Depending on how long an asset has been held, capital gains in India are categorised as either short-term or long-term. The tax treatment for each type of gain differs as follows:
Short-Term Capital Gains (STCG)
If you sell stocks or mutual funds within one year of purchase, the resulting gains are considered short-term capital gains.The tax rate on short-term capital gains is determined by your applicable income tax bracket. It's crucial to remember that short-term capital gains are included in your taxable income. Plus, they are taxed at the same rates as your total income.
Long-Term Capital Gains (LTCG)
If you sell stocks or mutual funds after holding them for more than one year, the gains are categorized as long-term capital gains. Long-term capital gains on stocks and equity-oriented mutual funds are subject to a special tax regime introduced in the 2018 budget. Long-term capital gains above Rs. 1 lakh are now taxed at a flat rate of 10% without the benefit of indexation.
Tax Filing Requirements
- Regardless of the amount of capital gains, it is mandatory to file your tax returns if you have earned capital gains by selling stocks or mutual funds. Reporting these gains accurately is important for complying with tax regulations.
- If you have incurred capital losses from the sale of stocks or mutual funds, you can set off these losses against capital gains in the same year. However, to carry forward and offset these losses against future capital gains, it is necessary to file your tax returns before the deadline.
- If you have paid taxes, such as through TDS (Tax Deducted at Source) on capital gains, and your total tax liability is lower than the amount deducted, filing your tax returns is necessary to claim a refund of the excess tax paid.
Look up more articles here for a smooth first time tax-filing process. All the best!
