How are capital gains taxed?

Capital gains tax is the tax levied on the profit you make from selling assets like stocks, real estate, or mutual funds. It is classified into Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG), depending on the holding period. The tax rate varies based on the asset type and duration.

1. What is Capital Gains Tax?

Capital gains tax applies when you sell an asset at a price higher than its purchase cost. The government taxes this profit under two categories:

• Short-Term Capital Gains (STCG): Taxed at 15% for stocks sold within one year; for other assets, it's taxed as per your income slab.
• Long-Term Capital Gains (LTCG): Stocks and equity mutual funds are taxed at 10% if gains exceed ₹1 lakh in a financial year. Other assets have different rates.

2. Capital Gains Tax on Different Assets

Capital gains tax varies based on asset type:

• Stocks & Equity Mutual Funds: 15% (STCG), 10% (LTCG above ₹1 lakh).
• Debt Mutual Funds: 20% (LTCG with indexation).
• Real Estate: 20% (LTCG with indexation) or added to income (STCG).
• Gold: 20% (LTCG with indexation), STCG taxed as per income slab.

3. How to Reduce Capital Gains Tax?

You can lower capital gains tax by:

• Holding Investments Longer: LTCG tax rates are lower than STCG.
• Investing in Tax-Exempt Assets: Reinvesting in residential property (Section 54) or bonds (Section 54EC) helps.
• Offsetting Losses: Stock market losses can be used to reduce taxable gains.

4. How to Pay Capital Gains Tax?

Capital gains tax can be paid through:

• Advance Tax: If your total tax liability exceeds ₹10,000, you must pay it in installments.
• Income Tax Return (ITR): Report your capital gains under the relevant section while filing ITR.

5. Conclusion

Capital gains tax is levied on profits from selling assets. Short-term gains are taxed at higher rates, while long-term gains get lower tax rates with indexation benefits. Smart tax planning can help you maximize returns while reducing tax liability.