What Is Capital Gains Tax?
India levies a tax on capital gains including gains on sale of shares. Such a tax is decided on by the Finance Ministry. (Photographer: Prashanth Vishwanathan/Bloomberg)

What Is Capital Gains Tax?

This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.

Capital Gains Taxation: Definition, Meaning & Basics

Returns generated on sale of assets such as shares are capital gains and subject to tax. Capital gains occur when an investor sells the asset, say shares, at a higher price than the price at which the shares were purchased by her. Tax levied on such gains is known as capital gains tax.

For the purpose of taxation, capital gains are classified into two categories in India and across many countries: Short term capital gains and long-term capital gains.

Shares which are sold within one year from the date of purchase are subject to short term capital gains tax if the investor has made a gain when selling shares. Such gain is taxed at a flat 15%. However, these shares must have been traded on a stock exchange and STT should have been paid on these shares.

Long term capital gains are subject to taxation of 10% if shares are sold after one year of purchase. However, long term capital gains apply only after gains from sale of shares in a year exceed one lakh rupees.

Gains made on shares traded off-stock exchanges on which STT has not been paid, are taxed at separate rates.

Capital gains on share sale can be set off against capital losses under certain income tax rules.

Visit the Financial Terms section for more.

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