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How Much Capital Gains Tax Do You Have To Pay?

In an earlier blog post 'Capital Assets, Capital Gains And Capital Gains Tax', the following points were covered:
- What is Capital Gains
- What are Capital Assets
- Why is the holding period important
- How are short-term and long-term capital gains calculated
- What is Indexed Cost
- What are 'Expenses incurred for sale' and 'Cost of improvement'
- What are the tax exemptions allowed on capital gains

Briefly,
- Profit on sale of a capital asset is called capital gains
- Capital asset is any movable or immovable property (with some items excluded)
- Holding period determines whether the capital gain is Short Term or Long Term
- Long term capital gains enjoy the benefit of 'indexed cost'
- Indexed cost is nothing but an adjustment for the inflation
- Short-term capital gains enjoy no tax relief
- Long-term capital gains tax liability can be reduced or even nullified

Taking the discussion forward, this blog post covers the capital gains tax rates — both short-term and long-term — payable on different types of capital assets.

Just to reiterate... (a) the type of asset and (b) the holding period, will determine the tax rate.

A. Equity Shares and Equity-oriented Mutual Funds
(1) Holding period less than 1 year: Gains on sale of shares and equity-based mutual funds, held for less than a year, will be treated as short-term capital gains. And the tax payable on the same is 15%.

(2) Holding period more than 1 year: Gains on sale of shares and equity-based mutual funds, held for more than one year, will be treated as long-term capital gains. Up to Rs.1 lakh of such gains are tax exempt. Gains exceeding Rs.1 lakh will be taxed @10%.

B. Property
(1) Holding period less than 2 years: Gains on sale of property, held for less than two years, will be treated as short-term capital gains. The same have to be added to one's Taxable Income for the year. Hence, the tax payable on the same would be the person's marginal income tax slab rate as applicable.

(2) Holding period more than 2 years: Gains on sale of property, held for more than two years, will be treated as long-term capital gains. And the tax payable on the same is 20% with indexation benefit.

capital-gains-tax-liability
Rates applicable to calculate your Capital Gains Tax liability.

C. Debt and Other Non Equity-oriented Mutual Funds
(1) Holding period less than 3 years: Gains on sale of debt and other non equity-based mutual funds, held for less than three years, will be treated as short-term capital gains. The same have to be added to one's Taxable Income for the year. Hence, the tax payable on the same would be the person's marginal income tax slab rate as applicable.

(2) Holding period more than 3 years: Gains on sale of debt and other non equity-based mutual funds, held for more than three years, will be treated as long-term capital gains. And the tax payable on the same is 20% with indexation benefit.

D. Listed Bonds, Debentures and Govt. Securities
(1) Holding period less than 1 year: Gains on sale of listed bonds, debentures and Gsecs, held for less than one year, will be treated as short-term capital gains. The same have to be added to one's Taxable Income for the year. Hence, the tax payable on the same would be the person's marginal income tax slab rate as applicable.

(2) Holding period more than 1 year: Gains on sale of listed bonds, debentures and Gsecs, held for more than one year, will be treated as long-term capital gains. And the tax payable on the same is 10%.

(Note: For unlisted bonds, the tax treatment as discussed under point C above i.e. debt and other non equity-oriented funds will apply.)

E. Physical Gold and Gold Funds / ETFs
(1) Holding period less than 3 years: Gains on sale of physical gold and gold funds / ETFs, held for less than three years, will be treated as short-term capital gains. The same have to be added to one's Taxable Income for the year. Hence, the tax payable on the same would be the person's marginal income tax slab rate as applicable.

(2) Holding period more than 3 years: Gains on sale of physical gold and gold funds / ETFs, held for more than three years, will be treated as long-term capital gains. And the tax payable on the same is 20% with indexation benefit.

F. Sovereign Gold Bonds
In order to wean away people from investing in physical gold — which is harmful to our economy, as almost all of the gold demand has to be imported — the Govt. has given preferential tax treatment to its Sovereign Gold Bonds.

(1) Holding period less than 3 years: Gains on sale of sovereign gold bonds, held for less than three years, will be treated as short-term capital gains. The same have to be added to one's Taxable Income for the year. Hence, the tax payable on the same would be the person's marginal income tax slab rate as applicable.

(2) Holding period more than 3 years: Gains on sale of sovereign gold bonds, held for more than three years, will be treated as long-term capital gains. If the bonds have been held till maturity, NO TAX is payable. Else, the tax payable is 20% with indexation benefit.

(By the way, the Govt. pays 2.5% p.a. interest on Sovereign Gold Bonds, which is taxable.)

This, in a nutshell, is the capital gains tax rates as per the provisions of the Income Tax Act.

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