Know More About LTCG Tax

Know More About LTCG Tax
Know More about LTCG Tax

Capital gain refers to profits arising from the sale of a capital asset. This capital asset can be in the form of land, home, jewelry, vehicles, patents or machinery and can also be known as equity. This capital gain can be further divided based on the length of time the asset was held.

If the capital asset was held for longer than 36 months then it’s called a long term capital asset and profit earned on its sale is called Long Term Capital Gain (LTCG). Equity in the form of debentures, Zero-coupon bonds, securities and shares of companies registered on the stock market, Equity-based mutual funds units and Unit Trust of India (UTI) units also qualify as long term capital assets if held for longer than 12 months.

If the capital asset is held for less than 24 months before selling, then profits earned are termed as Short Term Capital Gains (STCG) and are taxable accordingly.

From FY 2017-2018, any long term capital asset sold after holding for 24 months or more will attract long term capital gains tax, starting from 10% onwards. Since profits gained are taken as income, taxes are levied upon them. If you make a capital gain of 50 lakhs, then you become liable to pay 5 lakhs or more in taxes, which becomes a rather large sum to dole out! However, this tax doesn’t apply to inherited properties, unless you are selling the inherited property.

However, there are ways to get exempted from paying out such large sums as LTCG taxes. If you invest the capital gains earned into buying or building a new residential property, then the LTCG earned automatically becomes non-taxable. For this to be valid, you have to buy a residential property at least a year before the sale or within 2 years after the sale. If the entire LTCG amount isn’t invested, then the remaining capital gain becomes chargeable for income tax.

When calculating LTCG, follow the below-mentioned steps:

  • The full value of the asset.
  • Deduct costs incurred for the transfer of property.
  • Deduct money spent on its acquisition.
  • Deduct money spent on its improvement.
  • From the figure obtained this way, deduct exemptions that come under Section 54, 54B, 54F and 54EC.
  • For equity, date, when bonus shares were allotted, is also considered.

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