Explanations of Capital Gains Tax In India 2024: Tax Rates and Exemptions 

Capital Gains Tax 2024: Imagine you bought a painting a few years ago for Rs. 500. Today, an art collector is willing to pay you Rs. 2,000 for it.  That Rs. 1,500 profit is called a capital gain. Capital gains occur when you sell a capital asset for more than you paid for it. 

But what counts as a capital asset? Almost anything of value that you own and can sell could be considered a capital asset. This includes: 

• Investments: Stocks, bonds, mutual funds, cryptocurrency 
• Property: Your house, land, commercial buildings 
• Collectibles: Artwork, antiques, and rare coins 
• Even Your Business: If you build a successful company and sell it, the profit can generate capital gains. 

In most countries, capital gains are subject to Capital Gains Tax (CGT). Here are some key points to remember: 

• Taxes on capital gains often depend on how long you held the asset. Short-term capital gains (assets held for a shorter period) might be taxed differently than long-term capital gains. 
• The specific tax rate applied to your capital gains and the availability of exemptions (ways to reduce your tax) depends on your country’s tax laws and your individual circumstances. 
• Some countries have a minimum threshold for capital gains. You might not have to pay any tax if your profits are below this limit. 

In India, the taxation of capital gains depends primarily on the holding period of the asset and the type of asset you sell. Below are the tax rates and exemptions for you to better understand. 

Capital Gain Tax Rates in India (2024) 

Capital Gains Tax applies to profits earned from the sale of capital assets like stocks, mutual funds, and real estate. Here’s a breakdown of the current Capital Gains Tax structure in India for 2024: 

To know more about capital gain tax, read Tax Concept: Types of Taxation in India 2024.

1. Short-Term Capital Gains Tax (STCG) 

STCG applies to assets held for a shorter duration. This period varies based on the asset type: 

• Equity Shares & Equity-Oriented Mutual Funds: Less than 12 months 
• Unlisted Shares: Less than 24 months 
• Other Assets: Varies, for example, immovable property (real estate)—less than 36 months 

In terms of taxation, STCG is added to your regular taxable income and taxed according to your income tax slab.  

For example, if you fall into the 30% tax bracket, your STCG will also be taxed at 30%. 

2. Long-Term Capital Gains Tax (LTCG) 

LTCG applies to assets held for a longer duration, exceeding the threshold specified for STCG. Below are levied tax rates in long term for the assets: 

• Tax Rate (Listed Equity and Equity Funds): 10% tax on LTCG exceeding ₹1 lakh in a financial year. Importantly, there is no indexation benefit offered on listed equity shares and equity-oriented mutual funds. Indexation allows you to adjust the asset’s purchase price for inflation, potentially lowering your taxable gains. 
• Tax Rate (Other Assets): 20% with indexation benefit. 

Exemptions from Capital Gains 

Capital Gains Tax (CGT) is charged on the profits you make from selling capital assets. However, the Indian Income Tax Act provides several valuable exemptions to help you reduce or completely avoid CGT liability. Understanding these exemptions is important for strategic tax planning and optimizing your financial returns. 

Section 54: Residential Property Reinvestment 

Section 54 or amendment of section 54 caters to those who have earned long-term capital gains (LTCG) from the sale of a residential property (where income from the property falls under the “Income from House Property” category). To utilize this exemption, you must reinvest the proceeds into a new residential house located in India. Further, 

• You have the option to purchase a new house within one year before or two years after the sale of the original asset. 
• Alternatively, you can construct a new house within three years of the original asset’s sale. 

When it come to the exemption, it is granted on whichever of the below is lower: 

• The amount of your LTCG 
• The total cost of the new property + any deposits made into the Capital Gains Account Scheme (CGAS). 
• ₹10 crores 

But, if your LTCG is less than ₹2 crores, you have the unique opportunity to invest in up to two residential properties and still claim the exemption.  

Note that you can utilize this option only once in your lifetime. 

Section 54B: Agricultural Land Exemption 

Section 54B extends tax benefits to those who have earned either LTCG or short-term capital gains (STCG) from the sale of agricultural land held for at least two years. The exemption only applies if you reinvest the proceeds into new agricultural land within India, where 

• You must purchase the new agricultural land within two years after the sale of the original land. 

And you are eligible for the exemption, lower of the following: 

• The amount of your capital gains (LTCG or STCG) 
• The total cost of acquiring the new land (including any deposits in CGAS) 

Section 54D: Industrial Repositioning 

If your land or building, forming part of an industrial undertaking, has been compulsorily acquired, Section 54D may apply to LTCG or STCG. You have three years from the date of acquisition to utilize the gains towards purchasing a new land/building or in relocating your undertaking. The exemption is the lower of either your capital gains or the amount you reinvest in the new assets or relocation expenses (including CGAS deposits). This exemption is available to all types of taxpayers. 

Section 54EC: Investment in Specified Bonds 

Section 54EC offers an exemption on LTCG realized from the sale of any long-term capital asset. To claim this, you must reinvest the gains into bonds issued by government-backed entities like  

• the National Highways Authority of India (NHAI), Rural Electrification Corporation Limited (REC), or other entities specifically notified by the government. 
• Further, you must invest in the specified bonds within six months of the original asset’s sale. 

When it comes to exemption, it is limited to the lower of the following: 

• The amount of your LTCG 
• The amount you invest in the eligible bonds. 
• A maximum cap of ₹50 lakhs 

Additional Exemptions 

• Section 54F: Exemption on LTCG from any asset (except a house property) if reinvested in a residential house in India. Note that certain conditions apply. 
• Section 54GB: Exemption on LTCG from a residential property if the proceeds are invested in an eligible company or startup, encouraging investment in specific sectors. 

• Section 54EE: Exemption on LTCG from any asset if reinvested in specified long-term assets to fund startups, boosting entrepreneurship. 
• Withdrawal of Exemptions and Other Considerations 

Exemption Withdrawal: Key Considerations 

It is essential to remember that most of the CGT exemptions in India come with specific conditions and lock-in periods. Failure to adhere to these can result in the withdrawal of the exemption, making the original capital gains taxable. Here are the typical circumstances that lead to the withdrawal of exemptions: 

• Sale of the Reinvested Asset: If you sell the new house, land, bonds, or shares purchased under any of the exemptions within a specified lock-in period (usually 3-5 years), the previously exempted capital gains become taxable in the year of sale. 
• Unutilized CGAS Funds: If you deposited gains in the Capital Gains Account Scheme to claim the exemption but fail to utilize the funds within the specified time frame for reinvestment, those unutilized amounts become taxable as capital gains. 
• Company-Specific Conditions: For exemptions like Section 54GB, additional conditions might apply. For example, if the company in which you invested sells its assets prematurely or fails to utilize the proceeds as intended, the exemption can be withdrawn. 

Important Reminders 

• Remember, LTCG tax is applicable only if your total capital gains from all eligible transactions exceed ₹1 lakh in a given financial year. 
• Many exemptions, such as Sections 54F and 54GB, are specifically designed for Individual taxpayers and Hindu Undivided Families (HUFs). 
• The CGAS provides a temporary parking space for your capital gains if you have not identified a suitable reinvestment option immediately. You can deposit your gains into this scheme to claim the exemption and have time to find the right investment.