graph

Long-term capital gains tax, or LTCG

Kartik Jhaveri

Reader’s Corner: After LTCG tax, will realty replace equity as asset class?

How you can smartly use the systematic exit route to avoid LTCG tax

<div>
	Capital gains mean the profit earned by an individual on the sale of his investment in assets such as stocks, real estate, bonds, commodities, etc. Basically, it is the &#39;gain&#39; made on &#39;capital investment&#39;. In some tax jurisdictions &mdash; a country, state or city &mdash; capital gains are taxed if an individual sells an asset after holding it for a certain &#39;long&#39; period. This period is often twelve months. However, it could also be defined differently for various assets.&nbsp;</div>
<div>
	&nbsp;</div>
<div>
	In India, &#39;long-term&#39; and &#39;short-term&#39; are defined by the Income Tax Act, 1961. While a holding period of one year is considered &#39;long-term&#39; for equities, the same is two years for real estate.&nbsp;</div>
<div>
	&nbsp;</div>
<div>
	The Union Budget 2018 proposed to levy long-term capital gains tax (LTCG) of 10 per cent on gains exceeding Rs 100,000 from sale of equity shares. However, no change was made in the definition of short-term capital gains tax (STCG).</div>
<div>
	&nbsp;</div>
<div>
	LTCG on sale of shares / stocks was removed in 2005, making India one of the most liberal stock market regimes. However, there were demands from a section of stakeholders that the LTCG tax on equities be brought back. The BSE had reportedly told the government that the revenue forgone on the LTCG tax exemption on listed securities could be as high as Rs 50,000 crore per year.</div>
<div>
	&nbsp;</div>
<div>
	Another change that was made in the Union Budget 2018 was that an individual could get an exemption by investing long-term capital gains from the sale of house property in up to two house properties, against the earlier provision of investment in one house property with same conditions. However, the capital gains on the sale was restricted at Rs 2 crore for the exemption.</div>
<div>
	&nbsp;</div>
<div>
	The LTCG and STCG tax rates also vary based on the asset class &mdash; they might be different for equities, real estate, bonds, mutual funds etc &mdash; and the income tax slab an individual falls under.</div>
<div>
	&nbsp;</div>

RELATED BUDGET TERMS

Learn what is meant by Long-Term Capital Gains Tax, LTCG definition and more Long-Term Capital Gains Tax news here at Business Standard.

What is Long-Term Capital Gains Tax, LTCG Meaning, LTCG Definition, Long-Term Capital Gains Tax News

What is Long-term capital gains tax, or LTCG

<div>
	Income tax is a direct tax that a government levies on the income of its citizens. The Income Tax Act, 1961, mandates that the central government collect this tax. The government can change the income slabs and tax rates every year in its Union Budget.&nbsp;</div>
<div>
	&nbsp;</div>
<div>
	Income does not only mean money earned in the form of salary. It also includes income from house property, profits from business, gains from profession (such as bonus), capital gains income, and &#39;income from other sources&#39;. The government also often provides certain leeway such that various deductions are made from an individual&#39;s income before the tax to be levied is calculated.&nbsp;</div>
<div>
	&nbsp;</div>
<div>
	<strong>Income Tax Returns</strong></div>
<div>
	&nbsp;</div>
<div>
	Income Tax Returns (ITR) form are the basis of calculating a person&#39;s income tax. It is a statement showing the status of a person, all their sources of revenue, deductions and, lastly, the tax payable or tax refund, if any.&nbsp;</div>
<div>
	&nbsp;</div>
<div>
	<strong>Income Tax slabs</strong></div>
<div>
	&nbsp;</div>
<div>
	What income tax rate a person pays depends on the slab they fall in. The government has categorised incomes into slabs like &mdash; up to Rs 250,000, Rs 250,000-Rs 5,00,000, Rs 5,00,000-Rs 1 million, and more than Rs 1 million. The rates on different slabs might be different based on age groups.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Standard deduction</strong></div>
<div>
	&nbsp;</div>
<div>
	Tax on some components of income can be waived by the government. These tax reliefs are known as standard deductions.</div>

Learn what is Income Tax, Income Tax Definition, Income Tax Planning, Income Tax Returns, Income Tax Slabs, Income Tax deduction and more Income Tax news at Business Standard.

What is Income Tax, Income Tax Planning, IT Returns, Income Tax Slabs

Income tax

<div>
	Through Direct Taxes Code (DTC), the government aims to simplify the structure of direct tax laws in India into a single legislation. The DTC will replace the Income-tax Act, 1961, and other direct tax legislation like the Wealth Tax Act, 1957.</div>
<div>
	&nbsp;</div>
<div>
	<strong>DTC from 2009 to 2014</strong></div>
<div>
	&nbsp;</div>
<div>
	The first draft Direct Taxes Code Bill was released on August 12, 2009, and then a Revised Discussion Paper (RDP) was in 2010.</div>
<div>
	&nbsp;</div>
<div>
	DTC 2010 was introduced in Parliament and the government formed a Standing Committee of Finance (SCF) to discuss it with various stakeholders. The SCF submitted its report to Parliament in 2012. The government took into account the recommendations of the SCF and a &#39;revised&#39; version of DTC was released in 2014. However, it lapsed when the NDA government came to power that year.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Direct Taxes Code from 2017 to 2019</strong></div>
<div>
	&nbsp;</div>
<div>
	In 2017, Prime Minister Narendra Modi-led government set up an expert committee to draft a new Direct Taxes Code. The report of the task force on DTC was submitted to Finance Minister Nirmala Sitharaman on August 19, 2019. It is yet to be made public. Akhilesh Ranjan, a CBDT member, is the head of the task force. The other members of the task force are Girish Ahuja (chartered accountant), Rajiv Memani (chairman and regional managing partner of EY India), Mukesh Patel (Practising Tax Advocate), Mansi Kedia (Consultant, ICRIER) and G C Srivastava (retired IRS and Advocate).</div>
<div>
	&nbsp;</div>
<div>
	<strong>Direct Taxes Code 2.0</strong></div>
<div>
	&nbsp;</div>
<div>
	According to a <a href="https://www.business-standard.com/article/economy-policy/direct-tax-code-2-0-task-force-for-big-relief-to-individual-taxpayers-119082000023_1.html" target="_blank">Business Standard report</a>, the expert panel has recommended a significant increase in the highest income-tax slab, besides slashing the corporation tax rate to an even 25 per cent for both domestic and foreign companies. Income taxpayers earning up to Rs 55 lakh a year might end up with a major tax relief if the panel&rsquo;s recommendation to change the tax bracket and rebates is accepted.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Key points of Direct Taxes Code 2.0</strong></div>
<div>
	&nbsp;</div>
<div>
	&mdash; Those earning up to Rs 55 lakh may get major tax relief</div>
<div>
	&nbsp;</div>
<div>
	&mdash; Foreign firms may have to pay branch profit tax</div>
<div>
	&nbsp;</div>
<div>
	&mdash; Dividend distribution tax may be done away with</div>
<div>
	&nbsp;</div>
<div>
	&mdash; A slew of incentives for start-ups</div>
<div>
	&nbsp;</div>
<div>
	&mdash; Assessing units to replace assessment officers</div>
<div>
	&nbsp;</div>
<div>
	&mdash; Mechanism of mediation between taxpayers and CBDT</div>
<div>
	&nbsp;</div>
<div>
	&mdash; Proposed DTC to have far fewer sections than over 700 in the Income Tax Act&nbsp;</div>

Learn what is Direct Taxes Code, what is Direct Tax Code 2.0, Taskforce on Direct Tax Code news, Direct Tax Laws, Income tax Surcharges at Business Standard.

What is Direct Taxes Code | Direct Tax Code 2.0 News | Direct Tax Laws

Direct Taxes Code

<div>
	Securities transaction tax (STT) is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India. STT is governed by the Securities Transaction Tax Act (STT Act). Taxable securities include equity, derivatives, unit of equity-oriented mutual funds, unlisted shares sold under an offer for sale to the public included in initial public offering (IPO) and where such shares are subsequently listed in stock exchanges.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Introduction of STT</strong></div>
<div>
	&nbsp;</div>
<div>
	This tax was introduced in Union Budget 2004 and came into effect from October 1, 2004. The aim behind the introduction of STT was curbing evasion of capital gains tax on profits earned by transacting in securities.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What is STT rate? How is STT calculated?</strong></div>
<div>
	&nbsp;</div>
<div>
	The rate of STT is decided by the govt and it is similar to a tax paid at the source. The provisions of collection of STT work in a manner as tax deducted at source (TDS). STT is collected by a recognised stock exchange or lead merchant banker in case of an IPO. The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale. For example, while buying an equity share, both the purchaser and the seller have to pay 0.1 per cent of the share value as STT.<br />
	<br />
	<table border="1" cellpadding="1" cellspacing="1" style="width: 500px">
		<tbody>
			<tr>
				<td>
					<span style="color:#800000;"><strong>Taxable securities transaction</strong></span></td>
				<td>
					<span style="color:#800000;"><strong>Rate of taxation</strong></span></td>
				<td>
					<span style="color:#800000;"><strong>Payable by</strong></span></td>
			</tr>
			<tr>
				<td>
					Sale of an option in securities</td>
				<td>
					0.017%</td>
				<td>
					Seller</td>
			</tr>
			<tr>
				<td>
					Sale of an option in securities, where option is exercised</td>
				<td>
					0.125%</td>
				<td>
					Purchaser</td>
			</tr>
			<tr>
				<td>
					Sale of a futures in securities</td>
				<td>
					0.01%</td>
				<td>
					Seller</td>
			</tr>
		</tbody>
	</table>
</div>
<br />

Learn what is Securities transaction tax, Securities transaction tax Definition, What is STT rate and more Securities transaction tax news at Business Standard.

What is Securities transaction tax, What is STT, What is STT rate, Securities transaction tax Definition

Securities Transaction Tax (STT)

<div>
	Short-term capital gain tax (STCG) is a tax levied on capital gains from the sale of an asset held for a short period.</div>
<div>
	&nbsp;</div>
<div>
	<strong>What are capital gains?</strong></div>
<div>
	&nbsp;</div>
<div>
	The gains or profits from sale of capital assets are classified as capital gains. The most common examples of capital assets are land, building, house property, gold, trademarks, equity shares, patents, leasehold rights, machinery, etc. If a capital asset is sold within government-defined short-term holding period, gains from it are known as short-term capital gains.</div>
<div>
	&nbsp;</div>
<div>
	<strong>How is STCG tax calculated?</strong></div>
<div>
	&nbsp;</div>
<div>
	After taking full value of an asset into account, deduct the expenditure incurred in connection with the transfer. Also, deduct the cost of acquisition and improvement costs. The remainder amount is the short-term capital gain, which is then taxed under STCG.</div>
<div>
	&nbsp;</div>
<div>
	<strong>How is short-term holding period defined?</strong></div>
<div>
	&nbsp;</div>
<div>
	The short-term holding period differs for various items. For security assets like shares listed on stock exchange, debentures, mutual funds, and government securities, the holding period is up to 12 months. For other immovable assets, such as land, property, the period is up to 24 months.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Taxation and exemptions with rest to short-term capital gains</strong></div>
<div>
	&nbsp;</div>
<div>
	For securities, the tax rates are discussed under Section 111A of the Income-Tax Act. For instance, the short-term capital gains tax levied on listed equity shares is 15 per cent.</div>
<div>
	&nbsp;</div>
<div>
	There are certain exemptions to taxation on securities which do not fall under Section 111A. Short-term capital gains on sale of equity shares through unrecognised stock exchange, gains due to sale of any shares apart from equity shares, among others, do not attract any tax.</div>
<div>
	&nbsp;</div>
<div>
	In real estate, all property transactions attract short-term capital gains tax, provided property transfer happens within 24 months of ownership/purchase. Inherited property does not attract short-term capital gains tax. However, if one sells the inherited property, one has to pay tax on it. When short-term capital gains tax is levied on non-securities (such as property), it is added to the income-tax return, and the taxpayer is taxed according to their income-tax slab.</div>
<div>
	&nbsp;</div>
<div>
	Individuals who wish to claim deductions or exemptions on short-term capital gains can do so under Sections 80C to 80U of the Income Tax Act, provided short-term capital gains do not fall under Section 111A. In cases where gains fall under the ambit of Section 111A, individuals cannot opt for deductions under Sections 80C to 80U.</div>

Learn what is Short-term capital gains tax, Short-term capital gains tax Definition, STCG tax and more Short-term capital gains tax news here at Business Standard.

What is Short-term capital gains tax, STCG tax, Budget News, Short-term capital gains tax Definition

Short-term capital gains tax (STCG)

<div>
	As the name suggests, direct taxes are thoe that are levied directly on taxpayers &mdash; the income-tax, wealth tax, corporation tax, etc. In other words, it is a type of tax where the impact and the incidence fall under the same category.</div>
<div>
	&nbsp;</div>
<div>
	Direct taxes in India are overseen by the Central Board of Direct Taxes (CBDT). It was formed as a result of Central Board of Revenue Act, 1924.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Some examples of direct tax:</strong></div>
<div>
	&nbsp;</div>
<div>
	<strong>Income tax</strong>: Income tax is paid by an individual based on his/her taxable income in a given financial year. Taxable income refers to total income minus applicable deductions and exemptions.</div>
<div>
	&nbsp;</div>
<div>
	<strong>Corporation tax: </strong>Corporation Tax is the money paid by companies and businesses on the income earned by them in a given financial year.</div>
<div>
	&nbsp;</div>
<div>
	On September 2019, the central government announced a cut in the rate of corporation tax for domestic companies to 22 per cent from 30 per cent previously. This brought effective corporation tax rate, including all additional levies, to about 25.2 per cent, for companies that do not receive any incentives or exemptions.</div>
<div>
	&nbsp;</div>

Learn what is Direct Tax, Direct Tax Definition, Direct Tax News and more here at Business Standard.

What is Direct Tax, Direct Tax Definition, Direct Tax News

Direct Tax

<div>
	Dividend Distribution Tax (DDT) is a tax levied on dividends distributed by companies out of their profits among their shareholders.</div>
<div>
	&nbsp;</div>
<div>
	The Dividend Distribution Tax is taxable at source and is deducted at the time of the distribution. According to the law, DDT is levied at the hands of the firm, and the shareholder. An exception is that when a shareholder receives more than Rs 10 lakh in dividend, they have to pay an additional tax.</div>
<div>
	&nbsp;</div>
<div>
	Under the Income Tax Act, any domestic firm which is distributing dividends has to pay DDT at the rate of 15 per cent of the gross amount. At different times, governments of the day have imposed and removed Dividend Distribution Tax according to market needs.</div>
<div>
	&nbsp;</div>
<div>
	The Dividend Distribution Tax has to be paid to the government within 14 days of the dividend declaration. If not paid within the stipulated time, it has to be paid with an accumulated interest charged at the rate of 1 per cent per month. The tax is paid separately, over and above the company&rsquo;s income tax liability.</div>
<div>
	&nbsp;</div>
<div>
	Brokers, especially on Indian bourses, have been calling for Dividend Distribution Tax to be scrapped, since it leads to significant taxation of corporate earnings, making markets unattractive.</div>
<div>
	&nbsp;</div>
<div>
	Other than DDT, the Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax are some major taxes levied on market instruments.</div>

Learn what is Dividend Distribution Tax (DDT), Dividend Distribution Tax (DDT) Definition, Dividend Distribution Tax (DDT) News and more here at Business Standard.

Page 2 - Latest Updates on Long-term capital gains tax, or LTCG

No SIP, tough midway exits and now LTCG tax take shine off Closed-end funds

Reader's Corner: After LTCG tax, will realty replace equity as asset class?

How you can smartly use the systematic exit route to avoid LTCG tax