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Capital gains are profits made from selling capital assets. Some examples of capital assets are land, property, jewelry, mutual funds, shares, and art & collectibles. As per income tax laws, you need to pay tax on any capital gains. The amount of tax depends on whether you've made short-term capital gains or long-term capital gains.
Short-term capital gains are the profits you make on selling of assets, which you have held for a short term as per income tax laws. The tax on short-term capital gains varies by the asset type.
Based on asset type, there are two types of short-term capital gains:
Section 111A is applicable to any short-term gains made from investments in equity or equity-based mutual funds. For such instruments, short-term is considered as 1 year. As per Section 111A, such short-term capital gains are taxed at a flat rate of 15%.
Example 1: Say, you purchased shares of a certain company for ₹100,000 and sold them after 9 months for ₹150,000. Since you sold the shares within 1 year, this gain will qualify as a short-term capital gain under section 111A. In such a case, the short-term gain is ₹50,000 (₹150,000 less ₹100,000), and the short-term capital gain tax will be ₹7,500 (15% of ₹50,000).
Any short-term capital gains outside the scope of 111A are taxed as per your normal income tax rates. Again, the definition of short-term varies by assets as listed below.
|Less than 1 year|
|Less than 3 years|
So if you sell gold or real estate under 3 years, these gains will be short-term capital gains outside of 111A. The tax on these gains will be calculated as per your normal income tax rates. Same is the case of bonds or debts sold under 1 year.
Example 2: Suppose your annual income is ₹10,00,000, and you have made a short-term gain of ₹50,000 by selling some gold (that you've held for less than 3 years). This amount of ₹50,000 will be added to your taxable income, and you will have to pay tax on ₹10,50,000 at normal income tax rates.
Use our tax calculator to calculate the impact of short-term capital gains (both 111A and non-111A) on your taxable income.