A capital market is a common trading platform for the prospective buyers and sellers. Long-term debts or the securities and short-term debts are being acquired by the investors and sold by the respective companies (receivables). The capital market facilitates a flexible pathway for companies and the government who wish to incur long-term lucrative benefits. The tax on long-term capital gain on shares is to ascertain higher productivity and avoid uncertain challenges like a dip in the GST collection.
This article brings you insights on the tax on LTCG on shares. Keep reading to discover more about the concept of long-term capital gain, associated perks and exemption of tax.
Long-term Capital Gains defined
The long-term capital gains (LTCG) on Shares is one the popularly used equipment visible in a high-risk investment environment. It is because the investor will invest in a risk filled situation with no guarantee on good returns or any backup by the company. The entrepreneurial uncertainty can sometimes bring you more losses than gains.
The profit or loss incurred against the sale of an asset which is held beyond the maturation holding period is referred to as Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) respectively.
How does the LTCG tax on shares have an edge over the Short-term Capital Gains on Shares?
Whenever you sell your shares after holding them for at least one year, then it will be considered as the long term capital assets incurred through your share holdings. The LTCG on shares overrides the features of the short-term capital gains on shares.
The tax applied on LTCG on shares is much less than an asset which is being held for less than one year and then sold to acquire gains. It is because the LTCG are taxable on a favourable scale compared to the short-term capital gains (which is a marginal taxable income at the deliberated rates). In this way you can bring down the tax on capital gains on shares by holding an asset for more than one year.
Holding period of a capital asset
Listed below in brief is the total holding time on the sale of an asset by the company.
- When the equity shares of a local (domestic) enterprise are listed on a prominent stock exchange space, the holding time is 12 months.
- When the equity shares of a local (domestic) enterprise are not being listed on a prominent stock exchange space, then the holding time is 24 months.
- Despite the listing or no listing of the equity shares of a foreign enterprise, the holding time is 24 months.
- For the equity-backed mutual funds or Exchange Traded Funds Funds (ETFs), the holding period is 12 months.
- For debt-backed mutual funds or Exchange Traded Funds (ETFs), the holding time is 36 months.
- The debentures and corporate bonds listed on an established stock exchange have a holding period of one year.
- The debentures and corporate bonds which are not being listed on an established stock exchange have a holding period of 36 months.
- For immovable properties like land, house, buildings etc. the holding period is 24 months.
- Movable assets like jewelry, automobiles, paintings or precious artwork have a holding period of 36 months.
Save tax on LTCG
Despite the taxable amount on LTCG is much approbative for the investors, there is a listed provision for its exemption too! Under Section 54 of the Income Tax Act, taxpayers can propose for the exemption of tax on capital gains, if all the prerequisites are successfully fulfilled. You can also commence a new account under the Capital Gains Account Scheme which will help you to invest in sectoral assets and thereby refrain from tax on capital gains.
This beginner guide will help you to understand the extensive approach of paying tax on capital gains on shares. The taxes imposed on LTCG on shares comparatively reduces once you acquire the asset for one year or more. However if this is acting as a hindrance to manage your investment portfolio smoothly, then you can opt for exemption of tax to balance the prospective gains and the uncertain losses.