LTCG Full Form and Tax Implications on Real Estate Investment

Residential properties, vacant plots, equity-oriented mutual funds, government securities, UTI, zero-coupon bonds, and shares (both equity and listed) are among the assets subject to these taxes. Read on to learn all about long-term capital gain tax.

When it comes to LTCG on sale of property, the tax rate is generally 20% with indexation benefits. The long-term capital gain tax on property applies when a residential property is sold after holding it for more than 24 months. The difference between short-term and long-term capital gain lies in the holding period and tax rates, with LTCG typically enjoying lower tax rates and indexation benefits. Additionally, LTCG on sale of land and other immovable properties is also subject to similar tax regulations, making it essential to plan transactions wisely to optimize tax liabilities.

What is Long-Term Capital Gain?

According to Section 45 of the Income Tax Act, 1961, long-term capital gains are defined as the profit or gain resulting from the transfer of a capital asset and are subject to income tax under the head ‘Capital Gains’ for the year it occurs.

In the LTCG meaning, capital assets are any assets owned by an individual, regardless of their connection to their profession or business. This includes LTCG tax on property, which applies when a property is held for more than 24 months before being sold.

It also has foreign institutional investors’ securities under SEBI regulations. The LTCG tax rate on property may vary based on asset types, but thoughtful planning can help you minimize the burden while maximizing returns.

In the LTCG meaning, capital assets are any assets owned by an individual, regardless of their connection to their profession or business.

It also has foreign institutional investors’ securities under SEBI regulations.

What is Long-Term Capital Tax?

• LTCG Tax applies when one sells assets after a certain period. The long-term capital gain tax rate is 10% for stock and equity mutual fund gains.
• Combined with indexation, the LTCG tax rate on gains on real estate, debt funds, and other assets is 20%.
• Before 2018, stocks and mutual funds did not have LTCG, but Budget 2018 introduced LTCG tax.

Up to ₹ 1 lakh per year, gains in these assets have been exempt from LTCG since 31st Jan 2018.

Long-Term Capital Gain Tax on Property

Currently, long-term capital gain and short-term capital gain taxes are determined by the type of asset class, the tax rate, and the individual’s residency status. Owning a house, land, or other immovable property for at least 24 months is necessary to consider long-term gains. The Long-term capital gain tax rate for AY 2023 24 on gains from houses, other immovable property, or debt mutual funds is 20 per cent with indexation.

Long-Term Capital Gain Tax on Shares

An asset’s capital gains are considered long-term if sold after a specified period after purchase. It is considered a long-term investment if one holds listed equity-oriented mutual funds or equity shares for over 12 months. The holding period for unlisted equity shares (such as shares of a foreign company) should be at least 24 months.

LTCG is also taxed differently depending on the asset class. A listed equity share and equity-oriented mutual fund’s capital gains are taxed 10% (without indexation) if they exceed Rs 1 lakh in the financial year.

Long-Term Capital Gain Tax Calculation

The Income Tax Act defines the mode of computing tax on long-term capital gains in section 48. One may deduct the following deductions from the total consideration received or accrued to calculate the capital gains attributed to the transfer of a capital asset:

1. Expenses incurred in connection with the transfer
2. Acquisition costs
3. Improvement costs

Here are the explanations of the terms mentioned above.

Value of Consideration:

The amount the seller receives when transferring a capital asset. It is important to note that the tax will be charged in the year the consideration is received, regardless of when the capital asset was transferred.

Cost of Acquisition:

The amount the seller paid for the capital asset when it was bought or acquired.

Cost of Improvement:

Expenses incurred by the seller when adding or modifying the asset.

Cost Inflation Index:

As notified by the Central Government, an average rise of 75% in urban consumer price Index (CPI-U) for urban-manual employees.

Long-Term Capital Gain Tax Exemption

The Income Tax Act provides the following LTCG exemption limits:

Capital Gains Account Scheme Investments:

Capital gains from capital asset sales are tax-free when invested in CGASs.

MFI longer than one year:

Investments up to Rs. 1 Lakh in mutual funds that have been held for more than a year may be eligible for tax-free returns.

LTCG on sale of property:

The gains on the reinvestment of proceeds from the sale of property are tax-free if reinvested within one or two years of the sale.

Conclusion

LTCGs are taxed lower than short-term capital gains, and, among many long-term assets, property investment is considered very safe. It can create wealth in the long run and preserve the invested amount. But not every property appreciates at the same rate.

To make the most of your ltcg on house property, choosing properties with high growth potential is essential. Thoughtful investment planning not only helps you optimize your returns but also ensures favorable long-term capital gains tax on property. By selecting the right investments, you can secure your financial future while reaping substantial tax advantages.

For example, Piramal Realty’s luxurious Mumbai homes are one of the best investment options in Mumbai’s real estate market for their immense growth potential. These posh homes are equipped with modern amenities and are located in some of the best places in and around Mumbai.

Disclaimer- This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.