Understanding Capital Gains Tax in India
Capital gains tax is levied on the profit you earn when selling a capital asset — including stocks, mutual funds, real estate, gold, and bonds. The tax rate depends on two factors: the type of asset and the holding period. Understanding these rules helps you plan your exits strategically and minimize tax outgo through legitimate tax-saving strategies.
India’s capital gains tax framework was significantly revised in the Union Budget 2024, with changes to holding periods, tax rates, and indexation benefits. These new rules apply from FY 2024-25 onwards and affect how you should think about selling investments.
Capital Gains Tax Rates (FY 2025-26)
| Asset | Short-Term Period | STCG Rate | Long-Term Period | LTCG Rate |
|---|---|---|---|---|
| Listed Equity Shares | Less than 12 months | 20% | 12+ months | 12.5% (above ₹1.25L) |
| Equity Mutual Funds | Less than 12 months | 20% | 12+ months | 12.5% (above ₹1.25L) |
| Debt Mutual Funds | Any period | Slab rate | N/A | Slab rate (no LTCG benefit) |
| Real Estate | Less than 24 months | Slab rate | 24+ months | 12.5% (no indexation) |
| Gold/Gold ETFs | Less than 24 months | Slab rate | 24+ months | 12.5% |
| Unlisted Shares | Less than 24 months | Slab rate | 24+ months | 12.5% |
LTCG Exemption on Equity
Long-term capital gains from equity shares and equity mutual funds are exempt up to ₹1.25 lakh per financial year. This means if your total LTCG from equity in a year is ₹2 lakh, only ₹75,000 is taxable at 12.5%, resulting in a tax of ₹9,375. Strategic selling — harvesting gains up to ₹1.25 lakh each year — can help you avoid LTCG tax entirely on moderate portfolios.
Tax Loss Harvesting
Tax loss harvesting involves selling investments at a loss to offset against capital gains, reducing your tax liability. You can set off short-term capital losses against both short-term and long-term gains. Long-term losses can only be set off against long-term gains. Unabsorbed losses can be carried forward for 8 years. Reinvest in a similar (not identical) fund immediately to maintain market exposure.
Section 54 Exemptions for Real Estate
If you sell a residential property and reinvest the LTCG in another residential property within 2 years (purchase) or 3 years (construction), the gains are exempt under Section 54. Alternatively, under Section 54EC, you can invest up to ₹50 lakh in specified bonds (NHAI, REC) with a 5-year lock-in to claim exemption. These are powerful tools for real estate investors to defer or eliminate capital gains tax.
How do I calculate capital gains on shares sold?
Capital gains = Sale price minus cost of acquisition minus brokerage and charges. For shares purchased before February 1, 2018, the cost of acquisition is the higher of actual purchase price or the share price on January 31, 2018 (grandfathering provision). This protects gains accrued before LTCG was reintroduced. Your broker’s contract note and CAMS/KFintech statement provide all necessary details.
Is indexation still available for capital gains?
As per Budget 2024 changes, indexation benefit has been removed for all asset classes from FY 2024-25 onwards. The LTCG rate was reduced to 12.5% to compensate. For properties acquired before July 23, 2024, taxpayers can choose either the old regime (20% with indexation) or new regime (12.5% without indexation), whichever results in lower tax.
How is capital gains tax on mutual fund SIP calculated?
Each SIP installment is treated as a separate purchase with its own acquisition date and cost. When you redeem, units are sold on FIFO basis (first in, first out). So if you’ve been doing SIP for 2 years and redeem fully, the first 12 months’ installments qualify as LTCG while the rest may be STCG. This is why SIP investors often pay a mix of STCG and LTCG when exiting.
Can NRIs claim LTCG exemption on equity?
Yes, NRIs can claim the ₹1.25 lakh LTCG exemption on listed equity and equity mutual funds, same as residents. However, NRI redemptions attract TDS (Tax Deducted at Source) — typically 12.5% on LTCG and 20% on STCG for equity. NRIs can claim refund of excess TDS by filing ITR in India. DTAA (Double Taxation Avoidance Agreement) benefits may apply based on country of residence.