Capital gain is the profit arising from the sales of “capital asset”. It comes under the income category and an individual has to pay the tax for the gain amount in which the transfer of the capital assets takes place. This type of tax is called a capital gain tax, it can be both short and long term. Capital gains are not for the inherited property (no sale), it is for only the transfer of ownership. The Income Tax Department excluded assets acquired as gifts or rewards. The capital tax gain is applicable when a person decides to sell the gifted assets.
Capital Assets are defined as the property held by the assesse. It includes all kinds of property movable or immovable, tangible or intangible properties whether it is related to their business/profession or not. Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
STCG (Short-term capital asset) is an asset held for up to 36 months. For immovable properties like building, land, or house property, time criteria are reduced to 24 months. As per the rule of March 2017, if you raise any income by selling any property after owning it for 24 months, it will be considered as a long-term capital gain.
LTCG (Long-term capital asset) is an asset that is held up for more than 36 months. The reduced period rule of 24 months is not valid here for a movable property like jewellery, debt-oriented mutual funds, etc. However, all the movable property is considered as a long-term capital asset, if it is held up for more than 36 months.
Capital gains is determined by reducing the purchase price from the sale price. However, for an asset that has been held for a long time, it would not be appropriate to determine gains by merely reducing purchase price from sale price without giving any effect to the inflation. Hence, the concept of indexing the purchase price has been brought in. This way, the indexed purchase price can be reduced from sale price to determine gains. So, indexation applies only to assets held for long-term.
Different assets have different periods of holding to be called short term and long term. Here is a table that defines period of holding for different classes of asset in order to be classified as short term or long term.
| Asset | Period of holding | Short Term / Long Term |
|---|---|---|
| Immovable property | < 24 months | Short Term |
| >24 months | Long Term | |
| Listed equity shares | <12 months | Short Term |
| >12 Months | Long Term | |
| Unlisted shares | <24 months | Short Term |
| >24 months | Long Term | |
| Equity Mutual funds | <12 months | Short Term |
| >12 months | Long Term | |
| Debt mutual funds | <36 months | Short Term |
| >36 months | Long Term | |
| Other assets | <36 months | Short Term |
| >36 months | Long Term |
Property sold in India is generally subject to tax deduction. The person buying the property must deduct taxes at the rate applicable to the NRI’s income slab, if the property is a short term asset. If the property is a long term asset, 20% LTCG tax applies. Further, it is important for the NRI to ensure that taxes are deducted on the gains made and not on the sale proceeds. A jurisdictional Assessing Officer can help to determine the gains on which taxes should be deducted by the purchaser.
Long Term Capital Gains on sale of house property is taxable at the rate of 20% flat on the quantum of gains made
