Capital Gains Tax in India – Types, Calculation & Ways to Save (2024 Update)
What is Capital Gains Tax?
Capital Gains Tax in India refers to the tax you pay on profits earned from selling capital assets such as land, buildings, shares, mutual funds, gold, and even virtual digital assets like cryptocurrency.
With the 2024 Budget changes, it’s important to understand the updated tax rules on capital gains. Let’s explore the types of capital gains, how they are calculated, latest tax rates, and ways to save taxes legally.
What is a Capital Asset?
A capital asset includes:
- Land, buildings, house property
- Vehicles, machinery
- Jewellery, trademarks, patents
- Leasehold rights
- Rights in an Indian company or legal management rights
Not considered capital assets:
- Stock-in-trade or raw material used in business
- Personal items like clothes or furniture
- Rural agricultural land
- Government bonds like 6.5%/7% Gold Bonds, National Defence Bonds
- Special bearer bonds and Gold Monetisation Scheme bonds
What Qualifies as Rural Agricultural Land?
Land is considered rural (and thus not a capital asset) if it meets both distance from a municipality and population criteria:
Types of Capital Assets:
Short-Term Capital Asset (STCA): Held for ≤ 24 months (except certain financial assets which are short-term if held ≤ 12 months).
Includes: Listed equity shares, listed securities, UTI units, equity mutual fund units, zero coupon bonds
Long-Term Capital Asset (LTCA): Held for > 24 months, or > 12 months in case of listed shares, securities, and mutual funds.
Note: If the asset is inherited or gifted, the holding period of the previous owner is also considered.
Capital Gains Tax Rates in India - Before and After Budget 2024:
Before 23rd July 2024:
- LTCG on listed equity/mutual funds: 10% (above ₹1 lakh)
- LTCG on other assets: 20% with indexation
- STCG (STT not applicable): Normal slab rates
- STCG (STT applicable): 15%
After 23rd July 2024:
- LTCG on listed equity/mutual funds: 12.5% (above ₹1.25 lakh)
- LTCG on land/building (Individuals & HUFs): 12.5% without indexation OR 20% with indexation
- LTCG for firms/companies: 12.5% without indexation
- STCG with STT: 20%
- STCG without STT: As per slab rates
Tax Treatment of Mutual Funds:
Mutual Fund Type: Equity vs Debt
Equity Funds:
- Acquired Before 1 April 2023: STCG: 15%, LTCG: 10% (above ₹1.25L)
- Acquired After 1 April 2023: STCG: 15%, LTCG: 12.5% (above ₹1.25L)
Debt Funds:
- Acquired Before 1 April 2023: STCG: Slab rate, LTCG: 20% with indexation
- Acquired After 1 April 2023: Always STCG, taxed at slab rate
How to Save Tax on Capital Gains?
Section 54: Sale of Residential Property:
- Reinvest in 1 or 2 houses
- Limit ₹2 crore if investing in 2 houses (once in lifetime)
- Purchase within 1 year before or 2 years after sale, or construct within 3 years
- Max exemption limit: ₹10 crore
Section 54F: Sale of Any Other Capital Asset:
- Reinvest entire sale proceeds in 1 residential house
- Proportional exemption if partial investment
- New property sold within 3 years = exemption revoked
Section 54EC: Invest in Capital Gain Bonds:
- Bonds: NHAI, REC, PFC, IRFC
- Max: ₹50 lakh, Lock-in: 5 years, Invest within 6 months
Section 54B: Sale of Agricultural Land:
- Reinvest in agricultural land within 2 years
- Only for individuals/HUFs
- Must be used for agriculture for 2 years before sale
Quick Capital Gains Calculation Summary:
- Identify the asset type
- Determine the holding period
- Calculate capital gain: Sale Price – Indexed Cost
- Apply the relevant tax rate
- Check for exemptions under Sections 54, 54EC, 54F, or 54B
Final Thoughts:
Capital Gains Tax in India has undergone significant changes post Budget 2024. Understanding these updates can help you make smarter investment decisions and reduce tax liability through legal exemptions.
Need expert help with capital gains tax planning or filing returns? Talk to our tax professionals today for personalized guidance.
