I recently received a query about capital gains tax on mutual funds. So I decided to put together a post which covers taxation of mutual funds and other more common assets.
- STCG stands for Short-Term Capital Gains
- LTCG stands for Long-Term Capital Gains
- Indexation benefit allows you to reduce your tax burden, by adjusting your gains, by claiming a loss due to inflation.
- ‘Full value of consideration’ means the value at which the asset was sold or exchanged.
| Type of Asset | STCG Applicable | LTCG Applicable |
|---|---|---|
| Stocks & Equity Mutual Funds | If held for less than 1 year. STCG Taxed at @15.45% | If held for more than 1 year. Taxed at @ 10.4% without indexation for gains above 1 Lakh. First 1 Lakh is tax-free |
| Real Estate | If held for less than 2 years. Taxed at @ income tax slab. | If held for more than 2 years. Taxed at @ 20.6% with indexation. |
| Debt Mutual Funds | If held for less than 3 years. Taxed at @ income tax slab. | If held for more than 3 years. Taxed at @ 20.6% with Indexation. |
| Physical Gold | If held for less than 3 years. Taxed at @ income tax slab. | If held for more than 3 years. Taxed at @ 20.6% with Indexation. |
How is capital gains tax calculated?
You arrive at short-term capital gains by reducing the following items from the full value of consideration:
- Expenses incurred in such a transfer
- Cost of acquisition
- Cost of improvement
- Any other exemptions if available.
You arrive at long-term capital gains, by reducing these items from the full value of consideration:
- Expenses incurred in such a transfer
- Indexed cost of acquisition
- Indexed cost of improvement
- Any other exemptions if available
What kind of expenses can be reduced for tax calculation?
- Items like brokerage, commission
- In the case of real estate, you could also reduce the costs of stamp duty, the cost of transport etc.
For real estate transactions, you can also get away paying no LTCG tax at all if:
- You re-invest the gains into another residential property.
- You buy bonds from NHAI or REC and claim exemption under Section 54EC.
I’ll probably write a much exhaustive article on real estate taxation later on. But for now, this is pretty much how deep I would like to go so as not to overwhelm. This is a beginner’s blog after all.
So take stock of this, and once everything here starts to make sense, search online for advanced articles on tax-saving on capital gains. You could also get in touch with your tax accountant. And in case you are filing your taxes using online portals like Cleartax and Taxspanner, you can discuss this in detail with your assigned chartered accountant.
By the way, my first public workshop of 2019 is going to be held on Jan 5th in Bangalore. You’ll be able to find the event details here and about ‘The Moneyplanting program‘ here.
If you just want to jump to ticketing, then click here.
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