Companies in India must pay taxes on the profit made when they sell assets, including mutual funds, shares, or real estate. The tax paid on this profit—which is known as capital gain—is called capital gains tax. Understanding how a capital gains tax company is taxed under Indian law will help you run a company.
Describes Capital Gain:
When a capital asset—such as land, building, shares, mutual funds, etc.—is sold for more than its purchase cost, the profit is known as a capital gain.
For example:
Purchased for ₹50 lakh, a company sells it later for ₹80 lakh.
Taxed and representing capital gain, the profit of ₹30 lakh.
Types of Corporate Capital Gains
There are two forms of capital gains:
- Short-Term Capital Gains (STCG):
- Asset kept for less than 36 months for real estate, less than 12 months for listed shares.
- Paid 15% for mutual funds and listed shares, plus surcharge and cess.
- It’s included in income and taxed slab-wise for other assets.
- Asset kept for less than 36 months for real estate, less than 12 months for listed shares.
- Long-Term Capital Gains (LTCG):
- Asset owned for more than 36 months or 12 months, depending on the asset type.
- Paid taxes at:
- 20% with indexation benefit (for property, gold, unlisted shares, etc.)
- 10% without indexation for listed shares and mutual funds (above ₹1 lakh).
- 20% with indexation benefit (for property, gold, unlisted shares, etc.)
- Asset owned for more than 36 months or 12 months, depending on the asset type.
How is a Capital Gains Tax Company Taxed?
The taxation of capital gains for businesses (private limited, LLPs, etc.) follows these guidelines:
- Unless a specific rate applies, STCG is taxed at 30% (normal corporate tax rate).
- Depending on the asset, LTCG is taxed at 20% with indexation or 10% without indexation.
- In addition to the tax, there is a surcharge and Health & Education Cess (4%).
Can a Company Save Capital Gains Tax?
Yes, companies can use certain sections of the Income Tax Act to reduce tax:
- Section 54EC: Exemption is provided if gains from land or buildings are invested in specific bonds (such as NHAI or REC).
- Section 54GB: Tax may be waived if investments in qualified businesses or eligible startups are made.
Note: These limited exemptions apply under particular criteria. Not every exemption that applies to individuals fits businesses.
Records a Company Should Maintain:
- Purchase and sale contracts
- Details on capital assets: date, cost, improvements (if any)
- Proof of indexation, if one is used
- Investment proofs (should exemptions be claimed)
Final Thoughts:
An Indian capital gains tax company has to closely monitor its capital assets and adjust its tax strategy. Companies can legally and effectively control their tax load by maintaining correct documentation and planning timely. If uncertain, for best results, consult a tax advisor.
