LTCG Taxation and What does it Mean for the Investors?

Any profit earned by an investor upon selling his/her investment in assets such as stocks, bonds, commodities, real estates etc. is known as ‘Capital Gains’. Depending upon the definition, these capital gains are classified under two categories – Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG).

As per the Income Tax Act of 1961, if any equity-related instrument is held for more than 12 months or 1 year, profits or gains acquired by selling it are considered as Long-term capital gains (LTCG). In case of real estates, the period of holding for it to be considered for LTCG is two years.

In 2005, LTCG on stocks/securities was removed by the Government of India, making our country one of the most liberal equity markets in the world. However, in the Union Budget of 2018, the government reintroduced LTCG of 10% on earnings exceeding Rs. 1 lakh from the sale of equity-based instruments such as stocks, mutual funds, and Equity Linked Savings Schemes (ELSS), among others.

The new norms related to LTCG taxation came into effect in India from 1st April 2018. As per the new rules, if your capital gains from any equity-based instrument exceeds Rs. 1 lakh in a financial year, your earnings will be taxed at the rate of 10%. This will bring down the actual rate of return on your equity investments.However, if your capital gains are lesser than Rs. 1 lakh in the given financial year, they will continue to be exempted from tax and therefore, you will be able to enjoy higher returns on such investments.

After the implementation of upgraded LTCG taxation rules, it’s prudent to invest in multiple securities and create a diversified portfolio. You can also consider making lesser investments in equity-linked vehicles and maintaining a balance of other instruments in your investment portfolio to maximise your earning.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.