What is the capital gains tax and how does it apply to investments?

In India, capital gains tax is a tax levied on the profit made from the sale of capital assets, including investments such as stocks, mutual funds, real estate, and other assets. The tax is applied only on the profit or gain earned from the sale, not on the entire sale amount.

The tax rate for longterm capital gains (LTCG) is 20% for listed securities and equityoriented mutual funds, while the shortterm capital gains (STCG) tax rate is 15% for stocks held for less than one year. For debt mutual funds, the tax rate for STCG is the same as the income tax rate applicable to the investor, while the LTCG tax rate is 20%.

However, there are certain exemptions and deductions available under the Income Tax Act, which can help investors reduce their capital gains tax liability. For example, longterm gains of up to Rs. 1 lakh in a financial year are exempt from tax. Additionally, investors can adjust their gains against any capital losses incurred in the same financial year.