Capital gains are profits made from the sale of assets like stocks, mutual funds, property, and gold. The tax rates for these gains depend on the asset class and the holding period. Taxpayers are required to declare all capital gains in the income tax return form. “Tax filing is mandatory for those who do not have taxable income but have exempt long-term gains of Rs 2.5 lakh or more,” says Archit Gupta, CEO, Cleartax.in.
Given below are the tax rates for different assets and the minimum holding period for these gains to be treated as long-term gains.
Stocks, equity-oriented funds
If you sell your stocks or equity-oriented mutual funds within one year, the gains from the transaction are treated as short-term gains and taxed at 15%. If the stocks and mutual fund units are held for more than a year, the gains are considered long-term. Till last year, these were exempt from tax.
But from this financial year, up to Rs 1 lakh of long-term capital gains will be tax free. Gains above Rs 1 lakh in a will be taxed at 10%.
Debt and hybrid funds
Though debt-oriented funds do not enjoy the same tax benefits as equity-oriented funds, they are still more tax efficient than fixed deposits. Gains from debt-oriented funds are considered long-term if they are held for over three years. Long-term gains are taxed at 20% after indexation. Indexation takes into account the inflation during the holding period and accordingly adjusts the acquisition price upwards.
If sold before three years, the gains from debt and debt-oriented hybrid funds are added to the income of the investor and taxed at the applicable marginal rate.
Profits from the sale of immovable property (land, house, shop or office) within two years of purchase are considered short-term gains. They are added to the income of the investor and taxed at the applicable marginal rate. If the holding period exceeds two years, the gains are treated as long-term and taxed at 20% after indexation.
Gold, ETFs and gold bonds
Gains from sale of any form of physical gold (jewelry, coins, bars) held for less than three years are considered shortterm gains and added to the income of the investor. After three years, the gains are long-term and get taxed at 20% after indexation.
Sovereign Gold Bonds launched by the RBI in recent years offer a unique benefit to investors. Capital gains are tax free if the bonds are held till maturity. If sold prematurely, the gains get the same tax treatment as gold funds.