Holding Period for Capital Gains Tax

As defined by the Income Tax Act, capital gains refer to the profit earned from the sale of assets or investments when the selling price exceeds the original purchase price.

These assets can include shares, bonds, property, and other investments. The difference between the sale price and the purchase price is the profit earned by the assesee (person who has invested and is liable to pay tax) in the financial year.

Capital gains are a type of earning and are considered taxable income in India. However, the specific tax liability can vary significantly with factors such as the duration of asset holding and the type of asset influencing the tax rate applied.

Primarily, there are two types of capital gains:

Long-term capital gain and

Short-term capital gain.

Below are the specifications provided for both types.

The capital gain period of holding is defined as the duration for which an individual or entity holds an asset before being sold.

The holding period is a critical factor in determining whether a gain is considered long-term or short-term. This period varies based on the type of asset.

Holding Long-term Capital Gain Time Period

12 months for shares and securities listed on a recognised stock exchange, mutual fund units and listed securities like debentures and government securities.

Other assets held for more than 36 months.

Holding period for Short-term Capital Gains

Assets held for 36 months or less

12 months or less for shares and securities listed on a recognised stock exchange, mutual fund units and listed securities like debentures and government securities.

Under the Income Tax Act, capital gains are classified based on the duration of holding the asset before its sale: long-term capital gains (LTCG) and short-term capital gains (STCG).

The distinction between these two types of gains is crucial as it affects the tax rate applied and the tax treatment of the gains.

Note: The above tax provisions are applicable to the assessment year 2024-2025. The holding period and tax rates can be altered with further notification of tax rules or with budget announcements.

Let’s understand the calculation of both long-term and short-term capital gains with an example:

Long-term capital gains are taxed separately, but some short-term gains add to your taxable income. Claiming tax deductions can help you reduce your overall tax liability.

Section 80D of the Income Tax Act offers taxpayers the opportunity to reduce their taxable income by claiming deductions for premiums paid on health insurance policies. This provision is specifically designed to encourage individuals to secure a mediclaim policy for themselves and their family members, thereby promoting health security.

At Tata AIG, we provide medical insurance plans at a very affordable cost with features like dental insurance and more as per your requirements. One can also get critical illness insurance with an online purchase facility.

Understanding short-term and long-term capital gain period of holding and the associated tax implications as per the Income Tax Act is crucial for effective financial planning and tax efficiency.

Moreover, the Income Tax Act offers several avenues for tax saving and exemptions under different sections beyond the scope of capital gains.

Efficient tax planning involves exploring options such as investments under Section 80C, health insurance premiums under Section 80D, and interest on home loans under Section 24, among others. Balancing these investments with capital gains planning can significantly reduce your taxable income, leading to substantial tax savings.