Part 7: Capital Gains Tax on Stocks, Mutual Funds & Property

If you invest in the stock market, mutual funds, or own property, you need to understand capital gains taxation. Getting this wrong can result in unnecessary tax payments or, worse, penalties from the Income Tax Department.

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📊 Equity Shares & Equity Mutual Funds (STT Paid)

Short-Term Capital Gains (STCG)

• Holding Period: 12 months or less.
• Tax Rate: 20% (flat, regardless of your income slab).
• No exemption threshold.

Long-Term Capital Gains (LTCG)

• Holding Period: More than 12 months.
• Tax Rate: 12.5% on gains exceeding ₹1,25,000 in a financial year.
• Exemption: Gains up to ₹1.25 Lakh per year are completely tax-free.
• No indexation benefit for listed equity.

Example

You buy shares worth ₹5 Lakhs and sell them after 18 months for ₹8 Lakhs.

• Gain = ₹3,00,000
• Exempt = ₹1,25,000
• Taxable LTCG = ₹1,75,000
• Tax = 12.5% x ₹1,75,000 = ₹21,875 (+ 4% cess = ₹22,750)

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📊 Debt Mutual Funds

For units purchased on or after April 1, 2023:

• All gains (regardless of holding period) are taxed at your income tax slab rate.
• No LTCG benefit. No indexation.
• Treat them like Fixed Deposits for tax purposes.

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🏠 Real Estate Capital Gains

Short-Term (held 24 months or less)

• Taxed at your slab rate (up to 30% + cess).

Long-Term (held more than 24 months)

• Tax Rate: 12.5% (without indexation for properties purchased after 23-Jul-2024).
• For properties purchased before 23-Jul-2024, grandfathering rules may apply — you can choose between 12.5% (without indexation) or 20% (with indexation), whichever is lower.

Section 54 — Exemption on Reinvestment

• If you sell a residential property and use the proceeds to buy another residential property within 2 years (or construct within 3 years), the capital gains are exempt.
• Alternatively, deposit the gains in a Capital Gains Account Scheme (CGAS) at a bank until you purchase the new property.

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🎯 Tax-Loss Harvesting for Investors

This is a powerful, legal strategy to reduce your LTCG tax liability to zero every year.

How It Works

1. Near March 31, review your stock/MF portfolio.
2. If you have unrealized LTCG below ₹1.25 Lakh, do nothing.
3. If you have unrealized LTCG above ₹1.25 Lakh, sell enough shares/units to book gains up to ₹1.25 Lakh.
4. Immediately re-buy the same shares/units.
5. Result: You have “reset” your purchase price to the higher value, and the ₹1.25 Lakh gain is tax-free.

Example

• You hold ELSS units bought at ₹5 Lakh, now worth ₹6.5 Lakh (₹1.5L gain).
• Sell all, booking ₹1.5L LTCG. First ₹1.25L is exempt. Tax on ₹25K = ₹3,250.
• Alternatively, sell only enough to book ₹1.25L gain = ₹0 tax.
• Rebuy immediately. Your cost basis is now reset higher.

Caution

• Applicable only to listed equity and equity MFs.
• Transaction costs (brokerage, STT, stamp duty) apply.
• For mutual funds, exit loads may apply if redeemed within 1 year.

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Next: Part 8 — New vs Old Regime: The Final Verdict →

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← Part 6 | Index | Part 8 →