Profit or gain from the sale of a capital asset comes under ‘income from capital gains’ and people are liable to pay tax on it depending on the year the transfer of the capital asset takes place. In simple terms, a capital gains tax is a tax imposed on the sale of an asset by an individual or business.
Index Fund Corner
Sponsored
| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
Under the ‘income from capital gains’ head, any profit or loss incurred through the sale of a house property is subject to tax. Additionally, capital gains might also arrive through the sale of capital assets like stocks, mutual funds, bonds and others.
Capital assets
Section 2(14) of the Income-tax Act has defined the term capital asset as “property of any kind held by an assessee, whether or not connected with his business or profession. Any securities held by an FII which has invested in such securities in accordance with the SEBI Regulations. Any unit-linked insurance policy to which exemption under Section 10(10D) does not apply on account of applicability of the fourth and fifth proviso (high premium equity oriented ULIPs).”
It states that all types of properties whether movable or immovable, tangible or intangible, that include rights of management or control of an Indian company, are capital assets.
However, there are certain exclusions:
1. Stock-in-trade
Stock-in-trade, consumable stores and raw materials held for the purpose of business or profession are excluded from capital asset’s purview. But taxpayers must note that the surplus that arises from the sale of stock-in-trade or raw material or consumables is taxable under the ‘profits and gains from business or profession’ head.
2. Personal effects
Movable property such as apparel, furniture, car, scooter, TV, refrigerator, revolvers, musical instruments, gun, generators and others are personal assets and are not treated as capital assets.
However, gains arising from the sale of items like jewellery, archaeological collections, drawings, paintings, sculptures or any work of art shall be subject to tax.
3. Agricultural land
Agricultural land in rural areas across the country is not treated as capital assets. Also, agricultural land located beyond the jurisdiction of a municipality or cantonment board with a population of 10,000 or more is excluded from capital assets under specific conditions.
4. Bonds
Some of the bonds not included in capital assets are 6.5% Gold Bonds, 1977; 7% Gold Bonds, 1980; National Defence Gold Bonds, 1980; Special Bearer Bonds, 1991; Gold Deposit Bonds issued under Gold Deposit Scheme, 1999; and deposit certificates issued under the Gold Monetisation Scheme, 2015.
Types of capital asset
1. Short-term capital asset
A short-term capital asset is held for a period of not more than 24 months. This is 36 months if the transfer has taken place before July 23, 2024. However, the holding period for specific capital assets has been reduced to 12 months. These include units of UTI, units of equity-oriented funds, zero coupon bonds and listed securities like equity shares, preference shares, debentures, units, bonds and others.
2. Long-term capital asset
Any capital asset is considered long-term if it does not come under the purview of the definition of short-term capital asset.
To be specific, units of UTI or equity-oriented funds, zero coupon bonds and listed securities will be considered long-term if they are held for over 12 months. All other capital assets will be treated as long-term if held for above 24 months.
Key amendments in Union Budget 2024-25
- Tax on capital gains depends on how long they were held. While there were three holding periods earlier (12 months, 24 months and 36 months), now there are only two holding periods — 12 months and 24 months.
- Listed securities will be considered long-term if the holding period exceeds the 12-month limit. For all others, it is 24 months.
- Taxation of short-term capital gain for equity shares as well as a unit of an equity-oriented fund has been hiked from 15% to 20%. Similarly, taxation on long-term capital gains has jumped to 12.5% from 10% earlier.
- The capital gains exemption limit for equity has been increased from ₹1 lakh to ₹1.25 lakh.
