Planning to sell securities? This is how you can calculate long-term capital gains tax on share sale | Mint

If you regularly invest in financial assets and have recently redeemed some of your investments, it is noteworthy that the profits earned on these gains are subject to capital gains tax.

While we are in the run-up to the Budget 2025, it is worth recalling that the previous Budget, announced on July 23, 2024, overhauled capital gains tax for both financial and non-financial assets.

Here, we give a lowdown on capital gains tax with regard to financial assets:

Listed Securities

Short-term gains: When you sell the shares of a listed company within one year of purchase, you are required to pay 20 per cent tax on capital gains (plus 4 per cent cess).

Long-term gains: When the securities of a listed company are sold more than one year after purchase, investors are expected to pay 12.5 per cent income tax (plus cess). However, total gains up to ₹1.25 lakh per year are exempt from tax.

Debt and bonds

Unlisted bonds and debentures, debt mutual funds and market-linked debentures attract tax on capital gains at applicable rates. This is regardless of the holding period. This means if a taxpayer is under the 20 per cent tax bracket, they will be liable to pay 20 per cent income tax. On the other hand, if a taxpayer falls under the 30 per cent tax bracket, they will be liable to pay 30 per cent income tax.

Illustrations

Here, we create four scenarios to determine the tax rate applicable in each case. Let us assume the taxpayer falls under the 20 per cent tax bracket. We ascertain how much capital gains tax he will be liable to pay.   

In the above table, the first scenario attracts a 20 per cent tax because it is a short-term capital gain. The second scenario attracts 0 per cent tax because the total gains are less than 1.25 lakh during the year.

In the third scenario, a tax rate of 12.5 per cent is applicable because this is long-term capital gain. And in the fourth scenario, the tax rate based on his salary bracket will be applicable.

Unlisted securities

It is noteworthy that unlisted financial assets are to be held for a minimum of two years to be classified as long-term. If an unlisted asset is sold in less than two years, the gains will attract short-term capital gains tax.