Capital Gains Tax: Capital Gains Tax determines how much tax you will have to pay when you sell real estate, shares or mutual funds. Know important things like holding period, tax rate and exemption up to ₹ 1.25 lakh.
Capital Gains Tax: Along with earning profits from investments, it is equally important to assess taxes correctly. Generally, the government levies capital gains tax on the profit earned from the sale of assets such as real estate, shares and mutual funds. This tax depends on how long the property was held.
If an asset is held for a short period of time, then Short Term Capital Gains (STCG) tax is levied on it. On the other hand, Long Term Capital Gains (LTCG) is applicable on long term investments. In the case of real estate, holding of less than 24 months is considered short term. For stocks and securities, this period is 12 months.
Capital gains tax on sale of shares
If the shares are sold within a year, the profit is taxable at the rate of 20%. But if the investor holds the shares for more than a year, then a long term capital gains tax of 12.5% will be levied on it. Giving relief to the investors, the government has also made a provision that no tax will be levied on long term gains up to ₹ 1.25 lakh in a financial year.
For instance, if an investor bought shares worth ₹1 lakh and sold them for ₹2.5 lakh within a year, he would be taxed at 20% on the profit of ₹1.5 lakh.
Tax on Mutual Funds
There are two types of mutual funds- equity and debt. If equity funds, that is, funds invested in the stock market, are sold within a year, then a short term tax of 20% is levied. On the other hand, a long term capital gains tax of 12.5% will be levied on holding for more than a year. Here too, there is a provision of tax exemption on profits up to ₹ 1.25 lakh.
The rules for mutual funds investing in debt i.e. bonds and securities have been changed two years ago. On the sale of debt funds purchased after 1 April 2023, tax will be levied as per the income tax slab of the person, irrespective of the size of the holding. On the other hand, in the case of funds purchased before 1 April 2023, 12.5% long term tax is applicable on holdings of more than 24 months and short term tax at slab rate is applicable on holdings of less than that.
Capital Gains Tax on Real Estate
If a person sells a property within 24 months of purchasing it, the profit earned on it will be added to his total annual income and tax will be levied as per the slab. This is considered as short term capital gain.
At the same time, if the property is held for more than 24 months, then long term capital gains tax is applicable on it, the rate of which is 12.5%. However, the benefit of indexation is not given here.
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