Updated on July 18, 2023
A long position refers to a situation where an investor or trader holds or owns an asset with the expectation that its value will increase over time.
Tax implications of long positions
Capital gains tax – If the investor sells the asset at a higher price than the purchase price, the profit is considered a capital gain. Depending on the holding period, it may be classified as a short-term or long-term capital gain.
Short-term capital gains tax – If the asset is held for less than 36 months (3 years) before selling, any gains are treated as short-term capital gains. Short-term capital gains are added to the individual’s taxable income and taxed at their applicable income tax rate.
Long-term capital gains tax – If the asset is held for 36 months or more, any gains are treated as long-term capital gains. In the case of equity-oriented assets (such as stocks or equity mutual funds), long-term capital gains are taxed at a flat rate of 10% (plus applicable surcharge and cess) if the gains exceed Rs. 1 lakh in a financial year.
Indexation benefit – For non-equity-oriented assets (such as debt mutual funds or real estate), long-term capital gains can be adjusted for inflation using the indexation benefit. This helps reduce the taxable amount and, in turn, the tax liability.