What is LTCG & STCG in India? – A complete guide
At present, the earning in multiple methods are increasing rapidly in India which is working as a catalyst for increasing investment in various sectors. Comprehensive knowledge about different kinds of taxation norms is quite necessary to make money from the different investment options and get optimum benefits in the world of finance. Before you jump to any conclusion wait for a minute, being a citizen of India you have some duties towards your country too. In simple words, if you are making profits out of investments then you are obligated to pay the legitimate amount of taxes as well. So let’s discuss what is LTCG & STCG in India.
In the ongoing article, I would be discussing long term capital gain and short term capital gain. It could be a good read for all those investors and market players who are always in search of reliable information about the taxation norms of our country as well as, this article will be very beneficial to enhance year financial awareness.
So let’s begin! First of all, we will try to understand the meaning of the word capital gain.
What is a capital gain?
I know this term is quite confusing for many of us and due to this reason here I will try to explain this complicated economic term in very simple words. Suppose you purchase a house in 2 Cr. and sell it out after five years in 4 Cr., then the profit of 2 Cr. is considered as a capital gain. In case if you rent out your property then also norms of capital gain tax will be applicable. According to the Income Tax Act of India, 1961 there are two kinds of capital gains termed as LTCG and STCG.
When an investor purchases an asset (like- share, bonds, home, plot) and sells it after some time to make a profit then it is termed as a capital gain. All such kinds of earnings needed to be included in the computation of income tax return. Hence it becomes very necessary for all of us to understand the concept of capital gain in a very precise way.
Some important points about capital gain-
- It includes gold, real estate purchasing, debentures, shares, investment in government securities, etc.
- Capital gain can be of two types long term and short term.
- In case of loss, there is a provision of exemption in tax.
- One of the most important aspects of capital gain tax is that it is not applicable to the inherited property and gifted assets.
Long term capital gain
When you hold any moveable or immoveable assets to gain profit for a longer duration then it is considered as LTCG. As the name suggests, the duration of the assessment is more than 36 months or 3 years in case of debt funds or other assets while it is one year for stocks, equity, debentures, government securities mutual funds, etc. In case of real estate investments if you hold any property for more than two years and make profits out of that property then it is considered as long term capital gain. If you accrued loss on long term investments then it is considered as a dead loss. It means that you cannot adjust or carry forward such losses.
- The tax rate in the case of long term capital gain is 20% (The tax rate may vary as per the tax slab and nature of the asset).
- Computation of long term capital gain = Cost of selling a property – Indexed cost of acquisition
Now the most important clause, if your total earnings from LTCG is less than 1 lakh rupees then you don’t have to pay any tax. The exemption limit is 3 lakh for senior citizens (above 60 years) and 5 lakhs for super senior citizens (above 80 years).
It is interesting to know that, the LTCG was removed by the government in the year 2005 to promote investments in the Indian market but in the year 2018, it was again introduced to improve the financial health of our nation.
Short Term Capital Gain
When you hold any asset for a shorter duration then it is termed as STCG. In the case of short term capital gain, the duration of the assessment is less than 3 years for regular assets. If you hold shares for the duration of fewer than 12 months then STCG will be applicable.
- The tax rate in the case of short term capital gain is 15% (The tax rate may vary as per the tax slab and nature of the asset).
- Computation of Short term capital gain = Sale cost of the asset – (expenditure incurred on asset) – (cost of acquisition/improvement)
LTCG: Long term capital gains
STCG: Short term capital gains
Note : All the information shared in this article is based on the data available in the public domain. With this, you will be confident about the terms LTCG and STCG. It’s an honest effort to improve the financial literacy of the common man!
Next article: Different types of taxes in India
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