What Is The Long-Term Capital Gain Tax Rates In 2022?
Indians primarily used real estate, equities and gold as tax planning vehicles before 2018. In 2018, Long-Term Capital Gain Tax was introduced on equities and equity mutual funds. Today, Long-Term Capital Gains Tax is levied on different capital assets, equities, real estate properties, fixed-income securities, mutual funds, Exchange Traded Funds etc.
Long-Term Capital Gains Tax Under Budget 2022
Long-term capital gains tax under the Budget 2022 remained the same for various categories of assets. Only the surcharge of capital assets like real estate, artefacts and unlisted shares was capped at 15% p.a. For your easy reference, the analysis of capital gains tax rates of different capital assets is given below.
Surcharge on LTCG tax under Budget 2022
If you are a high net worth individual with income ranging from 2 crores to 5 crores holding real estate, unlisted shares or artefacts, your surcharge will come down from the previous 25% – 37% to only 15% p.a.
Long-term Capital Gains Tax on equities and equity mutual funds
The Financial budget of 2018 introduced Long-Term Capital Gains Tax when you sell equities after one year of holding. This was pegged at 10% p.a. The concept of grandfathering was introduced to value assets at fair market value on 31 January 2018 to value long-term capital gain. A tax exemption on long-term capital gains of up to Rs 1 lakh was given. Finance Minister Nirmala Seetharamanji left the LTCG tax rate unchanged at 10% p.a.
Illustration to calculate Long-Term Capital Gains Tax on equities:
Suppose you have an equity mutual fund holding bought for Rs 1,50,000. After one year, you sell it for Rs 385,000. The calculation of LTCGtax is as follows:-
|S.No||Particulars||Amount in Rs.|
|1||Cost of acquisition of the equity shares/fund||Rs 1,50,000|
|2||Sales value of equity/equity mutual Fund||Rs 385,000|
|3||Long-term capital gains||Rs 2,35,000|
|4||Long-term capital gains after exemption up to Rs 1,00,000 (3-1,00,000)||Rs 1,35,000|
|5||LTCG Tax rate is 10% after one year of holding after exemption ( 4* 10%)||Rs 13,500|
Long-Term Capital Gains Tax on fixed-income securities, bonds and bond mutual funds
If you hold debt mutual funds, debt securities or debt ETFs and sell them after three years, you pay an LTCG tax of 20%. CPI Index refers to the Cost of Inflation Index. Of course, you get the benefit of indexation. Indexation means that the cost of your debt fund holdings is increased proportionately to reflect the increase in the CPI index up to the date of sale. If the CPI index on your purchase date is 100 and CPI Index on the date of sale is 150, then your cost of debt funds is inflated by 50%. This is then subtracted from the market price of the debt to calculate the long-term capital gains tax on your bond fund. CPI Index refers to the different levels of the Cost Price Index, which indicates the prevailing inflation rates.
Illustration to show how to calculate long-term capital gains tax on bonds after indexation:
Suppose you purchased a debt fund in April 2014 at Rs. 10 for 10,000 units. The total acquisition cost is Rs. 1,00,000. You redeemed the same in 2022 at Rs. 25 per unit. The CPI Index was 220 in 2014-2015, and in 2022 the CPI Index will be 300. How would you calculate the Long Term Capital Gains Tax for this sale?
|S.No||Particulars||Amount in INR|
|1||The purchase cost of debt Fund in 2014||Rs 1,00,000|
|2||Sale Value of the debt fund in 2022||Rs 2,50,000|
|3||Purchase cost with indexation in 2022( 1* 300/220)||Rs 1,36,363|
|4||Profit on sale (2-3)||Rs 113636|
|5||LTCG Tax (20% after 3 years)(4*20%)||Rs 2,727.2|
Long-Term Capital gains Tax on Systematic Investment Plans
If you are doing Systematic Investment Plans (SIPs), the underlying investment is typically equity or debt, so the tax rates that apply to equity or debt investments are used. Each of your instalment payments is treated as a separate investment. You must pay long-term capital gains on the gains from each instalment separately at the applicable rate.
Long-Term Capital Gains Tax on Real estate properties
The LTCG tax rate on real estate properties is 20%.
Illustration to show the calculation of Long-Term Capital Gains tax with indexation:
Suppose you acquired a property in 2005 at Rs. 1 crore. In 2008, you sold the property for 1.75 crores. You also made improvements on the property for Rs 20,00,000 in 2006. Costs relating to the transfer incurred by you are Rs 5 Lakhs. The CPI Index in 2005 stood at 117 and 137 in 2008. The CPI Index in 2006 was 122. Your period of holding is three years. The calculation of long-term capital gain made by you is as follows:
Illustration to show the calculation of Long term capital Gain tax on your real estate property:
|S.No||Particulars||Amount in Rs|
|1||Cost of acquisition of house property||1,00,00,000|
|2||Sale Value of house property||1,75,00,000|
|3||Long term Capital gain without Indexation||75,00,000|
|4||Cost with Indexation 1* 137/117||1,17,09,401|
|5||Add the cost of improvement after indexation (20,00,000*137/122)||22,45,901.63|
|6||The total cost of the property after indexation (4+5)||1,39,55,302|
|7||Capital Gain after indexation (2-6)||35,44,698|
|8||Fewer expenses of transfer||5,00,000|
|9||Net long-term capital Gain after expenses (7-8)||30,44,698|
|10||Long-term Capital Gains tax at 20%||6,08,939.6|
The article covers the Long-Term Capital Gains Tax implications for important capital assets, including equity, debt and real estate. As mentioned earlier, Budget 2022 left the Long- Term capital gain tax rates unchanged except for reducing the surcharge to 15% on specific capital assets. To read more such articles, visit the Piramal Finance website. https://www.piramalfinance.com/
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