What is Capital Gains Tax?
The taxes charged on the revenue generated by the trade of capital assets are regarded as capital gains tax. These are defined by the term of possession of the asset as well as the actual variation between its purchase and sale price. This tax is exclusively applicable if the asset is traded after a specific duration of ownership.
Long-term and Short-term Capital Gains:
The capital gains are categorised as long-term or short-term. If you trade your property within 2 years (24 months or less) of procuring it, it would be deemed a short-term capital gain. Whereas, if you trade your property after 2 years (24 months), it would be regarded as a long-term capital gain.
Understanding the distinction between long- and short-term capital gains is important because they are taxed separately. The tax benefits and tax rates for reinvesting these two types of capital gains differ.
Short-Term Capital Gains (STCG) on property are added to the taxpayer's total income and taxed as per the applicable income tax slab rates.
Long-Term Capital Gains on the disposal of property are charged at 12.5% without the benefit of indexation (as per the Finance Act, 2024, effective from July 23, 2024). However, for properties acquired before July 23, 2024, taxpayers may choose between the new rate of 12.5% without indexation and the earlier rate of 20% with indexation, whichever is more beneficial. This is applicable along with the Health & Education Cess at 4% if the sale meets specific provisions. In case there’s no indexation, the applicable tax rate would be 12.5%. If you sell a gifted property or one that you have received from your ancestors, you will still be subject to paying capital gains tax on these properties.
Learn - what is long-term capital gain tax in India.
The purchase expense, in this case, is estimated based on the value to the former owner, as filed for the year of acquisition.
