Profit or Gain on the sale of a Capital Asset is a Capital Gain. The taxpayer who earns Capital Gain should report such income in the Income Tax Return and pay the capital gains tax on it at the applicable rate. Thus, income tax is payable in the year in which the capital asset is sold. The income tax rate is different for Long Term Capital Gain and Short Term Capital Gain. To determine the nature of capital gain, the Income Tax Act has defined the period of holding for each capital asset.
What is Long Term Capital Gain?
The profit or loss on the sale of a capital asset held for more than the specified holding period is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
Based on the period of holding, here is a summary of Capital Gain on the sale of Capital Assets. Eg: If the listed equity share of a domestic company is sold after 12 months of purchase, the profit or loss is Long Term Capital Gain or Long Term Capital Loss.
|Capital Asset||Period of Holding|
|Equity Shares of Domestic Company listed on a recognized stock exchange||12 months|
|Equity Shares of Domestic Company not listed on a recognized stock exchange||24 months|
|Equity Shares of Foreign Company whether listed or not||24 months|
|Equity-oriented Mutual Funds or ETFs (Exchange Traded Funds)||12 months|
|Debt-oriented Mutual Funds or ETFs (Exchange Traded Funds)||36 months|
|Debentures or Bonds listed on a recognized stock exchange||12 months|
|Debentures or Bonds not listed on a recognized stock exchange||36 months|
|Immovable Property such as land, building or house property||24 months|
|Movable Property such as jewelry, car, painting, work of art||36 months|
Income Tax on Long Term Capital Gain
The tax rate of a capital asset is determined on the basis of the nature of capital gain i.e. LTCG or STCG.
|Listed equity share of a domestic company||Yes||10% in excess of INR 1 lac u/s 112A||15% u/s 111A|
|Listed equity share of a domestic company||No||10% without indexation||slab rate|
|Unlisted equity share of a domestic company||No||20% with indexation||slab rate|
|Listed equity share of a foreign company||Yes / No||10% without indexation||slab rate|
|Unlisted equity share of a foreign company||Yes / No||20% with indexation||slab rate|
|Equity Mutual Fund or ETF||Yes||10% in excess of INR 1 lac u/s 112A||15% u/s 111A|
|Debt Mutual Fund or ETF||No||20% with indexation||slab rate|
|Listed Debentures or Bonds||No||10% without indexation||slab rate|
|Unlisted Debentures or Bonds||No||20% without indexation||slab rate|
|Land, Building, House Property, Car, Jewellery, Paintings, Art of Work||NA||20% with indexation||slab rate|
Exemption from LTCG
The taxpayer having income from the sale of a long term capital asset can claim an exemption under Section 54 to 54GB of the Income Tax Act if he/she fulfills the conditions.
A taxpayer can claim the exemption by reinvesting the proceeds from the sale into a specified capital asset. Such exemption would lower the capital gains and save taxes on the same. However, the taxpayer must hold the new asset for the specified period as per the relevant section. However, if he/she sells the asset before the specified time period, he/she must report it as an income in the relevant financial year and pay tax at the applicable rate.
The taxpayer has an option to open an account under the Capital Gains Account Scheme and park the sale proceeds in it till the time they invest in the specified asset to claim the Capital Gains exemption.