of a property.
LTCG Tax on Property
If a property or land is sold after it is held for more than 2 years, one is liable to pay a long-term capital gain tax of 20% after indexation and 10% without indexation benefit. Although, LTCG taxes are not valid on inherited properties unless they are sold.
So, if one has gained a profit of Rs. 80 lacs, he has to end up paying 16 lacs as a tax.
However, one can save this tax outflow by reinvesting the LTCG amount in residential house property and claiming an exemption under section 54 and 54F of the Income Tax Act.
The maximum amount of capital gains that one can reinvest in another property and get a complete exemption is Rs. 2 crores. If the capital gain is higher than that, one has to pay LTCG tax on the amount exceeding Rs. 2 crores.
This article provides you with all the information regarding wealth gain tax, LTCG and STCG tax and the rates at which they are applicable on various commercial transactions.