What is Capital Gain?
Any profit arises from the sale of a capital asset is called capital gain. The gain is taxable and will be added to your total income while filing your income tax return for that particular financial year in which the gain arises.
Land, house property, building, vehicles, trademarks, patents, machinery, shares and securities are few examples of capital asset.
Types of Capital Assets
Short Term Capital Assets
An asset held for a period less than equal to 36 months is called short term capital assets.The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property from FY 2017-18. The reduced period 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc.
- Long Term Capital Assets
In case the asset is held for more than 36 months, the asset is treated as long term capital assets.
Some assets are considered short-term capital assets when these are held for 12 months or less which are :
- Equity/Prefrence shares of a recognised Indian stock exchange.
- Securities listed on recognised Indian stock exchange.
- Units of UTI
- Units of Equity oriented fund
- Zero coupon Bonds
When the above-listed assets are held for a period of more than 12 months, they are considered as long-term capital asset.
Long term capital gain on IPO and listed securities
Initial public offerings (IPO), Bonus, Rights issues and ESOPs will be eligible for concessional rate of 10% long-term capital gains (LTCG) tax.
In the 2018-19 budget, the government had introduced concessional 10% on LTCG exceeding ₹ 1 lakh from sale of shares, subject to payment of Securities Transaction Tax (STT) at the time of acquiring the equities.
The FM has also decided to exempt certain transaction from payment of STT for availing the concessional 10 % LTCG rate.
These include IPO, FPO, bonus or rights issue by a listed company, acquisition approved by Court/NCLT/SEBI/RBI.
Also the off-market transactions undertaken by non-residents in line with FDI guidelines, QIB, venture capitalist without payment of STT too could avail the 10% LTCG rate.
Prior to April’18, the LTCG tax was nil for shares sold after 1 year of purchase.
What if STT is not paid on Sale or Purchase of Securities
In case the STT has not been paid and the transactions are not in the exempt list, the usual LTCG tax rate of 20% would apply on sale of shares. STCG continues to be 30 %.
The CBDT followed a consultative and pro-active approach for seeking stakeholder’s comments on the draft notification issued earlier in April’18 and have duly considered most of the stakeholder comments while issuing the final notification.
|Tax||Condition||Rate of Tax Applicable|
|Long Term Capital Gain||On sale of Listed shares/Equity oriented Fund (Holding period more than 12 months)||10% on Income over Rs. 1 Lakh|
|Short Term Capital Gain||When STT in not applicable||As per Income Slab (Eg : If you fall under 30% tax slab than 30% or if you fall under 5% tax slab than 5%|
|Short Term Capital Gain||When STT is applicable||15%|
|Long Term Capital Gain||Except on sale of listed shares/Equity oriented Fund||20%|
Change in Tax Rules for Debt Mutual Funds
Debt mutual funds have to be held for more than 36 months to qualify as a long-term capital asset. It means you need to remain invested in these funds for at least three years to get the benefit of long-term capital gains tax. If redeemed within three years, the capital gains will be added to your income and will be taxed as per your income tax slab rate.