How does LTCG tax impact you?
There are different tax rates for money made in India. You must pay income tax on any gain from selling assets, just like any other income. Gains from selling stocks, LTCG on shares, real estate, gold, and even original works of art are taxed. Capital gains, whether they are short-term or long-term, are taxed. This article talks about the latter and how it affects money.
What is the tax on long-term gains?
Long-term capital gains tax, or LTCG tax, is the tax you must pay on the increased value of assets you’ve owned for a long time. Some investments can be considered long-term holdings after a shorter time, while others need to be held longer.
Shares of stock and equity-based mutual funds held for more than a year are taxed as LTCG tax. A 10% long-term capital gains tax is levied on stock gains over Rs. 1,000,000 has been held for more than a year (LTCG).
For long-term investments, more than three years is the norm for debt mutual funds. After indexing, long-term capital gains from debt mutual funds are taxed at 20%, no matter your marginal LTCG tax rate. The unit prices of debt mutual funds are adjusted to reflect changes in the general cost of living. It usually makes people pay less in taxes.
The long-term capital gains tax (LTCG tax) is paid on land and buildings owned for more than two years. After indexing, long-term capital gains from real estate are taxed at 20% as debt mutual funds.
After indexing, the LTCG tax rate for gold is 20%. Gold could be a long-term investment if it is kept for at least three years before being sold. LTCG tax also applies to paintings, sculptures, and even cars owned for over three years.
How Does LTCG Tax Affect your Finances?
LTCG tax limit is paid on money made from selling assets that have been owned for a long time. For example, the long-term capital gains tax rate is 20% when an asset bought more than a year ago is sold. You have to count this money as income when you file your taxes. But you don’t have to pay taxes on any money you get as a gift or inheritance. Gifts of property, gold and other capital assets from family are not taxed. LTCG tax is paid on the sale of inherited property.
After the LTCG tax limit goes into effect, you don’t have to pay taxes on the first Rs. 1 lakh of capital gains you make, but you do have to pay a 10% tax on everything else. So, if you made Rs. 1.5 million from LTCG in a given fiscal year, you would owe Rs. 5,000 (10%) in taxes on the Rs. 50,000 above the exempt amount.
Your finances will be affected, but not in the way you think. With the introduction of a tax on long-term capital gains, investors are looking forward to the arrival of unit-linked insurance products (ULIPs) and government bonds, which are not subject to the tax.
Because of this tax, short-term capital gains have become more popular, which is not surprising given that the difference between the two rates has shrunk.
For tax reasons, investors used to wait a full year before selling capital assets, putting themselves at risk of making a loss. Since waiting for more than a year won’t change much or anything about how much money they can save on taxes, they are more likely to sell their assets if they find a better deal.
Investors have found alternatives that work using this strategy, but the LTCG tax has not had the big effect on earnings that was feared at first.
Lowering the Tax Rate on Long-Term Capital Gains
You can cut your costs in several ways without giving up your ability to avoid paying LTCG tax. When you sell real estate, land, or other movable assets, you can put the money you get from the sale into more movable assets or long-term bonds approved by the government.
If you want to avoid paying taxes on your capital gains, you could put the whole amount back into the real estate market. It’s not like selling a house, where you might put all the money you got from the sale into something else. The money made from the sale must be put back into the business. If you sell Rs. 1,000,000 worth of debt mutual funds and make a profit of Rs. 2,000,000, you must reinvest the entire amount in property to get the tax exemption.
Sales taxes Section 54B says that the LTCG tax does not apply to the sale of land used for farming for at least two of the five years before the sale. To get the exemption, the gain must be put into qualifying new agricultural land within two years of the date of the transfer. It is possible to get an exemption.
Also, the land must have been bought more than three years ago for it to be sold for agricultural uses. Landowners who can’t use their capital gains to buy new agricultural property before the deadline for filing their income LTCG tax limit returns can instead put the money into an account at any public sector bank of their choice.
If a person qualifies for certain exemptions, they may be able to cut their overall tax burden by a lot. Because of this, assessors have to make sure they are eligible for all of the exemptions they claim to get a good idea of how much tax they will have to pay on their long-term capital gains from real estate.
Conclusion
India’s tax laws say you may have to pay long-term capital gains tax if you sell a capital asset. This depends on what kind of capital asset you sell. If this LTCG tax limit seems to be a lot, there are ways to avoid paying it. Before you do anything with your capital gains, talk to a tax professional from Piramal Financing House.