Capital Gains Tax in India (2024): A Simple Guide

Capital Gains Tax in India applies when you earn a profit from selling assets like land, buildings, shares, or digital assets. With the Budget 2024 capital gains update, tax rates and rules have changed, making it important to understand how capital gains work and how you can legally save tax.

What is Capital Gains Tax?

Capital Gains are profits made when you sell a capital asset for more than its purchase price. This profit is taxed under Capital Gains Tax in India.

Types of Capital Gains

1. Short-Term Capital Gains (STCG)

Applies when you sell an asset within:

• 12 months (for listed shares and equity mutual funds)
• 24 months (for most other assets like property)

2. Long-Term Capital Gains (LTCG)

Applies when you sell an asset after:

• 12 months (for shares and mutual funds)
• More than 24 months (for real estate, gold, etc.)

What Qualifies as a Capital Asset?

Capital assets include:

• Land, buildings, houses
• Jewelry, cars, patents, trademarks
• Digital assets (e.g. cryptocurrency)
• Management rights in a company

Not considered capital assets:

• Clothes, furniture for personal use
• Rural agricultural land
• Government bonds and gold deposit schemes

Capital Gains Tax Rates (After July 2024)

Long-Term Capital Gains (LTCG):

• Listed shares & equity mutual funds:
  12.5% on profits above ₹1.25 lakh (no indexation)
• Property (land or buildings):
  • 12.5% without indexation
  • 20% with indexation (individuals & HUFs only)
• Other assets:
  12.5% flat rate

Short-Term Capital Gains (STCG):

• Equity shares & equity mutual funds:
  20% flat rate
• Other assets:
  Taxed as per your income tax slab

Capital Gains Tax on Mutual Funds

Equity Mutual Funds

• Short-Term (≤12 months): 15% tax
• Long-Term (>12 months): 10% on gains above ₹1.25 lakh

Debt Mutual Funds

• Always taxed as short-term capital gains
• Taxed at your income slab rate, even for long-term holdings
• Applies to purchases after April 1, 2023

How to Save Capital Gains Tax in India

You can reduce or avoid capital gains tax using these Capital Gains exemptions:

Section 54: Exemption on Sale of Residential Property

• Reinvest LTCG in up to 2 houses (once in a lifetime if gain ≤ ₹2 crore)
• Buy within 1 year before or 2 years after sale
• Or construct within 3 years
• Don’t sell the new property within 3 years

Section 54F: Selling Any Other Asset

• Reinvest entire sale proceeds in 1 residential house
• Same timelines as Section 54
• Partial reinvestment = partial exemption
• Don’t sell the new house within 3 years

Section 54EC: Invest in Tax-Saving Bonds

• Reinvest up to ₹50 lakh in bonds from NHAI, REC, PFC, or IRFC
• Buy within 6 months of sale
• Bonds are locked in for 5 years
• Invest before the tax filing deadline

Section 54B: Selling Agricultural Land

• Land must have been used for farming for 2 years
• Reinvest in another agricultural land within 2 years
• Don’t sell new land within 3 years
• If not buying immediately, deposit the amount in a Capital Gains Account Scheme

Summary: Capital Gains Tax in Simple Words

• Capital Gains Tax India is charged when you profit from selling assets
• Tax depends on how long you held the asset (short vs. long term)
• Budget 2024 capital gains update introduced new tax rates and rules
• Use sections 54, 54F, 54EC, and 54B to reduce or avoid paying tax
• Always check eligibility and reinvest timelines for claiming exemptions