Capital gains tax is a tax that is charged on the profits that is made by selling capital asset. For making it easy for taxation, the capital assets are classified to ‘Short-Term Capital Asset; and ‘Long-Term Capital Asset’.
Short-Term Capital Asset: If the shares and securities are held by the taxpayer for a period not more than 12 months preceding the date of its transfer will be treated as a short-term capital asset.
Long- Term Capital Asset: If the taxpayer holds the shares and securities for a period exceeding 12 months before the transfer will be treated as a long-term capital asset.
Equity shares which are listed in a recognised stock exchange, units of equity oriented mutual funds, listed debentures and Government securities, units of UTI and Zero Coupon Bonds’ period of holding will be considered for 12 months instead of 36 months.
In India, the long-term capital gains on stocks and equity mutual funds are not taxed. But, the short term gains will be taxed at 15 percent. In case of debt mutual funds, both short and long term capital gains are taxed. The short-term capital gain on debt mutual fund is added to the income and taxed as per the individual’s Income Tax Slab and the long-term capital gains on debt mutual funds are taxed at 20 percent with indexation and 10 percent without indexation. Indexation is adjusting the purchase value for inflation.
Capital Gains include any property held by the assesse except the following:
1. Stock in trade.
2. Consumable stores or raw materials held for the purpose of business or profession.
3. Personal effects that are movable except jewellery, archaeological collections, drawings, paintings, sculptures or any art work held for personal use.
4. Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
5. 5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
6. Gold Deposit bonds under Gold Deposit Scheme