What is Capital Gains Tax? – CGT Rates in India


Updates and details for What is Capital Gains Tax? – CGT in India:
A capital gains tax is a type of tax levied on capital gains, profits an investor realizes when he sells a capital asset for a price that is higher than the purchase price. Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. To illustrate, an investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until he sells them.


Capital Gains include any property held by the assessee except the following:

  • Stock in trade.
  • Consumable stores or raw materials held for the purpose of business or profession.
  • Personal effects that are movable except jewelry, archaeological collections, drawings, paintings, sculptures or any artwork held for personal use.
  • Agricultural land. The land must not be located within 8kms from a municipality, Municipal Corporation, notified area committee, town committee or a cantonment board with a minimum population of 10,000.
  • 6.5 percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
  • Gold Deposit bonds under Gold Deposit Scheme.

At the time of Sale of any Asset, Tax is liable to be paid on the Gains earned on the sale of Asset. Such Gains could either be Short Term Capital Gains or Long Term Capital Gains.


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The basis of such classification in the Income Tax Return has been given below:

1. Short Term Capital Gain: If the Asset is held for less than 36 months.

Short-term capital gain = Full value consideration- (cost of acquisition + cost of improvement + cost of transfer)

2. Long Term Capital Gain: If the Asset is held for more than 36 months.

Long-term capital gain = Full value of the consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer).


Capital Gains Tax in India:

In India, the long-term capital gains on stocks and equity mutual funds are not taxed. But, the short-term gains will be taxed at 15 percent. In the case of debt mutual funds, both short and long-term capital gains are taxed.

The short-term capital gain on debt mutual fund is added to the income and taxed as per the individual’s Income Tax Slab and the long-term capital gains on debt mutual funds are taxed at 20 percent with indexation and 10 percent without indexation. Indexation is adjusting the purchase value for inflation. The indexation increases the purchase cost and lowers the gain.

The indexation increases the purchase cost and lowers the gain. The taxpayer can avail the capital gains statement from CAMSOnline and Karvy, they send the statement through the mail.

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