Difference between short term and long term capital gains tax The tax treatment of capital gains is determined by the holding period of the asset, which is the duration between its acquisition and sale. Different tax rates apply to short and long terms capital gains in India.
- Short-term capital gains tax:
It is applicable to the profits earned from the sale of a asset held for less than 36 months. For equity-oriented funds and shares, the tax rate is 15% plus applicable surcharge and cess. Other assets such as debt funds, real estate, gold, etc., are subject to tax at the individual’s applicable income tax slab rate.
For more information visit this site: https://www.incometax.gov.in
- Long-term capital gains tax:
It is applicable to the profits earned from the sale of a asset held for more than 36 months. Since April 1, 2018, the tax rate for equity-oriented funds and shares is 10% on gains exceeding Rs. 1 lakh per financial year, without the benefit of indexation. For other assets like debt funds, real estate, gold, etc., the long-term capital gains tax rate is 20% with the benefit of indexation.
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In summary, short-term capital gains tax is applicable to the profits earned from the sale of a asset held for less than 36 months, with varying tax rates based on the asset type. Long-terms capital gains tax applies to the profits earned from the sale of a asset held for more than 36 months, with a 10% tax rate for equity-oriented funds and shares (without indexation) and a 20% tax rate for other assets (with indexation).
FAQs:
What is a capital gain?
A capital gain is the profit earned from selling an asset like stocks, real estate, or bonds.
What is the difference between short-term and long-term capital gain?
Short-term gains apply to assets held for one year or less; long-term gains apply to assets held for more than one year.
What is the tax rate for short-term capital gain?
Short-term capital gain are taxed at ordinary income tax rates, which can range from 10% to 37% depending on your income.
What is the tax rate for long-term capital gain?
Long-term capital gain are taxed at lower rates, typically 0%, 15%, or 20%, depending on your income.
Why are long-term capital gains taxed at a lower rate?
Long-term capital gain are incentivized to encourage long-term investments and financial stability.
Can capital gains push me into a higher tax bracket?
Yes, short-term capital gains are add to your taxable income, potentially pushing you into a higher bracket.
Do short-term and long-term capital gains apply to all types of assets?
Yes, but rates and rules may vary for certain assets like real estate, collectibles, and qualify small business stock.
Are there any deductions or exclusions available for long-term capital gains?
Yes, some assets like primary residences have exclusions, and certain retirement accounts offer tax advantages on gains.
What happens if I have capital losses?
Capital losses can offset gains, and up to $3,000 of excess losses can be deduct against ordinary income per year.
When do I owe capital gains tax?
Capital gains tax is owed when you sell an asset for a profit, not when its value increases while you still hold it.
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