Capital Gain Tax Rates in India

Published On - March 10, 2016

admin Income-tax Act, 1961

Capital-Gain-Tax
Capital Gain Tax is part of income tax levied under Income Tax Act, 1961.
It is a tax levied on profit made from sale of a capital asset.
In other words, if you sale a capital asset in profit, you will have to pay capital gain tax on such profit.
As per income tax Act, the capital asset includes property of any kind. It does not include stock in trade and, personal assets held for personal use such as furniture, utensils, vehicles and wearing apparel. However capital asset includes Jewellery.
Rural Agricultural land is also excluded from the definition of capital asset, only urban agricultural land in specified area is liable for capital gain Tax.
For taxation purpose the capital asset is divided into two types according to number of years held by a person.

  • Long Term Capital Asset: Held more than 36 months.
  • Short Term Capital Asset: Held not more than 36 months.

Exception to the above rule
The following assets shall be treated as short term capital assets, if the holding period is not more than 12 months.

  • A security listed in a recognized stock exchange of India
  • Units of UTI
  • A unit of equity oriented fund
  • A zero coupon bond

The reason of such division into short term capital asset and long term capital asset is difference in rate of taxation of long term capital asset and short term capital asset.

Capital Gain Tax Rates

Generally-Long-term-capital-Gain-Rate-is-20-and-Short-term-capital-gain-is-15-1
The short term capital gain is taxable @ 15% from transfer of equity share or a unit of an equity oriented fund  or a unit of business trust if following conditions are satisfied:

  • Sale taken place in a recognized stock exchange; and
  • Such sale is chargeable to security transaction tax

The other short term capital gain shall be taxable at normal slab rates applicable for a person.
The long term capital gain is taxable @ 20%. For listed securities the rates of long term capital gain is 10% without indexation and 20% with indexation.
If security transaction tax is chargeable for a listed shares or a unit of equity oriented fund or a unit of business trust, then the long term capital gain arising from such asset is exempted under section 10(38).
Examples of Capital Gain Tax.

  • If Mr. A transfers his house, which was purchased 5 years back, the same will be treated as long term capital Asset. Any gain from such sale will be treated as long term capital gain and will be chargeable to tax @20%.
  • If Mr. X transfer his shares, which was purchased 2 months before, the same will be treated a short term assets. Any gain from such sale will be treated as short term capital gain and will be chargeable normal slab rates. However if such shares are sold through recognized stock exchange and security transaction tax is applicable, then the capital gain tax rate will be 15%.
  • If Mrs. R transfers her jewellery, which was purchased 2 years before, the same will be treated as short term capital Assets. Any gain arising from such sale will be treated as Short term capital gain and will be chargeable at normal tax slab rates.
  • If Mr. P transfers his listed shares, which was purchased 9 years back, the same will be treated as long term capital Asset. Any gain from such sale will be treated as long term capital gain and will be chargeable to tax @10% without indexation.
  • If Mr. L transfers his mutual funds (equity oriented), which was purchased 9 years back, the same will be treated as long term capital Asset. Any gain from such sale will be treated as long term capital gain and will be exempt under section 10(38).