If you watch the scene carefully, you’ll realize that lagaan (tax) for three years would be exempted if a cricket match is won by Aamir khan and the villagers (Stakes were very high). Similarly in modern taxation, long term capital gains if held for more than 3 years, there are consequences.

Increase in the value of an capital asset is called capital gain. Income from capital gain is one of the heads under taxation. Capital Asset means any property which can be fixed or circulating, movable or immovable, tangible or intangible. For e.g. they could be diamonds, house property, listed shares, unlisted shares or unity of equity oriented mutual fund. Period of holding these assets make them either short-term or long-term.

What is LTCG and STCG?

LTCG and STCG are two common terms used in taxation. LTCG means long-term capital gains while STCG is the short-term capital gain. Short term capital asset means any asset that’s held by an assessee for not more than 3 years or 36 months. If the asset is held for more than 3 years, it’s called a long term capital asset.

Long term capital gain arises on transfer of a long term capital asset. Long-term capital gain is generally taxable at a lower rate. e.g. transfer of land and building.Capital gain that arises from the transfer of house property.

Let’s say a residential house property is transferred. Just like captain Russel, tax department lays down certain conditions. For e.g. you sold a residential house property for Rs. 50,00,000 and with this money you purchased another house property for Rs. 30,00,000. Taxation Exemption will be on the lower of Rs. 50,00,000 (capital gain) and investment of Rs. 30,00,000. So 30,00,000 would be exempt.

Another condition given is that if the new house is sold within 3 years of it’s acquisition, exemption will be taken back.

Source: Guide to Income Tax by  VK and Monika Singhania