Understanding Capital Gains Tax on real estate, stocks and mutual funds
Capital gains tax is the tax levied on the profit earned from selling an asset such as real estate, stocks and mutual funds. The tax depends on how long you held the asset before selling it, which is called the holding period. As the name suggests, the tax will be applicable on the gains made from the asset. This is the difference between the buying and the selling prices of various assets like equities, residential properties, gold, bonds and equity-linked funds, among others.
There are two types of capital gains tax: short-term capital gains and long-term capital gains.
If you make a profit from selling an asset held for less than 24 months in the case of real estate and less than 12 months for stocks and securities, it is considered short-term capital gains.
On the other hand, if you sell the asset after holding it for more than 24 months for real estate or more than 12 months for stocks and securities, then the profits will be subject to long-term capital gains tax.
Capital gains tax on real estate
If you are selling the property within two years of purchase, then STCG will be levied as per the tax slab of the taxpayer. The gains from the property will be added to the income of the taxpayer in the particular financial year, and the STCG will be calculated as per the applicable tax rate.
On the other hand, if the property is sold after being held for more than 24 months, the gains will attract LTCG at 12.5% without indexation benefit.
Capital gains tax on stocks
If you are selling the shares within one year, then the gains will attract an STCG at 20%, whereas if you are selling the shares after holding them for more than one year, then the profits will attract LTCG at 12.5%. However, the taxpayers can claim deductions up to ₹1.25 lakh in a financial year on long-term gains from equities.
For example, if you have bought the shares for ₹1 lakh and sold them within a year for ₹2.5 lakh, your capital gain would be ₹1.5 lakh, which will be taxed at 20%.
Capital gains tax on mutual funds
There are two types of mutual funds: equity and debt. If you sell equity funds within one year, the profits will be taxed at 20%. On the other hand, LTCG will be applicable at 12.5% on gains from equity mutual funds sold after a holding period of 12 months. The LTCG will be levied on the earnings above the exemption limit of ₹ 1.25 lakh.
In case of debt mutual funds bought on or after April 1, 2023, both LTCG and STCG will be applicable at the slab rate of the taxpayer on the gains made from the sale of units. The holding period for STCG is up to 24 months.
On the other hand, for debt mutual funds bought before April 1, 2023, LTCG will be applicable at 12.5% after a holding period of more than 2 years. The STCG tax will be levied at the slab rate.