Under Income Tax Act, out of five heads of Gross Total Income, forth head is “Capital Gains”. Capital gains means any profit or gains arising from the transfer of a capital asset effected in the previous year. This income is covered under sections 45 to 55A of the Income Tax Act, 1961.
Hear the most important thing is what is capital asset? It has been defined under section 2(14) as under:
The term “capital assets” means (a) property of any kind held by an assesse, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulation made under the Securities and Exchange Board of India Act, 1992 and (c) any unit linked insurance policy to which exemption u/s 10(10D) does not apply on account of the applicability of the 4th and 5th proviso thereof, in relation to assessment year 2021-22 and on words, The term “capital asset” does not include inter alia:
(1) Any stock in trade (other than securities)
(2) Personal effects such as wearing apparel, furniture, motor car, air-conditioner, refrigerator, etc,; held for personal use by the assesse or by the member of the family dependent on him.
However, definition of the term capital asset shall include jewelry, archeological collections, drawings, paintings, sculptures or any work of art, even though these assets are personal effects and transfer of such personal effects will attract tax on capital gains.
(3) 6% Gold Bonds, 1977, 7% Gold Bonds, 1980, National Defense Gold Bonds, 1980, Special Bearer Bonds, 1991, Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999, notified by the Central Government, deposit certificates issued under the Gold Monetization Scheme, 2015 notified by the Central Government, and
(4) Agricultural land in India.
Capital Gains Tax was introduced in 1956, when T. T. Krishnamachari was finance minister. At that time it was exempt up to Rs. 15,000 and thereafter it was taxed as under:
| Capital Gains | Approximate tax Rate |
| Rs. 15,000 to Rs. 50,000 | 6.3% |
| Rs. 50,000 to Rs. 2 lakhs | 12.5% |
| Rs. 2lakhs to Rs. 5 lakhs | 18.8% |
| Rs. 5lakhs to Rs. 10lakhs | 25.0% |
| More than Rs.10lakhs | 31.3% |
In the year 1992 when Dr. Manmohan Singh was Finance Minister, he has introduced Indexation benefits for capital gains and special tax rate of 20% for long term capital gain, while short term capital gain as per slab rate.
In the year 1997 when Chidambaram was Finance Minister, no change in LTCG and STCG but dividend was exempt.
In the year 1999 when Yaswant Sinha was Finance Minister, LTCG 20% with indexation and 10% without indexation. Dividend was exempt.
In the year 2002 Yaswant Sinha has not changed rate but dividend was taxable.
In the year 2003 Jaswant Singh was Finance Minister did not change the rate but dividend was exempt.
In the year 2004 again Chidambaram was Finance Minister exempted long term capital gain and introduced Securities Transaction Tax. STCG 10%
In the year 2008 Chidambaram was Finance Minister, increase rate of tax on STCG from 10% to 15%
In the year 2016, when Arun Jaitley was Finance Minister introduced 10% tax on dividend income exceeding rupees ten lakhs per annum.
In the year 2018, Arun Jaitely Finance Minister re introduced LTCG 10% on gains above Rs. 1lakh.
In the 2020, Smt. Nirmala Sitharaman, Finance Minister made dividend taxble in the hands of shareholder.
CURRENT BUDGET 2024-25:
Long Term Capital Gain:
- Long Term Capital Gain tax rate 12.5% for all categories.
- No option of indexation.
- Exemption limit of LTCG for STT paid equity shares, units of equity oriented mutual fund etc u/s 112A increased from Rs.1lakh to Rs.1.25lakhs.
Short Term Capital Gain:
Rate of STCG on STT paid equity shares, units of equity oriented mutual fund etc. u/s 111A increased from 15% to 20%.
Holding Periods:
For all listed securities, holding period 12 months,
For all others, holding period 24 months.
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