Capital gains tax
Also called: STCG, LTCG · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
Capital gains tax is a direct tax on the profit made from selling a capital asset, such as shares or property. A gain is short-term or long-term depending on how long the asset was held. From 23 July 2024:
- For listed assets, the long-term holding period is 12 months. For other assets it is 24 months.
- Short-term capital gains (STCG) on listed equity are taxed at 20%.
- Long-term capital gains (LTCG) on listed equity are taxed at 12.5% on gains above ₹1.25 lakh.
- Indexation, which adjusted the purchase price for inflation, was removed.
Example
An investor sells listed shares after 18 months and makes a gain of ₹3.25 lakh. The first ₹1.25 lakh is exempt, so tax is 12.5% of ₹2 lakh, which is ₹25,000 before cess. If the shares had been sold within 12 months, the whole gain would be taxed at 20%.
Don't confuse with
- Securities Transaction Tax (STT): STT is charged on the value of every trade on a stock exchange, whether the trade makes a profit or a loss. Capital gains tax applies only to the profit.
Related concepts
- Income tax
- Corporate tax
- Minimum Alternate Tax
- Securities Transaction Tax
- Angel tax
- Wealth tax and inheritance tax
- Paper taxes
- Tax deducted at source
- Faceless assessment