In short
- A capital gain is taxed when you sell, not while you hold. Interest and dividends are usually taxed as they're paid.
- How long you held something decides whether a gain is short-term or long-term, and the two are taxed differently.
- Different investments follow different rules. Check current rates with the Income Tax Department or a tax professional before you act.
We've left out rates and thresholds on purpose. They change, and a wrong number is worse than none. The official source is the Income Tax Department.
Three kinds of income from investing
- Capital gains: the profit when you sell something for more than you paid.
- Interest: from fixed deposits, savings accounts and bonds. Usually added to your income and taxed at your slab rate.
- Dividends: payouts from companies or funds. These are also added to your income.
When tax is due
For capital gains, tax arises in the year you sell. If you hold on and don't sell, there is no capital gains tax yet, even if the value has gone up.
Losses matter too. In many cases a loss on one investment can be set against gains on another, within rules about which losses can offset which gains, and for how long they can be carried forward.
Short-term and long-term
The rules sort gains by how long you held the investment before selling. Sell before a set period and the gain is short-term; hold longer and it is long-term. The period differs by type of investment: listed shares and equity funds have one, property and some other assets another.
Long-term gains are often taxed more lightly, and some come with a yearly amount that is exempt. That is one reason frequent buying and selling can cost more than it looks.
Different investments, different rules
- Equity: shares and equity-oriented mutual funds have their own short-term and long-term rules.
- Debt: for bonds, debt funds and similar, gains on many of them are now taxed like ordinary income, at your slab rate.
- Gold and property: each has its own holding periods and rules.
- Tax-saving products: some offer a deduction, but usually come with a lock-in period.
A note on SIPs
Each SIP instalment counts as a separate purchase with its own date. When you sell mutual fund units, the oldest units are treated as sold first. So one sale can be partly long-term and partly short-term (see SIP or lump sum).
What to keep track of
- Purchase dates and prices. Your broker and fund statements show these.
- Your capital gains statement, usually downloadable each year from your broker or the fund's registrar.
- Your Annual Information Statement on the income tax portal, which lists many transactions reported in your name.
When to get help
If you have sold investments during the year, especially several kinds, consider speaking to a qualified tax professional. Our class covers how tax affects what you keep, in general terms. We don't prepare returns or give tax advice.
Educational content only. Not investment advice. Examples marked [hypothetical] are made up for teaching and do not show real or expected returns.