Should you profit from selling an asset—such as mutual funds, shares, or real estate—you could be liable for taxes. We name this tax capital gains tax. Knowing how it operates will enable you to keep out of tax department problems and save money. For Indian investors, consider this straightforward and useful capital gains tax advice.
The Definition of Capital Gains Tax
The tax you pay on the profit from selling an asset is called capital gains tax. The tax hinges on the length of time you owned the asset before selling.
Two versions exist:
- Short-term capital gains (STCG) are assets owned for a brief period.
- Long-term capital gains (LTCG) are assets kept over an extended length of time.
Capital Gain on Various Assets
Capital gains are taxed differently on several kinds of assets as follows:
- Stocks and Equity Mutual Funds
- Should you sell within twelve months:
- Paid as STCG at 15%.
- Paid as STCG at 15%.
- Should you sell after twelve months:
- Taxed as LTCG at 10% (just in case profit exceeds ₹1 lakh annually).
- Taxed as LTCG at 10% (just in case profit exceeds ₹1 lakh annually).
- Should you sell within twelve months:
- Debt Mutual Funds
- Should they be sold within 36 months:
- Taxed as STCG, then included in your income taxed according to your slab.
- Taxed as STCG, then included in your income taxed according to your slab.
- Should it be sold 36 months from now:
- Taxed as LTCG at 20% with indexation benefits (for older investments; changed for funds purchased after April 2023).
- Taxed as LTCG at 20% with indexation benefits (for older investments; changed for funds purchased after April 2023).
- Should they be sold within 36 months:
- Real Estate
- Should it be sold within 24 months:
- STCG, taxed using income slab system.
- STCG, taxed using income slab system.
- Should it be sold 24 months later:
- LTCG at 20% with indexation.
- LTCG at 20% with indexation.
- Should it be sold within 24 months:
- Other Physical Assets as Well as Gold
- Like real estate, same guidelines apply.
- Long-term gains taxed at 20% with indexation.
- Like real estate, same guidelines apply.
Advice on Capital Gain Tax Saving
To lower your tax liability, heed these helpful capital gains tax advice tips:
- Apply indexation to change the cost price for inflation on long-term assets including debt funds and property.
- Invest LTCG from property in particular government bonds (NHAI, REC) under Section 54EC to avoid tax under capital gains bonds.
- Invest in another property under Section 54; you can save tax if you sell a house and then buy another within the permitted period.
- Plan your sales to keep within the tax-free limit; book profits below ₹1 lakh annually for stocks and equity funds.
- Capital losses can be carried forward for up to eight years to offset gains.
Objectives to Remember
- Store all purchase and sale records.
- Save indexation charts, brokerage notes, and receipts.
- File ITR including accurate capital gains reporting.
- To make advance plans, use internet tax calculators.
Typical Mistakes to Avoid
- Ignoring mutual fund switches’ tax.
- Not thinking about already paid STT (Securities Transaction Tax).
- Missing deadlines for capital loss adjustments.
Last Words
Following correct capital gains tax advice will enable you to remain compliant and tax-efficient. Smartly plan your investments; keep assets for longer if at all possible, and apply legal means of tax reduction. For complicated situations or high-value transactions, always see a tax adviser.
