10 Things to Know About LTCG

LTCG stands for Long-Term Capital Gains, and it refers to the capital gains earned on the sale of assets that have been held for more than a specified period, which is currently one year for most assets, including equity shares, equity-oriented mutual funds, and real estate.

LTCG on equity shares and equity-oriented mutual funds are taxed at a rate of 10% on gains exceeding Rs. 1 lakh. However, gains made up to January 31, 2018, are grandfathered, which means that the gains made until that date are exempt from taxation.

For real estate assets, the holding period for qualifying as LTCG is two years, and the gains are taxed at the applicable slab rates.

It's worth noting that short-term capital gains, which are gains made on assets held for less than a year, are taxed at a higher rate than LTCG. For example, in the case of equity shares and equity-oriented mutual funds, the short-term capital gains are taxed at 15%.

Things to Know About LTCG

LTCG tax rates are generally lower than short-term capital gains tax rates. The time an asset is held before it's sold determines whether the gain is considered long-term or short-term.

Certain assets, such as real estate and collectibles, may be subject to different LTCG tax rates and rules. Tax laws and rates regarding LTCG are subject to change, so staying informed and consulting with a tax professional is essential.

Proper tax planning and strategy can help minimize the tax paid on LTCG. Here are some essential things to consider about LTCG in India:

• Assets Covered: The assets covered under LTCG are equity shares, equity-oriented mutual funds, and units of business trusts.
  
  
• Taxation of LTCG: From the financial year 2018-19, the LTCG on the sale of equity shares, equity-oriented mutual funds, and units of business trusts exceeding Rs.1 lakh is taxed at the rate of 10%.
  
  
• Grandfathering Clause: The LTCG tax rate of 10% is applicable only on the gains made on or after April 1, 2018. Any gains made before this date are exempt from tax.
  
  
• Cost of Acquisition: The cost of acquisition of the asset can be indexed to adjust for inflation. This is done using the Cost Inflation Index (CII), which the government publishes.
  
  
• Computation of LTCG: LTCG is computed as the difference between the asset's sale price and its indexed acquisition cost.
  
  
• Holding Period: To qualify for LTCG, an asset must be held for over 2 years. If an asset is held for 2 years or less, the gains are considered Short-term Capital Gains (STCG).
  
  
• STCG Taxation: STCG on the sale of equity shares, equity-oriented mutual funds, and units of business trusts are taxed at the rate of 15%.
  
  
• Exemptions: Certain exemptions are available under LTCG, such as those under Sections 54, 54B, 54EC, and 54F of the Income Tax Act.
  
  
• Compliance: Taxpayers are required to report LTCG in their income tax return and pay the applicable tax. Failure to do so may result in penalties and interest.
  
  
•  LTCG (Long-Term Capital Gains) tax in India is applicable on the sale of certain assets such as equity shares, equity-oriented mutual funds, and units of business trusts if they are held for more than one year. As per the current tax laws in India, the LTCG tax on such assets is 10% if the gains exceed INR 1 lakh.

Conclusion

Long-Term Capital Gains (LTCG) are profits realized from the sale of an asset held for more than a year. LTCG can be taxed at a lower rate than short-term capital gains, making it an attractive option for long-term investors.

Understanding LTCG and the tax implications of investment strategies can help investors make informed decisions and maximize their returns.