When you sell an asset and earn a profit, that profit is known as a capital gain. In India, the government charges tax on this profit, called the capital gains tax. It applies to assets like shares, mutual funds, and real estate. Many investors only focus on earning profit, but it’s equally important to understand how much tax you’ll pay.
Capital gains tax is not the same for all assets. It depends on how long you have held the asset before selling. The tax is divided into two types:
- Short Term Capital Gains (STCG)
- Long Term Capital Gains (LTCG)
How Holding Period Affects Tax on Investments
Each type of asset has a different rule for short and long-term holding:
- Shares and Equity Mutual Funds:
- Short Term: Held for less than 12 months
- Long Term: Held for more than 12 months
- Debt Mutual Funds:
- Short Term: Held for less than 36 months (before April 2023)
- Now taxed as per slab rate after April 1, 2023
- Long Term: Not applicable for new debt fund purchases after April 2023
- Real Estate (Property):
- Short Term: Held for less than 24 months
- Long Term: Held for more than 24 months
Tax on Shares: Know the Rate Based on Your Holding Period
Short Term Capital Gains on Shares
If you sell your listed shares within 12 months, the profit is taxed at a flat rate of 15% under Section 111A of the Income Tax Act.
Example:
You buy shares for Rs. 1 lakh and sell them within 6 months for Rs. 1.8 lakh.
Profit = Rs. 80,000
Tax = Rs. 12,000 (15% of Rs. 80,000)
Long Term Capital Gains on Shares
If you sell shares after one year, you have to pay 10% tax on gains above Rs. 1 lakh in a financial year. This benefit is only available for listed shares.
Example:
You buy shares worth Rs. 1 lakh and sell them after 2 years for Rs. 2.5 lakh.
Profit = Rs. 1.5 lakh
Taxable amount = Rs. 1.5 lakh – Rs. 1 lakh (exemption) = Rs. 50,000
Tax = Rs. 5,000 (10% of Rs. 50,000)
Capital Gains Tax on Equity Mutual Funds: Same as Shares
Equity mutual funds follow the same rules as shares:
- If sold within 1 year: STCG of 15%
- If sold after 1 year: LTCG of 10% on profits above Rs. 1 lakh
Make sure your mutual fund has more than 65% allocation in equities to qualify as an equity fund.
Capital Gains Tax on Debt Mutual Funds: New Rule After April 2023
Earlier, if you held debt mutual funds for more than 3 years, you could get indexation benefit and pay 20% tax on long-term gains. But now, the rule has changed.
After April 1, 2023
All capital gains from debt mutual funds will be taxed as per your income tax slab, no matter how long you hold them. There is no indexation benefit.
Example:
If you are in the 30% slab and earn Rs. 1 lakh profit from a debt fund sold after 2 years, you will pay Rs. 30,000 tax.
Before April 1, 2023
- Less than 36 months: Taxed as per your slab (STCG)
- More than 36 months: LTCG of 20% with indexation benefit
Capital Gains Tax on Real Estate: Understand How Property Sales Are Taxed
Selling Property Within 24 Months (Short Term)
If you sell a house or land within 2 years of buying, the profit is added to your annual income. You will pay tax as per your slab rate.
Example:
You buy a house for Rs. 50 lakh and sell it in 18 months for Rs. 65 lakh.
Profit = Rs. 15 lakh
If you are in 30% slab, you will pay Rs. 4.5 lakh as tax.
Selling Property After 24 Months (Long Term)
If you sell after 2 years, the profit is taxed at 20% with indexation.
Indexation adjusts the purchase price to match inflation, which helps reduce your taxable profit.
Example with Indexation:
- Purchase price: Rs. 50 lakh in 2018
- Indexed cost in 2024: Rs. 65 lakh
- Sale price in 2024: Rs. 80 lakh
- Profit after indexation = Rs. 15 lakh
Tax = Rs. 3 lakh (20% of Rs. 15 lakh)
Note: No indexation means higher tax. So it’s better to hold property for more than 2 years before selling.
Tax Exemptions and Ways to Save Capital Gains Tax
Section 54 (For Real Estate)
If you sell a residential house and invest the capital gain in another house property within 2 years, you can get full exemption under Section 54.
Section 54EC (For Real Estate)
You can also invest in NHAI or REC bonds within 6 months of sale to get exemption up to Rs. 50 lakh.
Points to Remember While Calculating Capital Gains Tax
- Always keep records of purchase and sale transactions
- Include brokerage and transfer charges in the cost while calculating profit
- Check if the asset qualifies for indexation benefit
- Reinvest capital gains smartly to reduce tax burden
- Consult a tax expert for correct filing, especially if you have high-value gains
Income Tax Slabs for Reference (FY 2024-25)
| Income Slab (Old Regime) | Tax Rate |
| Up to Rs. 2.5 lakh | 0% |
| Rs. 2.5 – Rs. 5 lakh | 5% |
| Rs. 5 – Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
Note: You can also choose the new regime, which has different slabs but removes most exemptions.
Disclaimer: This article is for informational purposes only. Always consult a financial or tax expert before making any investment or filing your returns.
Source: Navbharat Times
