What is capital gains tax?

Capital gains tax is levied on the profits made on investments. It covers real estate, gold, stocks, mutual funds, and various other financial and non-financial assets. It is divided into long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) depending on how long you have held the investment in question. Unlike income tax, the percentage of tax does not change on the basis of your overall tax slab. The LTCG tax, excluding surcharge, on equity is the same for gains of ₹10 lakh or ₹10 crore. There is also a separate set of deductions that apply to LTCG, which do not apply to ordinary income.

Why is it so complicated?

Capital gains tax is complicated for a few primary reasons. First, the rate changes from asset to asset. LTCG tax on stocks and equity mutual funds is 10% but on debt mutual funds is 20% with indexation. Second, the holding period changes from asset to asset. The holding period for LTCG tax is two years in real estate, one year for stocks, and three years for debt mutual funds and gold. Third, exemptions available against it come with their own complex conditions. For instance, buying a house after selling one can get you an exemption, but the new house must be bought in two years or built in three years of the sale.