An Introductory Guide on Long Term Capitals Gains Tax Rates
When investing in Mutual Fund, you often hear the term ‘capital gains’. You also hear about capital gains in the context of sales of assets like property, gold, and other high-value investments. Essentially, you have to pay a tax when you redeem most of your investments and earn profits. One such tax is known as the long-term capital gains tax or LTCG tax. Let us understand the meaning of capital gains and LTCG tax in this article.
The profit that you earn by selling capital assets is referred to as Capital Gains. This profit is categorized as income and is therefore taxed accordingly. Capital gains can be short-term or long-term, and the tax levied is short-term capital gains tax or long-term capital gains tax, respectively.
Real estate, company stocks, debentures, government securities, bonds, Mutual Fund units, etc., are examples of capital assets. Depending on the type, these assets attract long-term capital gains tax when held for a year or 3 years.
Long-term Capital Gains are generally taxed at 20%, not inclusive of cess. However, for the following cases, LTCG is taxed at 10%:
Under section 112A of the Finance Act, 2018, gains from the sale of equity shares or units of equity funds and equity-oriented funds will be taxed at 10% when the sale exceeds INR 1 Lakh. UTI and mutual funds not covered under section 112A are taxed at 20% plus cess.
Assume you purchased 100 shares of XYZ company in 2016, at INR 1500 per share, listed on the Bombay Stock Exchange. You sell these shares in 2020 at INR 2500 per share. Since the holding period exceeds 12 months, you must pay long-term capital gains tax under section 112A.
Therefore, long term gains = INR 2,50,000 – INR 1,90,000 = INR 60,000
Since the gains do not exceed INR 1 Lakh, you are not liable to pay taxes will pay nil tax.
Your gains from selling capital assets are considered as income. Like any other income in India, you are liable to pay tax on capital gains as well, and long-term capital gains tax is no exception to the rule. Depending on the type of sale, the long-term capital gains tax rates will differ. However, you must check the tax benefits available to you before filing your returns.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.