Capital Gains Tax Explained: Stocks, Mutual Funds, and Property

When you sell a capital asset like stocks, mutual funds, or property for a profit, that profit is called a "capital gain," and it is subject to tax. Understanding how Capital Gains Tax works is crucial for any investor.

Types of Capital Assets & Holding Periods

Capital gains are classified based on the holding period of the asset.

• Short-Term Capital Gain (STCG): Profit from selling an asset held for a short duration.
• Long-Term Capital Gain (LTCG): Profit from selling an asset held for a longer duration.

The holding period varies by asset:

• Equity Shares & Equity Mutual Funds: Long-term if held for more than 12 months.
• Debt Mutual Funds: Long-term if held for more than 36 months.
• Immovable Property (Land/Building): Long-term if held for more than 24 months.

Taxation of Capital Gains

Equity and Equity Mutual Funds

• STCG (Section 111A): Taxed at a flat rate of 15%.
• LTCG (Section 112A): Tax-exempt up to ₹1 lakh per financial year. Gains above this limit are taxed at 10% without indexation benefits.

Debt Mutual Funds

• STCG: Added to your total income and taxed at your applicable slab rate.
• LTCG: Taxed at 20% after indexation. Indexation adjusts the purchase price for inflation, reducing your taxable gain.

Immovable Property

• STCG: Added to your income and taxed at your slab rate.
• LTCG: Taxed at 20% after indexation. You can also claim exemptions by reinvesting the gain in another residential property (Section 54) or specified bonds (Section 54EC).

Conclusion

Capital gains taxation can be complex, with different rules for different assets. Proper planning, understanding holding periods, and utilizing available exemptions can significantly reduce your tax liability.