10 Things to Know About LTCG

Long Term Capital Gains (LTCG) form an important aspect of personal finance, especially for those primarily investing in stocks, real estate and bonds.

Having a clear understanding of such gains can help you manage your investment more efficiently, allowing you to maximise your returns and minimise your tax liabilities.

Here in this blog, we will delve deeper into key things to know about LTCG such as exemptions, tax implications, set off and carry forward of losses and more. 

Things to Know About LTCG

Long-term capital gains refer to the profit you generate by selling stocks, bonds, real estate and other assets that were held for more than 12 months.

Let us have a look at some of the crucial things to know about LTCG:

• LTCG Taxation: The LTCG tax rate after Budget 2024 is set at 12.5%, up from 10%. Moreover, the exemption amount of ₹1 lakh on LTCG has been revised to ₹1.25 lakh. 
• Indexation: According to the recent budget, the indexation benefit has been removed from all the asset classes except for real estate properties purchased before 23rd July 2024.
• Holding Period: For LTCG on equity, the holding period must be more than 12 months. On the other hand, the holding period for qualifying long-term capital gains on debt or debt-oriented assets has been cut from 36 months to 24 months.
• Set Off and Carry Forward of Losses: In case you incur losses instead of gains, you can set off your losses with your capital gains in the same financial year. However, if the amount of loss exceeds, you can carry forward your losses to the 8 subsequent years and set off against your capital gains. However, please note that long-term capital gains cannot be set off against short-term capital gains. 
• Exemptions on LTCG: There are several exemptions applicable to long-term capital gains under several sections of the Income Tax Act, including Sections 54, 54B, 54D, 54EC and 54F.
• Grandfathering Rule: Under this grandfathering rule, any equity investments made before 31st January 2018 and capital gains accumulated till that date are entirely exempted from tax. Capital gains after 31st Jan 2018 will be subject to capital gain taxes.
• Tax Loss Harvesting: Tax loss harvesting is a smart practice prevalent among investors and traders mainly to optimise their investment portfolios. Under this practice, investors sell their underperforming assets at a loss and adjust the same with their capital gains. It helps investors to save on taxes and also provides a feasible exit route from bad investments.
• LTCG on Sovereign Gold Bonds: Long-term capital gains arising on redemption of Sovereign Gold Bonds (SGB) upon maturity are exempted from tax under Section 47 (viic) of the IT Act. However, please note that this benefit of exemption can only be availed by individuals. Other entities like HUF, charitable institutions, and trusts are liable for paying LTCG.
• LTCG on ESOPs:  Taxation on ESOPs is levied twice—first, at the time of exercise by the employees, and second, when they are sold. Capital gains from these assets are classified as long-term if held for over 24 months and will be taxed at a rate of 12.5%.
• Impact of DDT on LTCG: Earlier, the Dividend Distribution Tax was used to affect the return on investments by reducing the overall LTCG. With the removal of DDT in Budget 2020, investors are now liable to pay taxes on dividends as per their applicable slab rates.