Long Term Capital Gain

Long Term Capital Gain

1. What is Long term Capital Asset?
2. What are the benefits of selling as asset when it becomes long term capital asset?
3. How we can calculate long term capital gain?
4. Which are the assets for which the holding period of more than 12 months is considered as long term for capital gain calculation?
5. What are the rates of income tax on long term Capital Gain?
6. If long term capital gain is eligible for deduction u/s 80C to 80U?
7. If we can avail basic exemption limit from long term capital gain?

1. What is Long term Capital Asset?

Long Term Capital Assets: -

When a capital asset is held for more than 36 months in general is classified as long term capital asset. However for few categories holding period shorter than 36 months have been classified as long term capital asset, which are as follows:-

1. In case of equity shares of a company, units of an equity orient
2. ed mutual fund or units of business trust, which are recognised in stock exchange & securities transaction tax is applicable, the holding period more than 12 months is considered as long-term for capital gain/loss.

3. In case of unlisted equity shares, period of holding of more than 24 months is considered as long term for capital gain/loss.

4. In case of Immovable property being land or building or both, the period of holding more than 24 months is considered as long-term for capital gain/loss.

5. In case of all other capital assets, the period of holding more than 36 months is treated as long term for capital gain/ loss.

2. What are the benefits of selling as asset when it becomes long term capital asset?

There are 3 benefits of selling a long term capital asset than a short term capital asset:

1. Generally it has lesser rate of income tax than short term unless we are in lower slab of income.
2. In case of long term capital asset, it qualifies for indexation so we get the benefit of lower capital gain by inflating the cost by indexation rates.
3. Many exemptions from income tax are available u/s 54 to 54F in case of reinvestment of long term capital gains.

3. Which are the assets for which the holding period of more than 12 months is considered as long term for capital gain calculation?

Following assets are considered as long term capital assets if they are hold for more than 12 months:-

• • Equity shares or preference shares of an Indian Company listed on recognised stock exchange.
  • Debentures, bonds, govt or other securities listed on a stock exchange in India.
  • Zero coupon bonds, whether quoted or not
  • Units of equity oriented mutual funds whether quoted or not
  • Units of unit trust of India, whether quoted or not.

4. How we can calculate long term capital gain?

Following are the steps to calculate long term capital gain:

Step 1: Take the full value of consideration or the full sale proceeds

Step 2: Deduct the indexed cost of acquisition

Indexed cost = original cost * indexation factor of the year of transfer/ Indexation factor of year of original purchase

           Step 3: Deduct the indexed cost of improvements if any (Improvements means any capital expenditure on any substantial part

           or which helps the life of asset to be longer.)

Step 4: Deduct any expenditure incurred for the purpose of that transfer only

           Step 5 : Calculate & Deduct Exemptions applicable u/s 54 to 54F

           Balance amount will the amount of long term capital gain

5. What are the rates of income tax on long term Capital Gain?

Following are the rates of income tax on long term capital gain:

1. Long term capital gain on sale of immovable property or land is taxable at the rate of 20% after indexation of cost of acquisition. The holding period of more than 24 months is required to make a capital asset being land or building or both as long term capital asset.
2. Long term capital gain on shares or securities (Assets falling u/s 111A) where securities transaction tax is applicable is 10% for long term capital gain in excess of 1 lac. Also, to note that in this type of securities the holding period more than 12 months is considered as long-term capital gain/ loss.
3. Tax rate on long term capital gain an any other movable or immovable asset is the 20% after indexation on cost of acquisition and cost of improvements. For unlisted shares holding period of more than 24 months is considered as long term, for other than above assets, the holding period of more than 36 months is considered as long term.

6. If long term capital gain is eligible for deduction u/s 80C to 80U?

No, long term capital gain is not eligible for deductions u/s chapter VIA from section 80C to 80U.

7. If we can avail basic exemption limit from long term capital gain?

           Yes, we can avail basic exemption limit from long term capital gain but only after reducing all other taxable income.