If you are new to taxes, one of the most important things you should know about is capital gains tax. Apart from your income, you are required to pay taxes on your capital gains too. Capital gains are the gains that you have made by ‘transferring’ a capital asset.

This transfer could be in the form of selling, exchanging, converting, maturing, or extinguishing the asset. But what are the different types of capital assets whose transfer leads to capital gains? Let us have a look-

What are Capital Assets?

A capital asset can be defined as a property which could be-
  • House
  • Land
  • Security
  • Machinery
  • Vehicle
  • Trademark and Patent
  • Leasehold rights
Having relation or right in any Indian company is also considered a capital asset.

Types of Capital Assets

Capital assets can be of two kinds- LTCA (Long-Term Capital Asset) and STCA (Short-Term Capital Asset). LTCA are assets that are held for a period longer than the prescribed holding period. STCA are assets held for a duration lesser than the prescribed holding period.

The holding period varies for different types of assets. Similarly, the capital gains tax also varies for LTCAs, which attract LTCG (Long-Term Capital Gains) tax and STCAs that attract STCG (Short-Term Capital Gains) tax.

Holding Period for LTCA and STCA

Here is a list of holding period for defining LTCA and STCA-
Capital Asset Holding Period
Building and Land <24 months- STCA >24 Months- LTCA
Listed Shares <12 Months- STCA >12 Months- LTCA
Unlisted Shares <24 Months- STCA >24 Months- LTCA
Equity Mutual Funds <24 Months- STCA >24 Months- LTCA
Debt Mutual Funds <36 Months- STCA >36 Months= LTCA
Other Assets <36 Months- STCA >36 Months= LTCA

How is Capital Gains Tax Calculated for STCAs and LTCAs?

For STCAs, the STCG is added to the taxable income of the taxpayer and is then taxed as per the income tax bracket. The only exception here is listed equity shares and equity-oriented mutual funds that attract STCG tax at 15%.

The LTCG tax varies based on the type of asset held. Here is a list of LTCG tax on common LTCAs-
LTCA LTCG Tax
Building and Land 20% (with indexation)
Listed Shares 10% (for LTCG above Rs. 1 lakh)
Unlisted Shares 20% (with indexation)
Equity Mutual Funds 10% (for LTCG above Rs. 1 lakh)
Debt Mutual Funds 20% (with indexation)
Other Assets 20%

Capital Assets and Taxes

If you have capital assets and are planning to transfer or sell the same soon, do understand the applicable capital gains tax for your asset in detail. Some capital assets, like property and land, also come with deductions. Make use of such deductions to reduce your income tax liability.

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DISCLAIMER

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.



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