Long Term Capital Gains (LTCG)

Long-Term Capital Gains (LTCG) refer to the profit earned from the sale of an asset that has been held for a longer duration, typically over one year. The duration varies depending on the type of asset and the country's tax laws. In India, for example, the minimum holding period for an asset to qualify as a long-term capital asset is typically one year for stocks and equity-oriented mutual funds, two years for immovable property like real estate, and three years for debt-oriented funds, gold, or other assets. LTCG is usually taxed at a lower rate compared to short-term capital gains, incentivizing long-term investments.

Example:

Suppose an individual in India purchased shares of a company in June 2021 for ₹1,00,000. After holding the shares for more than one year, the individual decided to sell them in July 2023 for ₹1,50,000. The profit of ₹50,000 is considered a long-term capital gain.

Tax Implications:

In India, as of recent regulations, LTCG on equity-oriented assets exceeding ₹1,00,000 is taxed at 10% without the benefit of indexation. Therefore, if the individual has a total LTCG of ₹50,000 from this transaction, no tax would be payable since it is below the ₹1,00,000 exemption limit. However, if their LTCG exceeds this threshold in total, they would be liable to pay 10% tax on the amount exceeding ₹1,00,000.

This favourable tax treatment encourages investors to hold onto their assets for a longer duration to benefit from reduced tax rates, thus promoting long-term investments.