Long Term Capital Gain Tax

Long term capital gain means sale/transfer of long term capital assets. This long term capital gain is charge as tax under the head ” Capital Gain” of income tax.

Moreover, Capital Gain Tax is charge whenever an taxpayer earns a profit by selling capital assets such as

• Residential Plot
• Vehicle
• Stocks
• Bonds
• And, Collectable such as artwork.

Capital Gain is of two types i.e. Long term capital gain and Short term capital gain . Before understanding long term capital gain tax first we have to learn what is long term capital assets?

In addition, under section 2(29A) of income tax act , long -term capital assets that are not short-term assets i.e.,assets hold for more than 12/24/36.

Again, Capital assets such as Land, Building and house property shall be consider as long term capital assets if owner hold it for a period of 24 months or more.

Whereas ,following assets shall be consider as long term capital assets if hold for more than 12 months .

• Equity or Preference shares in a company listed on a recognised stock exchange in India.
• And Securities like debentures,bonds govt. securities etc listed on recognised stock exchange in India.
• Units of UTI whether quoted or not.
• Units of equity oriented MF whether quoted or not.
• And zero Coupon bonds quoted or not.

Now, what is long term capital gain?

According to the section 2(29B) of income tax act long term capital gain means capital gain arising on transfer of long term capital assets i.e. capital gain arising on sale of long term capital assets .

In other words, sale is a transfer of ownership in exchange for price paid or promised to be paid.

For instance, Mr. Varun sold Building to Miss priya on 20 march 23 of Rs. 21,00,000 , which was purchased 6 years back for Rs.16,00,000.

Now, in this case Mr. Varun hold building for more than 24 months(i.e. for 6 years). Therefore capital gain earned on building is a long term capital gain and will be taxed at 20% with indexation.

Rate of tax on Long term capital gain

Long term capital gain will be charge to tax either according to section 112 or 112A.

=> Long term capital gain from sale or transfer of debt oriented mutual fund and listed securities & other assets are taxed at 20% with indexation.

Moreover, according to section 112 of income tax act theses assets are taxed at 20% and this rate is increased by surcharge (if applicable) plus education cess (4%).

=> Where long term capital gain arising from transfer of

• Listed Securities
• Units of equity oriented mutual fund
• Units of business trust

are taxed at 10%. And these assets charge to tax at 10% if following conditions are satisfied:-

1. Long term capital gain exceeds Rs. 1,00,000 and
2. STT is paid

Additional Points

1. If on the above securities STT is not paid then it will be taxed @ 20% with indexation. 10% without indexation is available only for listed securities and zero coupon bonds.

2. Whereas, in case of residential individual/HUF, where total income excluding capital gains (LTCG/STCG) is less than the basic exemption limit (B/E/L), then

Tax on capital gain= {Total Income(including capital gains)-B/E/L}x20%. This provision is applicable in respect of the tax calculated u/s 111A on STCG.

3. Besides, benefit of chapter VIA deduction is not available for capital gains u/s 112 or 111A.

Further, Example of Long term capital gain

A) Mr. Devang is a resident . He has total income of Rs. 20,00,000 comprising following:

i) LTCG u/s 112A= Rs. 15,00,000

ii) Income from other sources Rs. 5,00,000

Calculate tax liability for A.Y. 2023-24.

Solution:

Tax on LTCG is 15,00,000×10% = 1,50,000

Now, tax on balance other income

Income Range	Tax
0 to 2,50,000	Nil
2,50,001 to 5,00,000 5% of 2,50,0000	12,500
	12,500

Tax liability (1,50,000+12,500) = 1,62,500

Add: Education cess 4% = 6,400

Total Tax liability = 1,68,900

B) In addition to above, let’s take another example,

Mr. Arpit transfer 1000 shares of reliance @1200 per share on 1st Feb 2023. He had bought these shares on 31.01.2021 for Rs. 800 per share. Reliance shares are listed in Bombay stock exchange. And STT has been paid.

Compute Long term capital gain and tax liability.

Solution:

Computation of Long term capital gain and tax

Sale Consideration (1000shares x Rs.1200)	12,00,000
Less: Indexed cost of acquisition
1000shares x Rs. 800 = Rs. 8,00,000 8,00,000*331/301 =	(8,79,734)
Long term capital gain	3,20,266
Tax on LTCG@10% section 112A	32,027