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In India, profits earned from the sale of capital assets are subject to capital gains tax. The tax treatment depends on the nature of the asset and the duration for which it is held. Capital gains are broadly classified into Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
Although not directly linked to capital gains, investments under Section 80C help reduce overall taxable income. Popular instruments include: Public Provident Fund (PPF), National Savings Certificate (NSC), Tax-saving Fixed Deposits (5-year lock-in), Equity Linked Savings Schemes (ELSS). These options combine tax savings with long-term wealth accumulation.
Capital gains from the sale of long-term assets (like land or buildings) can be reinvested in Section 54EC bonds issued by government-backed institutions such as:Rural Electrification Corporation (REC), National Highways Authority of India (NHAI)
These bonds offer tax exemption on the invested gains and come with a 3-year lock-in period.
Under Section 54, capital gains from the sale of a residential property can be exempted if the proceeds are reinvested in purchasing or constructing another residential property within prescribed timelines. This is a commonly used method for real estate investors.
To promote entrepreneurship, the Indian government offers capital gains exemption under Section 54GB. If the gains from selling a residential property are invested in equity shares of eligible DPIIT-recognized startups, the exemption can be claimed—subject to certain conditions and a minimum holding period.
Long-term capital gains (LTCG) from listed equity shares or equity-oriented mutual funds held for more than one year are tax-exempt up to ₹1 lakh annually. Gains above this threshold are taxed at 10% (without indexation). Strategic long-term equity investing not only offers market-linked returns but also helps optimize tax liability.
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