Capital gains tax, also known as capital gains levy, is the charge imposed on profit realized from the disposal of capital assets such as equities, bonds or other investments. It differs from income tax which is charged on earnings and instead applies to proceeds arising out of sale of assets.

Short–term and long-term gain are the types subcategories in which capital gains can be slotted according to how long an asset had been held before being sold. Short-term gains, kept for less than a year, are normally taxed at your prevailing ordinary income tax bracket rate. On the other hand, long-term gains that have been held for a period exceeding one year usually attract lesser taxes than this.

Understanding Capital Gains Tax in India:

Short-Term Capital Gains (STCG):

In case you sell an investment asset like stocks within three months after acquiring them then that earns you STCG (short term capital gain) liability. This is computed at your personal income-tax slab rate + Securities Transaction Tax (STT) incurred during purchase.

Long-Term Capital Gains (LTCG):

Assets held over 12months qualify for long-term capital gains tax. For equity shares and equity oriented mutual funds, any profits above Rs 1 lakh per annum would attract flat rate of 10% with no indexation benefits while other financial securities like bonds and real estate are taxed at 20% plus inflation adjustment through indexation method.

How capital gain is calculated:

Short-term capital gains are computed by simply deducting the purchase price from the selling price of any asset held for less than one year.

Example: For instance, if you sold stocks for ₹15,00,000 after buying them for ₹10,00,000 mere three months later; then your short-term capital gain would be ₹5,00,000.

Long Term Capital Gain: This is calculated in a similar way with adjustments made for inflation using the Cost Inflation Index (CII) on assets held over a year.

Example: If you had bought shares at ₹10,00,000 with an indexed acquisition cost of ₹11,20,000 (after CII changes) and sold them at ₹15,00,000; you will be able to have long term capital gain after indexation of 3 lac and 80 thousand rupees only.


Capital gains tax has implications for financial decisions-making affecting profitability earned through investing in stock market and properties. Henceforth it is important that anyone intending to sell an asset is familiar with these tax laws so as not to make wrong choices while trying to fix their financial positions.