As the Budget 2024 is around the corner, taxpayers are expecting some major overhaul in the capital gains tax. Thanks to the series of provisions that come into play while computing long term capital gains, investors and taxpayers are hoping for the revision in the legislation so that the confusion around capital gains tax, and the rate of tax is brought down.
The conversation around capital gain tax gained a lot of traction after a video featuring Nirmala Sitharaman and a broker went viral.
When an asset is held for a long period, the gains accrued on it are liable to long term capital gains tax. The asset could be land, building, stocks or even jewellery.
The definition of ‘long period’ varies from an asset to an asset. For instance, in case of land, the holding period is three years, whereas in case of equity, it is one year.
Here, we give a lowdown on the long term capital gain and the nuances involved in it:
Different types of assets:
I. Securities and equity-oriented funds: When shares are sold one year after purchase, the gains earned on them are taxed as per the provision of long term capital gains. The gains should be more than ₹one lakh for the LTCG tax to kick in and the rate of tax is 10 percent without indexation benefit.
However, in case of unlisted shares, the holding period is 24 months after which the long term capital gains tax comes into effect.
II. Land and building: When a property such as a flat or plot is held for longer than two years, the gains earned on it are taxed as per provision of long term capital gains. It is vital to note that the indexation benefit is also provided in this case, which reduces the tax liability.
III. Debt funds: Debt mutual funds (with less than 35 percent assets in equity) are not entitled to long term capital gains (LTCG) tax. Unlike earlier, the gains earned on debt mutual funds after holding them for a long period years are taxed as short term capital gain i.e., at slab rate.
IV. Gold and jewellery: Taxpayers who have invested in gold and jewellery are meant to pay income tax as per provisions of LTCG when these assets are held for 36 months. The tax rate is 20 percent in this case.
