Capital Gains Tax is the tax you pay when you sell something valuable—like property, shares, gold, or mutual funds—for a profit.
This profit is called a capital gain, and the tax on it is called capital gains tax.
What is Capital Gain in Simple Words?
If you bought something at ₹1 lakh and sold it for ₹2 lakh, the extra ₹1 lakh is your capital gain.
The government taxes this profit as Capital Gains Tax.
Types of Capital Gains
There are two main types based on how long you hold the asset:
1. Short-Term Capital Gain (STCG)
- Asset is sold within a short period
- The holding period depends on the asset type
2. Long-Term Capital Gain (LTCG)
- Asset is held for a longer period
- Gains are taxed at a lower rate but have different rules
Capital Gains Tax Based on Asset Type
| Asset Type | STCG Holding Period | LTCG Holding Period | STCG Tax Rate | LTCG Tax Rate |
|---|---|---|---|---|
| Listed Shares | < 12 months | > 12 months | 15% | 10% above ₹1 lakh (no indexation) |
| Equity Mutual Funds | < 12 months | > 12 months | 15% | 10% above ₹1 lakh |
| Debt Mutual Funds | < 36 months | > 36 months | As per slab | As per slab |
| Real Estate | < 24 months | > 24 months | As per slab | 20% with indexation |
| Gold | < 36 months | > 36 months | As per slab | 20% with indexation |
Indexation in LTCG
For assets like real estate, gold, and debt mutual funds, you can adjust the purchase price using Cost Inflation Index (CII).
This lowers your taxable gain and reduces your tax.
Simple Example of Capital Gains Tax
Example 1 – Short-Term (Shares):
- Buy shares for ₹1 lakh
- Sell in 6 months for ₹1.5 lakh
- STCG = ₹50,000
- Tax = 15% of ₹50,000 = ₹7,500
Example 2 – Long-Term (Property):
- Buy land for ₹10 lakh in 2010
- Sell for ₹40 lakh in 2025
- Indexed cost = ₹25 lakh (say)
- LTCG = ₹15 lakh
- Tax = 20% of ₹15 lakh = ₹3 lakh
Capital Gains Exemptions
You can reduce or avoid capital gains tax by using sections like:
- 54 – Buy another house
- 54F – Sell any asset, buy a house
- 54EC – Invest in government bonds
