What is Long Term Capital Gain?

Comparing LTCG to STCG – Inclusions and conditions:

Usually, the proceeds from any asset held for three years or less is considered a short term capital gain and taxed accordingly. Anything held for over three years is considered a long term capital asset. However, from FY 2017-18, this term was reduced to two years for certain assets like land, building and house, which means if you sell a house or property after holding it for two years or more, it will be considered as long term capital gain. In the case of equity investments, it is considered short term capital asset if held for less than a year and long term if held for more than 12 months.

Tax Applicability:

The below table explains the tax applicability of LTCG and STCG.

Mutual Funds:

Debt and equity mutual funds are subject to different kinds of taxes. Any fund that invests more than 65 per cent of its assets in equity is seen as equity fund, and if it holds more than 65 per cent in debt, then it is seen as a debt fund. Since 11 July 2014, short term gains from debt or debt oriented funds are added to the total income and then taxed according to your slab, while long term gains are taxed at 20 per cent with indexation. Indexation is done by applying the cost inflation index to adjust for inflation, and thus lowers the capital gains.

In the case of equity funds, short term gains are taxed at 15%, while long terms gains are taxed @10% if capital gain from equity is more than Rs. 1 lakh in a financial year. The below table explains the applicability of LTCG and STCG on equity and debt mutual funds

It is always advised to have a long term perspective while investing in mutual funds, whether it is equity or debt. Given the different treatment for different asset classes, do talk to your financial advisor in case of any doubt about whether a specific asset is considered a long or short term asset and the time frames involved. So, open an account today and begin your investment journey.