In simple words, a capital gain occurs when a person sells an asset for more than what person paid to purchase it. Almost any type of asset a person owns is a capital asset.
In law term, as per section 45 of Income Tax Act, 1961 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will be deemed to be the income of the previous year in which the transfer took place.
Short-term capital gains: If a person sells an asset within one/two/three years of purchasing it, the profit a person makes is considered a short-term capital gain.
Long-term capital gains: If a person holds the asset for more than one/two/three years before selling it, the profit is considered a long-term capital gain.
Holding Period of Assets
| Type of Assets | Short Term | Long Term |
| If Holding period is upto 12 months | If Holding period is more than 12 months | |
| If Holding period is upto 24 months | If Holding period is more than 24 months | |
| If Holding period is upto 36* months | If Holding period is more than 36* months |
*w.e.f. 23.07.2024, Holding Period of 36 months is reduced to 24 months.
Cost Inflation Index (CII) for FY 2024-25 is 363.
Tax rate on capital gains:
| Income | Rate of Tax (Before 23.07.2024) | Rate of Tax (On or After 23.07.2024) |
| Long term capital gains (other than LTCG taxable as per section 112A – Transfer of any land or building or both by an individual or a HUF, being a resident – Transfer of other capital asset | 20% with indexation 20% with indexation | Lower of 12.5% without indexation or 20% with indexation 12.5% without indexation. |
| Long-term capital gains arising from transfer of unlisted securities or shares of company in which public are not substantially interested by non-resident Assessee. | 10% withoutindexation andforeign currencyfluctuations | 12.5% withoutindexation andforeign currencyfluctuations |
| Long term capital gains on transfer of-Equity share in a companyUnit of an equity oriented fundUnit of business trustCondition for availing the benefit of this concessional rate is that securities transaction tax (STT) should have been paid-Note: Equity shares – Both at the time of acquisition and transfer.Unit of equity oriented funds or unit of business trust – At the time of transfer | 10% on LTCG > INR1.25 lakhs if transfertakes place | 12.5% on LTCG > INR1.25 lakhs if transfertakes place |
| Short-term capital gains** on transfer of-Equity shares in a companyUnit of an equity oriented fundUnit of business trustThe conditions for availing the benefit of this concessional rate are such transactions should be chargeable STT. | 15% if transfertakes place | 20% if transfertakes place |
**Note: Short Term Capital gain for other than STT cases shall be chargeable at normal rate.