Capital Gain of Immovable Property & Other Assets Held For More Than 2 years and 3 Years Respectively.

NRIs CORNER - Long Term Capital Gains OF Immovable Property & Other Assets

Like most advanced nations, India also has a pragmatic approach while taxing gains arising out of Sale of Capital assets. By taxing gains on Long term investments at lower rates the Government indirectly encourages Investments for growth and development rather than trading of capital assets. Tax provisions of such gains from immovable and movable assets are discussed herein:

1. Capital Gains - Meaning:

.01  Profits and gains earned upon sale of any immovable or movable assets are taxed under the head of "Capital Gains" under the Income Tax Act, 1961.

.02 Capital Gain will arise at the time of transfer i.e., sale, exchange, partition of family, relinquishment etc.

.03  Such gains are classified as "Long Term Capital Gains (LTCG)" if the assets are held for a period of more than 24 months in case of Immovable property or Shares of a Company (not being a share listed in a recognised stock exchange in India) and 36 months in any other asset and as "Short Term Capital Gains (STCG) if held for lesser period.

.04  Gains on Shares of a Company or Equity or Balanced schemes of Mutual Funds are defined as LTCG if the same are held for more than 12 months. Debt schemes of Mutual Funds are defined as LTCG if the same are held for more than 36 months.

2.Capital Gains - Computation:

.01  While calculating the LTCG, Indexed cost will replace the actual cost except in case of unlisted securities and shares of Private limited company.

.02  Indexed cost is computed increasing the purchase price by notified cost of living index for each year of holding.

.03  LTCG are arrived at by deducting such indexed cost from the sale price.

.04  In case of immovable properties, sale price is to be replaced by the valuation of the property determined by the State Registrar for Stamp Duty payable by the buyer if the same is higher.

3.Tax Rates:

.01  LTCG on listed equity shares and equity schemes of mutual funds subject to security transaction tax (STT) are exempt from tax upto Rs.1 Lakh.  

.02  LTCG from securities listed in India, Units of Indian Mutual Funds and Zero Coupon Bonds shall be taxed at 20% after indexation. 

.03  LTCG on unlisted securities and shares of private limited company shall be tax at 10 % without benefit of indexation.

.04  Other LTCG are taxed at 20% after Indexation.

.05  STCG of equity shares and equity schemes of MFs subjected to STT are taxed at 15%.

.06  STCG of other assets are taxed at normal rates of applicable tax on total income.

4.Tax Exemptions:

.01  Capital gains of any house property and other movable assets will be exempt from tax if the same are invested in purchase of a house property; Capital gains bonds etc. which are discussed in details under appropriate topics here with. 

5.Disadvantage NRIs:

.01  Non Resident are at a disadvantage as against residents as re: LTCG of all assets or STCG of listed shares or Mutual Fund Units as the basic threshold exemption limit is not deductible while computing the tax on said capital gains in case of Non-Residents.

.02  Thus a Non-Resident will be paying tax on Gross amount of said LTCG or STCG irrespective of basic threshold exempt limit of INR 2, 50,000.

.03   And as such entire LTCG will be taxed at 20% subject to indexation.

.04 STCG of listed shares or Mutual Funds Units will be taxed at 15% from the 1st Rupee gain.