Capital Gain is the profit you earn when you sell something valuable—like land, a house, gold, or shares—for more than what you paid.
Think of it like this:
You bought a plot for ₹10 lakh and sold it for ₹18 lakh. The ₹8 lakh is your capital gain.
Types of Capital Gains
Capital gains are mainly of two types, depending on how long you held the asset:
Short-Term Capital Gain (STCG)
- Happens when you sell an asset quickly, within a short period
- Holding period:
- Shares/mutual funds: less than 12 months
- Property: less than 24 months
- Gold/other assets: less than 36 months
Tax Rate:
- 15% on listed shares and equity mutual funds
- Taxed as per income slab for other assets
Long-Term Capital Gain (LTCG)
- Happens when you hold an asset for a longer period
- Holding period:
- Shares/mutual funds: 12 months or more
- Property: 24 months or more
- Gold/other assets: 36 months or more
Tax Rate:
- 10% on LTCG over ₹1 lakh (shares/equity mutual funds)
- 20% with indexation (property, gold, etc.)
How to Calculate Capital Gain?
Capital Gain = Sale Price – Purchase Price – Expenses
For LTCG, indexation benefit is available (adjusting cost with inflation).
Example 1 – Short-Term Gain on Shares:
- Bought 100 shares at ₹100 each = ₹10,000
- Sold at ₹130 = ₹13,000
- STCG = ₹3,000 → taxed at 15% = ₹450
Example 2 – Long-Term Gain on Property (with Indexation):
- Bought flat in 2015 for ₹40 lakh
- Indexed cost (adjusted for inflation): ₹60 lakh
- Sold in 2024 for ₹85 lakh
- LTCG = ₹85 lakh – ₹60 lakh = ₹25 lakh
- Tax = 20% of ₹25 lakh = ₹5 lakh
Exemptions Under Capital Gains Tax
You can reduce or avoid capital gains tax using certain exemptions:
Section 54 – Sale of Residential House
- Applies to individuals and HUFs
- If you sell a house and buy another residential property within 1 year before or 2 years after the sale
- Or construct a house within 3 years
Section 54F – Sale of Any Asset (Other than House)
- Applies if you sell land, gold, etc. and use the money to buy a house
- Full exemption if entire sale amount is invested in buying one house
Section 54EC – Invest in Bonds
- Invest capital gains (up to ₹50 lakh) in NHAI/REC capital gain bonds within 6 months
- Lock-in: 5 years
- Exemption up to ₹50 lakh per financial year
Real-Life Example:
Rina sold her old house and made ₹20 lakh profit. She used ₹18 lakh to buy another flat within 1 year.
Under Section 54, she gets full tax exemption on her capital gain.
Important Notes
- Report capital gains in your Income Tax Return (ITR)
- Keep records: purchase/sale deeds, receipts, and cost of improvement
- LTCG over ₹1 lakh on shares is taxable since FY 2018-19
Conclusion
Capital gains arise when you sell assets for a profit. Depending on how long you held the asset, the tax rate varies. But with smart planning and using sections like 54, 54F, or 54EC, you can save or defer capital gains tax legally.
