Capital Gains Tax Under the Income Tax Act 1961

What is Capital Gain ?

Any profit from the sale of a capital asset is deemed as ‘capital gains’

A capital asset is officially defined as any kind of property held by an assessee, excluding goods held as stock-in-trade, agricultural land and personal effects

Normally if an asset is held for less than 36 months, any gain arising from selling it is treated as a short-term capital gain (STCG) and taxed in your hands

This becomes a ‘long-term’ capital gain (LTCG) if the asset is held for 36 months or more. 

Shares and equity mutual funds alone enjoy a special dispensation on capital gains tax. 

In their case, a holding period of 12 months or more qualifies as ‘long-term’.

Current tax laws state LTCG arising on the sale of listed equity shares or equity oriented mutual funds are exempt from tax if you have paid Securities Transaction Tax (STT) on the sale transaction. 

STCG from such shares and funds is also taxable at a flat 15 % (plus surcharge and cess). 

LTCG on equities is probably exempted, to encourage Indian households to park more of their savings in the stock market, so it can be put to productive use.

The short-term capital loss from financial assets can be set off against any other capital gain.