Capital gains tax in India depends on two things: what you sold, and how long you held it before selling. Get either of these wrong and you could miscalculate your tax significantly. This guide covers the tax rates, holding period rules, indexation benefit, and key changes introduced by Budget 2024 — which revised capital gains taxation across most asset classes.
What Are Capital Gains?
A capital gain arises when you sell a capital asset — shares, mutual funds, property, gold, bonds — at a price higher than your cost of acquisition. The gain is classified as either short-term or long-term depending on the holding period, and each has different tax rates.
Short-Term vs Long-Term — Holding Period Rules
| Asset Type | Short-Term (STCG) Holding Period | Long-Term (LTCG) Holding Period |
|---|---|---|
| Listed equity shares & equity mutual funds | Up to 12 months | More than 12 months |
| Debt mutual funds (post April 2023) | Any holding period | Not applicable — always STCG |
| Immovable property (land & buildings) | Up to 24 months | More than 24 months |
| Gold, silver, jewellery | Up to 24 months | More than 24 months |
| Unlisted shares | Up to 24 months | More than 24 months |
| Bonds (listed) | Up to 12 months | More than 12 months |
Capital Gains Tax Rates — Post Budget 2024
Budget 2024 (effective 23 July 2024) significantly revised capital gains tax rates. These rates apply for FY 2026-27:
| Asset / Gain Type | STCG Tax Rate | LTCG Tax Rate |
|---|---|---|
| Listed equity & equity MF (Section 111A / 112A) | 20% (Section 111A) | 12.5% above ₹1.25 lakh (Section 112A) |
| Immovable property | Slab rates | 12.5% (without indexation) |
| Gold, debt MF, other assets | Slab rates | 12.5% (without indexation) |
| Unlisted shares / securities | Slab rates | 12.5% (without indexation) |
All capital gains rates are subject to surcharge and 4% Health & Education Cess as applicable. STCG on equity at 20% replaced the earlier 15% rate from Budget 2024 onwards.
The Indexation Benefit — What Changed in Budget 2024
Before Budget 2024, long-term capital gains on property, gold, and debt instruments could be computed after applying indexation — adjusting your cost of acquisition for inflation using the Cost Inflation Index (CII) published by the government each year. This significantly reduced the taxable gain for assets held over long periods.
Budget 2024 removed the indexation benefit for most assets acquired on or after 23 July 2024. The LTCG rate was simultaneously reduced to 12.5% (from 20% with indexation). For properties acquired before 23 July 2024, taxpayers were given the choice of either 12.5% without indexation or 20% with indexation — whichever results in lower tax. This grandfathering provision applies only to residential properties, not gold or debt instruments.
LTCG Exemption on Equity — ₹1.25 Lakh Annual Limit
Long-term capital gains from listed equity shares and equity-oriented mutual funds are exempt up to ₹1.25 lakh per financial year. Gains beyond this threshold are taxed at 12.5% (no indexation). This exemption resets on 1 April each year — it cannot be carried forward.
This means an investor can systematically book gains of up to ₹1.25 lakh annually without any tax liability — a widely used strategy called “tax harvesting.”
Worked Example — Equity LTCG
Suppose you sell listed shares for ₹8,00,000 in FY 2026-27. Your cost of acquisition (COA) was ₹5,50,000. Holding period: 18 months.
- LTCG = ₹8,00,000 − ₹5,50,000 = ₹2,50,000
- Less annual exemption = ₹1,25,000
- Taxable LTCG = ₹1,25,000
- Tax at 12.5% = ₹15,625
- Add 4% cess = ₹625
- Total tax = ₹16,250
Worked Example — Property LTCG (Acquired Before July 2024)
Property purchased in 2019 for ₹40,00,000 sold in FY 2026-27 for ₹75,00,000.
Option A — 12.5% without indexation: Gain = ₹35,00,000 × 12.5% = ₹4,37,500
Option B — 20% with indexation: Assume CII adjusts COA to ₹52,00,000. Indexed gain = ₹23,00,000 × 20% = ₹4,60,000
Option A is lower in this case. But for older properties with very high CII adjustment, Option B could be better — always compute both.
Section 54 and Other Capital Gains Exemptions
Several exemptions allow you to reinvest capital gains and avoid tax entirely:
- Section 54 — LTCG on residential property reinvested in another residential property within 2 years (purchase) or 3 years (construction). Exemption capped at ₹10 crore.
- Section 54EC — LTCG from land/building invested in specified bonds (NHAI, REC) within 6 months. Capped at ₹50 lakh.
- Section 54F — LTCG from any asset (other than residential property) if full sale proceeds are invested in a residential property.
Setting Off Capital Losses
Capital losses can be set off against capital gains, subject to restrictions:
- STCG losses can be set off against both STCG and LTCG
- LTCG losses can only be set off against LTCG (not STCG)
- Unabsorbed capital losses can be carried forward for 8 assessment years
- Losses can only be carried forward if the ITR is filed on time
Enter your purchase price, sale price, asset type, and holding period — get the exact tax under STCG and LTCG rules for FY 2026-27.
Frequently Asked Questions
Is LTCG on equity added to my regular income for tax purposes?
No. LTCG on equity above ₹1.25 lakh is taxed at a flat 12.5% regardless of your income slab. It is not clubbed with your regular income. STCG on equity at 20% is also a flat rate under Section 111A.
Do NRIs pay capital gains tax in India?
Yes. NRIs are taxable on capital gains arising from assets situated in India. TDS is deducted by the buyer at source on property transactions. NRIs can claim the same exemptions (Section 54, 54EC, 54F) as residents.
What is the base date for grandfathering equity gains?
For equity shares and equity mutual funds, the fair market value as on 31 January 2018 is treated as the cost of acquisition for computing LTCG on assets acquired before that date — this is the grandfathering provision introduced in Budget 2018.
💼 Capital gains in your ITR? Reporting STCG and LTCG correctly in ITR-2 or ITR-3 requires careful schedule preparation. Tirumalesh & Co, Chartered Accountants in Hyderabad, provide Income Tax Return Filing services and ensure your capital gains are accurately computed and disclosed — including grandfathering, indexation, and LTCG exemption claims.