LTCG Tax : People typically invest in order to earn a return or profit from their investment. Some investments produce immediate returns, while others produce gradual returns. Long-term returns, also known as long-term capital gains (LTCG), include capital asset returns.

The LTCG tax entails levying a tax on profits made from capital assets, such as real estate, shares, and share-oriented products, held for at least a year after acquisition.

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What Is the Difference Between Capital Gains and Capital Gain Tax?

A person is subject to capital gains tax when they profit from the sale of capital assets such as houses, cars, stocks, bonds, or even collectibles such as artwork.

Short-term capital gain tax (STCG) and long-term capital gain tax (LTCG) are the two main categories (LTCG). The financial gain from the sale of capital assets is classified as income. As a result, the income received is taxed as capital gain.

LTCG Tax- Long-Term Capital Gains (LTCG) Tax: 

The long-term capital gains tax rate is 20%, plus any applicable cess and surcharge. However, there are some circumstances in which a person is subject to a 10% capital gains tax.

Long-term capital gains of INR 1,000,000 or more from the sale of listed stocks. It is in accordance with Section 112A of the Indian Income Tax Act. Section 112A applies to capital assets such as company equity shares, units of equity-oriented funds, and units of business trusts.

Returns from the sale of assets listed on a government-recognized Indian stock exchange, any mutual funds or unit trusts, and zero-coupon bonds sold on or before July 10, 2014.

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Profits from the Sale of Commercial Property:

• Profits from the sale of any commercial property owned and used for business purposes are subject to short-term capital gains taxation, provided no other property falls into the same asset category, regardless of how long the property has been owned.
• However, if the net consideration is invested in residential house property and held for more than 24 months, an exemption under Section 54F can be claimed. Another possibility is to invest the indexed capital gains in capital gain bonds issued by specific institutions and then claim Section 54EC exemption.
• The profit on the sale of leased commercial real estate will be converted to capital gains. If the property is held for more than 24 months, it is considered long-term and will be subject to a 20% penalty, regardless of the amount.
• However, by investing in either a residential property under Section 54F or capital gains bonds under Section 54EC, the tax burden can be reduced.
• If you keep the property for more than 24 months, the proceeds are taxed as ordinary income and are considered short-term capital gains.

Exemptions from Long Term Capital Gains (LTCG) Tax:

• Individuals are exempt from paying taxes if their annual income does not exceed a certain threshold (defined each year in the financial budget).
• If a resident Indian is 80 years of age or older and earns less than INR 50,000 per year.
• Indians between the ages of 60 and 80 earn INR 3,000,000 per year.
• The exemption limit for people aged 60 and under is INR 2,50,000 per year.
• Hindu undivided families earning less than INR 2,50,000 per year

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LTCG Tax -Tax Savings on Long-Term Capital Gains:

The following are some strategies for reducing LTCG taxes.

1) Residential property investment (54 & 544F):

One can avoid paying taxes on long-term capital gains by purchasing brand-new residential property. Sections 54 and 54F are associated with these exemptions.

Section 54 exempts a person or Hindu Undivided Family from LTCG tax if they sell a built-up house and use the proceeds to buy or build a new residential property. The new property must be purchased either one year before or two years after the existing property is sold. If the seller decides to build a new home, it must be completed within three years of the sale of the previous home.

In addition, if the seller wishes to avoid paying taxes. The entire capital gain must be used to purchase the new property. Otherwise, any excess funds not used to purchase the property will be subject to LTCG tax. Furthermore, the funds may only be used to purchase or construct one property in India.

When an individual or HUF sells a capital asset that is not a residential property and uses the capital gain to buy or build a house, Section 54F exempts the entire amount from tax. However, rather than simply investing the capital gain, the entire net sale consideration must be invested; otherwise, the amount will be taxed proportionately.

2) Bond investing (54EC):

By transferring the entire amount to bonds issued by the Rural Electrification Corporation Limited (RECL) and the National Highways Authority of India. Section 54EC can be used to save on LTCG tax (NHAI). The list of these bonds is available on the official website of India’s IT Department.

Section 54EC of the Income Tax Act of 1961 exempts an assessee from LTCG tax if they invest in specified assets within six months of selling their property. This exemption is limited to Rs. 50 lakh per fiscal year.

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3) Capital Gains Account Plan:

Without investing in residential real estate, an investor can benefit from capital gain account tax exemptions. The Government of India only allows withdrawals from this account to be used to purchase houses and plots; all other withdrawals must be used within three years of the initial withdrawal. Otherwise, the entire profit amount is subject to LTCG tax.

LTCG Tax : The Bottom Line:

The long-term capital gains tax was reinstated in the 2018 Union Budget. After selling capital assets worth more than INR 1 lakh, everyone is required to pay LTCG tax. Long-term capital gains are taxed at 20% plus any applicable surcharges and cess. In order to alleviate the burden of high taxes.  The government has made provisions for a few exceptions under special circumstances.

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