In the realm of wealth accumulation, understanding the potential of our assets is paramount. Capital assets encompass an individual's valuable possessions, enabling them to generate income.

These assets may or may not be directly associated with their business or profession, and they can take various forms, including tangible or intangible, movable or immovable property. Examples of capital assets include bonds, mutual funds, jewellery, and different other assets. The gains realised upon the sale of a capital asset are referred to as capital gains.

When a capital asset is held for a period exceeding one year from the date of purchase, it is classified as a long-term capital gain. Such gains are subject to a tax rate of 10% when the profits exceed one lakh rupees. This tax policy has been in effect since April 1, 2018.

Stay tuned for an insightful exploration into the realm of capital assets and long-term capital gains. Of course, understanding how to grow your wealth is imperative, but taking in the intricacies of LTCG taxes is unavoidable. Let's find out why!

What is LTCG?

The long-term capital gain tax is charged on your profits after holding an asset for an extended period. The asset can be bonds, real estate, or shares.

Below is a table that shows how capital assets are classified into short- and long-term capital assets:

When does LTCG become tax-free?

Regarding equity mutual funds, the profits one earns are subject to capital gain taxation. If you sell your equity mutual funds within one year, they fall under the category of short-term capital gains. However, holding the equity funds for a period exceeding one year before selling them is considered long-term capital gains.

Here's an interesting aspect: If you have held the equity mutual funds for more than one year and the profits earned amount to less than one lakh rupees, you are exempt from taxation on those gains. The LTCG tax-free limit is less than one lakh rupees.

Conversely, if you have held the equity funds for more than one year and the profit upon sale exceeds one lakh rupees, you will be subject to a 10% taxation rate on the gain above the one lakh rupee threshold.

How to pay LTCG tax?

Suppose an individual purchased 200 shares from a company in June 2018 at a rate of Rs 1000 per share. But in 2020, he decided to sell all 200 shares at Rs. 1900 per share.

Therefore, the profits earned can be calculated as (200 x 1900) - (200 x 1000) = Rs 3,80,000 - Rs 2,00,000 = Rs 1,80,000.

Here, Rs 1,80,000 can be referred to as a long-term capital gain.

So, the individual has earned a profit of Rs. 1,80,000 after selling the shares.

If he holds the shares for over a year, and the profits are more than Rs 1 lakh, the individual has to pay 10% on Rs 80,000.

So, in short, the individual is liable to pay Rs 8,000 as taxes to the Government of India.

Now let's discuss another example:

Suppose you have Rs 1,60,000 in the ELSS fund and decide to sell it after three years at Rs 2,78,000.

The holding period of the ELSS fund is more than one year. So, the long-term capital gain is (Rs 2,78,000 - Rs 1,60,000) equal to Rs 1,18,000.

Now it exceeds Rs. 1 lakh. Hence, (Rs. 1,00,000 - Rs. 1,18,000) equal to Rs 18,000 will be subjected to taxation.

So, 10% of Rs 18,000 will be Rs 1,800. You are liable to pay Rs. 1800 as LTCG tax.

LTCG Calculator

The LTCG calculator is a valuable utility tool capable of providing a comprehensive analysis of long-term capital gains and tax liabilities associated with equity-oriented mutual funds and capital assets such as gold or property.

Within this calculator, you will find a designated formula box for your input of essential information, including:

• cost of acquisition
• sale proceeds
• and holding period of the equity mutual fund

Harness the power of this intuitive tool to obtain precise calculations in a matter of seconds, enabling you to make informed decisions and gain clarity regarding your financial obligations. Embrace the convenience and accuracy offered by the LTCG calculator, and empower yourself with the knowledge necessary to navigate the complexities of capital gains and taxation efficiently.

Conclusion

Capital assets hold immense significance in our financial landscape, often requiring long-term ownership before selling. However, it is crucial to understand the implications of taxation when the profits from such sales exceed one lakh rupees. Thankfully, an LTCG calculator comes to the rescue, simplifying the process of calculating long-term capital gains and associated taxes easily.

Experience the convenience and reliability of the LTCG calculator, designed to eliminate mistakes and freely accessible to all. Then, to delve deeper and explore the intricacies of capital gains and taxation, we invite you to check out the LTCG calculator TaxNodes offers. Discover a powerful tool that provides comprehensive insights and aids in shaping your financial strategies for maximum gain.

byRhea Tripathy

Meet Rhea Tripathy, a word wizard with a pen in one hand and a paintbrush in the other. By day, she slays as a content writer and by night, she indulges in her artistic passion. With a keen eye for the markets and a knack for literature, this certified trader brings her sharp mind and creative flair to everything she does. When she's not crafting clever content, you'll find her analyzing the latest market trends or getting lost in a good book.

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