What do We Mean by Long Term Capital Gain Tax

For the purpose of the taxability capital assets are divided into two category short term asset and long term asset. Any gain or loss arising from long term assets are known as long term capital gain or loss and tax paid or payable on such gain is known as long term capital gain tax. In case of loss from one capital asset it can be used to set off a long term gain from other long term asset.

One of the basic criteria for dividing the assets into long term and short term is period of holding means for how long assets are owned by the person. And as per section 112 of the income tax act,1961 asset is treated as long term if the period of holding i.e. it is owned for more than 36 months but in case financial assets like equity shares, listed securities, units of mutual fund and zero coupon bonds tenure is reduced to 12 months.

Few of the benefits for long term assets are as follows:

  • Long term gain on listed equity share is exempted from tax.
  • Benefit of indexation is available on long term assets, which is like income tax is giving you the benefit of inflation, so that you have to pay tax on gain which is inflation adjusted.
  • Lower rate of tax is applied on long term gain .i.e. is 20% rate of tax and if assessee is not taking the benefit of indexation then only 10% rate of tax is applicable.

When time –period is considered as 12Months

1 

Equity or Pref. shares 

Shares May or may not be listed 

2 

Securities (Debentures, Govt. securities)

Should be listed 

3 

Units of UTI

Units May or may not be listed 

4 

Units of mutual Fund

Units May or may not be listed 

5 

Zero Coupon Bonds 

Bonds May or may not be listed 

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