The capital gains tax rate in India depends on the type of asset sold and the holding period. Here is a quick overview of the capital gains tax rates in India:
Short-term capital gains tax
Short-term capital gains arise from selling assets held for 36 months or less. The tax rates are:
- Equity shares/equity oriented mutual funds: 15%
- Debt mutual funds: Marginal tax rate
- Listed bonds/debentures: Marginal tax rate
- Unlisted bonds/debentures: Marginal tax rate
- Immovable property: Marginal tax rate
Long-term capital gains tax
Long-term capital gains arise from selling assets held for more than 36 months. The tax rates are:
- Equity shares/equity oriented mutual funds: 10% on gains above Rs 1 lakh
- Debt mutual funds: 20% with indexation
- Listed bonds/debentures: 20% with indexation
- Unlisted bonds/debentures: 20% with indexation
- Immovable property: 20% with indexation
Marginal tax rates
The marginal tax rate depends on the tax slab the individual falls under, based on their total income for the year. The marginal tax rates are:
| Total income | Marginal tax rate |
|---|---|
| Up to Rs 2.5 lakh | Nil |
| Rs 2.5-5 lakh | 5% |
| Rs 5-10 lakh | 20% |
| Over Rs 10 lakh | 30% |
Conclusion
In summary:
- Short-term capital gains on equity are taxed at 15%
- Long-term capital gains on equity above Rs 1 lakh are taxed at 10%
- Short-term capital gains on other assets are taxed at the marginal tax rate
- Long-term capital gains on other assets are taxed at 20% with indexation
So in most cases, the capital gains tax rate will be either 15%, 20% or the marginal tax rate applicable to the individual based on their income tax slab. The standard long-term capital gains tax rate is 20% for assets other than equity, while 18% or 28% rates are not applicable in most cases.
Examples
Here are some examples to illustrate the capital gains tax rates:
Example 1
Ramesh sold shares of a company he had purchased 2 years back. The sale proceeds were Rs 3 lakhs. His total income for the year is Rs 8 lakhs.
Since the shares were held for more than 36 months, the capital gains are long-term. Long-term capital gains from equity shares are taxable at 10% (on gains above Rs 1 lakh). So his tax on capital gains will be:
Sale proceeds: Rs 3 lakhs
Less: Purchase price (assumed to be Rs 1.5 lakhs)
Long-term capital gains: Rs 1.5 lakhs
Tax on LTCG of Rs 1 lakh: Nil (exempt)
Tax on LTCG above Rs 1 lakh: 10% of Rs 0.5 lakhs = Rs 5,000
Example 2
Neha sold some land she had purchased 5 years back for Rs 40 lakhs. The purchase price of the land was Rs 25 lakhs. Her total income for the year is Rs 10 lakhs.
Since the land was held for more than 36 months, the capital gains are long-term. Long-term capital gains from land attract 20% tax with indexation.
Sale proceeds: Rs 40 lakhs
Less: Indexed cost of purchase (assumed to be Rs 35 lakhs)
Long-term capital gains: Rs 5 lakhs
Tax on LTCG: 20% of Rs 5 lakhs = Rs 1 lakh
In this case, the LTCG tax rate is 20% as it is a long-term capital gain from land.
Example 3
Rajesh sold some unlisted debentures after holding them for 2 years. The sale proceeds were Rs 2 lakhs. His total income for the year is Rs 6 lakhs.
Since the debentures were held for less than 36 months, the capital gains are short-term. Short-term capital gains from unlisted bonds/debentures attract tax at the marginal tax rate.
Sale proceeds: Rs 2 lakhs
Less: Purchase price (assumed to be Rs 1 lakh)
Short-term capital gains: Rs 1 lakh
As Rajesh’s total income is between Rs 5-10 lakhs, his marginal tax rate is 20%. Therefore, the tax on his STCG will be 20% of Rs 1 lakh = Rs 20,000
In this case, the STCG tax rate is 20% as it is his marginal tax rate.
Tax saving tips
Here are some tips to reduce capital gains tax:
- Hold on to assets for over 36 months to convert short-term gains to long-term gains
- Invest LTCG on equity in specified exempt assets under section 54F to claim exemption
- Sell loss-making assets to set off capital gains
- Invest in capital gain bonds to claim exemption under section 54EC
- Claim indexation benefit on assets other than equity to reduce taxable gains
Conclusion
In summary, the main capital gains tax rates in India are:
- 15% for short-term gains on equity
- 10% for long-term gains on equity above Rs 1 lakh
- Marginal tax rate for short-term gains on other assets
- 20% with indexation for long-term gains on other assets
So standard rates of 18% or 28% are not applicable on capital gains income in most cases. The rate depends on the holding period, type of asset sold and the taxpayer’s income level.