Capital Gains 101: Things You Need to Know About Capital Gains Tax

Navigating Capital Gains Taxes: A Summarized Guide

Capital gains in India refer to the profits earned from the sale of a capital asset. A capital asset is any property held by an assessee, whether movable or immovable, tangible or intangible, but excludes certain items like stock-in-trade, personal effects, agricultural land in rural areas, etc. Capital gains are the profits you make when you sell an asset for more than you bought it for.

Holding Period for LTCG (Long-Term Capital Gains) Standardized: Earlier, investments under different asset classes had different holding periods to qualify as long-term capital gains (LTCG). Currently,

• Listed equity shares (stocks) & Equity Mutual Funds: 12 months or 1 year.
• Debt Mutual Funds & Bonds: 24 months or 2 year.
• Real Estate & Land: 24 months or 2 year.
• Unlisted Shares, Startups, & Private Equity: 24 months or 2 year.

• Stocks & MFs: 10% LTCG, STCG @ 15% flat.
• Debt MFs: No Indexation benefits, 20% flat.
• Unlisted Shares, Startups, & PE: 20% flat.

• Previously, Debt MFs had Indexation benefits, meaning the purchase price was adjusted for inflation before tax was calculated.
• Currently there are only Real Estate and Gold which have indexation benefits.

Market-Linked Debentures (MLDs) Lose tax advantage:

• Market Linked Debentures (MLDs) are a type of debt instrument where the returns are linked to the performance of an underlying asset, like a stock market index or a basket of stocks.
• Earlier, MLDs were taxed as LTCG (@10%) after 1 year. Now, MLDs will be taxed as STCG at slab rates, regardless of the holding period.
• No LTCG benefit on MLDs anymore. HNI investors using MLDs for tax efficiency will be impacted negatively.

• The Tax-free reinvestment under Sec 54/54F now capped.
• The maximum amount of capital gain that can be reinvested to claim exemption under Section 54/54F is Rs. 10 crore. you can reinvest the entire amount in a new residential property and avoid paying capital gains tax.
• However, if your capital gain exceeds Rs. 10 crore, the excess amount will be taxable.

• Cryptocurrencies gains are taxed @ 30% flat (long-term or short-term).
• No offset against other losses.
• Higher tracking of offshore crypto holdings.

Sudhanshu,

A Bhilai-based Finance professional who likes intellectual conversations and spending time in nature.