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Calculate Capital Gain on Share or Property
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Calculate Capital Gain on Share or Property
Capital Gains on Shares
Capital appreciation is the growth in the price of an asset which gives it a higher value than its purchase price. The price of assets fluctuates according to their performance in the market.
If investors end up selling this asset at a higher price than that at which he or she had purchased it, the profit is known as capital gain on equity shares.
Wealth gain on shares is divided into two categories depending on the time for which the shares are held by investors. It may be short term (if term of holding the assets less than 12 months) or long term (if the term of holding these assets is more than 12 months, 24 months or 36 months, depending on the type of asset) capital gain on shares.
Long Term Capital Gain on Shares
Long term capital gain on share is calculated by deducting the sale price and cost of acquisition of an asset that has been held for more than 12 months by an investor. This is given by the net profit that investors earn while selling the asset.
However, this span of 12 months is considered only in case of listed equity shares. These are the shares that are traded through exchanges like NSE, BSE, etc. For unlisted equity shares, long term capital gains are generated for assets held for 24 months to 36 months or more.
Short Term Capital Gain on Shares
Gains generated from shares held for a period shorter than 36 months (for unlisted equity shares) or 12 months (for listed equity shares) are considered short term capital gain on shares.
When it comes to profitability between long term capital assets and short term ones, investors often choose to invest in the long term equity shares because of the tax benefits offered on them.
What is Long Term Capital Gain?
Investments that provide returns over a longer period of time are called as long-term capital gains or LTCG. All the investments that offer returns in periods that range between 1 and 3 years can be called as long-term capital gains.
This means that if a person has held an investment for 3 years before transferring it, then the returns from the investment at the time of transfer it will be considered a long-term capital gains. Some of the investments that can generate long-term capital gains are:
- Sale of Property
- Sale of Agricultural Land
- Mutual Fund Investments
- Stocks
What is Short Term Capital Gain?
Short term capital gain refers to any capital gain/profit which an individual gets on sale of short term capital assets. Assets like shares that are listed on a recognised stock exchange and has been held for less than 12 months, are treated as short-term capitals. The proceeds earned through them are treated as short-term capital gains.
Such shares include Government securities, debentures, equity-oriented Mutual Funds, UTI units and Zero-Coupon Bonds
Cost Inflation Index (CII) from 2015-16 to 2022-23
Long Term Capital Gains Tax
Previously, long term capital gains included under Section 10(38) of the Income Tax Act were exempt from taxation. However, after the reforms introduced in the 2018-19 Union Budget, the previously exempt capital gains are now subject to taxation without indexing if the quantum of gain exceeds Rs. 1 Lakh.
Taxation of Short Term Capital Gains
There is a different rule for taxation of LTCG and STCG on shares. For instance, the STCG that falls under Section 111A of the Income Tax Act is liable to be charged at a rate of 15%. The STCG under this Section includes equity shares and equity-oriented Mutual Funds that were sold on or after 1st October 2004 on any recognised stock exchange, and fall under Securities Transaction Tax.
Apart from the above two tax regimes on capital gains, there is a third type of tax implication on capital gains that is levied on overseas investments.
Tax Implications of Capital Gains on Foreign Shares
Capital gains from foreign investment can be taxed twice, once in India and once in the country where the shares are held. Under this double taxation, the long term capital gains from foreign shares will be taxed at 20% while the short term capital gains are taxed at 30%. However, individuals can avoid the double taxation liability under Section 91 of the Income Tax Act, 1961.
Therefore, it is crucial for investors to conduct extensive research on their investments to ensure that they understand the tax liabilities on both their short term and long term assets.
Ways to Reduce Capital Gains Tax
Generally, the capital gains tax you have to pay when selling a property runs in lakhs. However, you can substantially reduce it by using one of the following methods:
- Exemptions under Section 54F, when you buy or construct a Residential Property
- Purchase Capital Gains Bonds under Section 54EC
- Investing in Capital Gains Accounts Scheme
- Invest for the long term
- Take advantage of tax-deferred retirement plans
- Use capital losses to offset gains
- Pick your cost basis
