Understand capital gains tax on shares, mutual funds, ETFs, crypto, gold, bonds, and property, with clear rules, rates, and filing tips using ClearTax.
Why Capital Gains Tax Matters for Investors
A self-employed individual, have a number of expenses, and I also pay a lot of taxes.
Different Types of Taxes You Already Pay
There is GST (Goods and Services Tax). I pay the editor, the researcher. Then there is income tax to be paid, which reduces the money I get to use for household expenses like food, daily needs, and of course, investing.
Why Capital Gains Tax Feels Complicated
The sad part is that this is not the end of it. The money I make from investing interest on FDs, dividends on shares these are all taxed. Capital Gains Tax, which are the profits one makes from selling different assets like stocks, mutual funds, gold, property, crypto, etc., are also taxed.
Have tried to simplify it as much as possible. But I must say, taxation is not at all simple. Just compiling all this information took me almost a full day, with different sources presenting different information.
Disclaimer Before We Begin
While you consider some of the material here, I urge you to do your own research and, if possible, consult a tax advisor.
Capital Gains on Equity Shares
As you all know, these are of two types.
Listed vs Unlisted Equity Shares
Listed shares are those we purchase via trading accounts like Zerodha, Groww, etc. There are also unlisted shares, which are bought via online and offline brokers.
How Capital Gain Is Calculated
In either case, theCapital Gains Tax is calculated as the difference between the price at which you bought the shares and the price at which you sell them.
Practical Example of Equity Capital Gain
For example, I bought 500 shares of Fortis Healthcare at ₹500 each on 1st August 2024. This was last year. Today, the price is roughly ₹950 per share. So, ₹950 minus ₹500 multiplied by 500 shares comes to ₹2,25,000. That is my capital gain, and it is this amount on which capital gains tax needs to be calculated as per the current tax rules.
Factors That Decide Capital Gains Tax
Now, how much is this tax? Well, it depends on a few factors four of them, actually.
First, there is the type of shares. Listed and unlisted shares have different rules, not only in terms of tax rates but also the eligible holding period.
Holding Period Rules for Listed and Unlisted Shares
In case, Fortis Healthcare is a listed share, and because I have held it for more than 12 months, this transaction is tagged as long-term capital gain. Please note that it is 12 months in the case of listed shares, and for unlisted shares, the holding period eligibility is 24 months.
Role of STT and Capital Gain Amount
STT, or Securities Transaction Tax, is also a factor. Depending on whether it is paid or not, different tax rules apply. Finally, there is the amount of capital gain.
LTCG Exemption Limit Explained
As per current rules, there is an exemption of ₹1.25 lakh per financial year. On LTCG of ₹2,25,000, I can avail an exemption of ₹1,25,000, which brings my taxable long-term Capital Gains Tax down to ₹1,00,000.
Understanding the ₹1.25 Lakh LTCG Exemption and Tax Calculation
At 12.5%, the tax comes to ₹12,500.
₹1.25 Lakh Exemption Is an Annual Aggregate Limit
Please note that this ₹1.25 lakh exemption is not per transaction. It is an aggregate limit for the entire financial year. So, if I had sold more shares and had, say, ₹20 lakhs of LTCG, the exemption of ₹1.25 lakhs would apply to the total ₹20 lakhs, not per transaction or per share type.
How Transaction Date Impacts Capital Gains Tax
Just to give you a sense of how complex this can get, look at this table and notice how your taxes change depending on the date of transaction, such as 23rd July 2024 in this case. This gives you a glimpse of how complicated our tax lives can be.
Simplifying Capital Gains Tax Filing with ClearTax
That complexity is exactly where ClearTax comes in. As India’s most popular online tax filing service, ClearTax makes this process extremely simple.
Automatic Pre-Filling of Tax Information
You just log in to your ClearTax account, enter your PAN details, and the ClearTax workflow automatically connects with the Income Tax Department to pre-fill up to 95% of your Capital Gains Tax information.
Uploading Form 16 and Salary Details
You can also upload your Form 16 as a PDF, and the platform instantly fetches all your salary details.
Importing Investment Data from Brokers
For investors earning gains from stocks, mutual funds, F&O, etc., simply click on “Add Details.” You will see integrations with more than 80 brokers across stocks, mutual funds, F&O, US stocks, and even crypto wallets.
Auto-Importing Transactions from 80+ Brokers
From there, it is almost effortless. Select your trading platform, click on login and import, sign in to your broker account, and let Capital Gains Tax ClearTax pull in all your transaction data whether it is five entries or five hundred.
Manual P&L Upload Option
There is also a second option where you can manually import your P&L statement from the broker platform. Within seconds, your Capital Gains Tax are neatly classified as long-term, short-term, intraday, and even F&O.
Automatic Capital Gains Classification and ITR Selection
Just review the information, confirm your deductions, and ClearTax will generate a complete tax summary of your income, savings, taxes paid, refunds, etc. It will also automatically select the correct ITR form and the best tax regime to maximize your refund.
Carry Forward and Set-Off of Past Losses
Here’s the best part: if you have reported any capital or trading loss in the previous eight years, ClearTax will automatically fetch it and adjust it against your current gains. Then, simply click on “File Now,” and you’re done simple, fast, and accurate.
Capital Gains Tax on Mutual Funds
Now, move on to mutual funds.
Types of Mutual Funds Based on Asset Allocation
As we all know, there are equity funds, debt funds, and hybrid funds, which can be further classified based on the percentage of equity they hold.
Taxation of Equity-Oriented Mutual Funds
In the case of equity-oriented schemes, the current tax rules are as follows: short-term capital gains (holding period less than 12 months) are taxed at 20%, while long-term capital gains are taxed at 12.5%.
Taxation of Debt-Oriented Mutual Funds
For debt-oriented schemes, the holding period is now irrelevant. Irrespective of how long you hold them, the capital gains are taxed as per your income tax slab.
Tax Treatment of Hybrid Mutual Funds
For hybrid funds and their different variants.
Capital Gains Tax on International Mutual Funds
In addition, there are international funds. If these are held for less than 24 months, the gains are treated as STCG and taxed at slab rates. If held for more than two years, the gains are taxed at 12.5% without indexation.
Capital Gains Tax on ETFs (Exchange Traded Funds)
Next, we have ETFs. Similar to mutual funds, there are equity, bond, gold, and international ETFs.
Taxation of Equity ETFs
Equity ETFs such as Nifty 50, Bank Nifty, sectoral ETFs, and smart beta ETFs are treated like listed equity shares. STCG is taxed at 20%, and LTCG is taxed at 12.5%, with an exemption limit of ₹1.25 lakhs.
Taxation of Debt ETFs
Debt ETFs, such as liquid ETFs and Bharat Bond ETFs, are taxed as per slab rates, irrespective of the holding period.
Taxation of International ETFs
International ETFs, like NASDAQ 100 and FANG Plus, are taxed at slab rates if held for less than 24 months. LTCG is taxed at 12.5% without indexation, and there is no LTCG exemption.
Taxation of Fund of Funds (FOFs)
A common question is about the taxation of fund of funds. Although FOFs are technically mutual funds, the tax treatment depends on the underlying asset.
Equity-Oriented Fund of Funds
Equity-oriented FOFs attract 20% STCG with a holding period of one year, while LTCG is taxed at 12.5%. Debt-oriented FOFs are taxed as per slab rates.
Debt, Gold, and International Fund of Funds
In the case of gold and international FOFs, the holding period is two years. STCG is taxed at slab rates, while LTCG is taxed at 12.5% without any exemption.
Crypto Taxation in India (Virtual Digital Assets)
Crypto, or Virtual Digital Assets, as termed in the Union Budget 2022. This was a landmark moment for digital assets in India.
What Qualifies as a Virtual Digital Asset
VDAs include cryptocurrencies like Bitcoin and Ethereum, as well as NFTs and other digital assets.
Flat 30% Tax, No Deductions, and 1% TDS
Any profits from selling, swapping, or spending crypto assets are taxed at a flat rate of 30%, plus surcharge and cess. No deductions are allowed for expenses such as transaction fees or brokerage. Additionally, a TDS of 1% is levied on all VDA transfers.
Increased Monitoring of Crypto Transactions
Income tax officers are now being trained in blockchain analytics and crypto wallet tracking, so if you hold crypto, please ensure you pay your taxes.
Capital Gains Tax on Gold Investments
Gold has delivered spectacular returns over the last two years, with prices up nearly 75%. This may have tempted many investors to book profits.
Taxation of Physical Gold
For physical gold, short-term capital gains are taxed as per slab rates. Long-term gains (holding period of 24 months or more) are taxed at 12.5% without indexation, and there is no ₹1.25 lakh exemption.
Taxation of Digital Gold
Digital gold is taxed in the same manner as physical gold.
Taxation of Gold ETFs
Gold ETFs are treated differently. If held for less than 12 months, gains are STCG and taxed at slab rates. If held for more than 12 months, LTCG is taxed at 12.5% without indexation and without any exemption.
Taxation of Gold Mutual Funds
Gold mutual funds have a holding period of 24 months. STCG is taxed at slab rates, while LTCG is taxed at 12.5% without indexation.
Capital Gains Tax on Bonds, Debentures, and Property
For bonds and debentures, taxation differs between listed and unlisted instruments.
Listed Bonds and Debentures
Listed bonds held for more than 12 months and where STT is paid attract LTCG tax at 12.5% without indexation. Short-term Capital Gains Tax are taxed at 20% if Section 111A applies; otherwise, slab rates apply.
Unlisted Bonds and Debentures After 23 July 2024
Unlisted bonds and debentures transferred, redeemed, or matured on or after 23rd July 2024 are treated as short-term assets and taxed at slab rates, regardless of holding period.
Capital Gains Tax on Immovable Property
For immovable property, the holding period for LTCG is now 24 months. Properties acquired before 23rd July 2024 can be taxed at 20% with indexation or 12.5% without indexation. Properties acquired after this date are taxed at 12.5% without indexation. STCG is taxed at slab rates.
Income Tax Scrutiny Notice Section 143(2): Avoid Queries
Income tax scrutiny Notice: Learn what to write in the Remarks section under Section 143(2) to avoid queries, penalties, and delays.
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