Long Term Capital Gains Tax meaning: Long Term Capital Gains Tax or LTCG Tax is the tax levied on the profit generated by an asset such as real estate and shares, which is held for a long time period. The period of holding to be defined as “long term” or “short term” varies from asset to asset, as per the government rules. One should note that there are different types of capital gains. For example, while in the case of property, the asset may be deemed as “long term” only if held for three years* or more, in case of stocks, the limit may be set at one year*. The gain or profit from selling the asset is classified as capital gain, and hence, one needs to pay tax on it in the year that the asset transfer takes place.
What is the Long Term Capital Gains Tax on sale of property in India?
Long term capital gains tax is not charged on inherited properties as it is a transfer of property rights and not a sale. However, once sold, the inherited properties also attract capital gains tax. In determining whether to consider the asset acquired by gift, will, succession, or inheritance as long term or short term, the period of ownership of the previous owner is also taken into account. Movable properties such as jewelry, debt-oriented mutual funds etc are also classified under long-term capital assets, particularly in case, these are held on for over 36 months*.
Long Term Capital Gains Tax on Shares
The below-mentioned assets, when held for 12 months or more, are considered long-term capital assets.
- Equity and preference shares in a company which are listed on a recognized stock exchange such as NSE or BSE;
- Securities (example – debentures, bonds, govt securities etc.) which are listed on the stock exchange in India;
- Units of UTI even if not quoted; and
- Zero-coupon bonds both quoted and unquoted.
In the case of bonus shares or rights shares, the date of allotment is taken into account while ascertaining the period of bonus shares or rights shares.
How do you calculate Long Term Capital Gain Tax on sale of property?
Once the period of holding for various assets is defined for categorizing it “long term”, one may look at the tax rates that apply. For instance, the government may choose to apply 10%* long term capital gains tax when equity shares or units of the equity-oriented fund are sold, whereas it may levy 20%* LTCG on the sale of a property. Keep in mind that Long Term Capital Gains Tax on the sale of equity shares is a phenomenon witnessed on and off in the Indian taxation regime over time.
* All timelines and tax rates mentioned above are illustrative. The actual timelines and rates keep changing and may vary from these figures.