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.
How to Use the Capital Gains Tax Calculator
Select the type of asset (equity shares, equity mutual funds, debt mutual funds, real estate, gold, or other assets), enter the purchase price, sale price, and holding period. The calculator determines whether your gains are short-term or long-term based on the asset type, applies the correct tax rate, and shows your exact tax liability. This is crucial for tax planning — knowing your potential tax before selling helps you decide the optimal timing and structure of your exit.
Capital Gains Tax Rates in India (Updated 2026)
Capital gains tax rules were significantly revised in the Union Budget 2024, effective from July 23, 2024. Here’s the current framework:
Equity shares and equity mutual funds: Short-term gains (held less than 12 months) are taxed at 20%. Long-term gains (held 12+ months) are taxed at 12.5% on gains exceeding ₹1.25 lakh per financial year. The ₹1.25 lakh exemption is per person per year across all equity LTCG, not per transaction.
Debt mutual funds: Following the 2023 amendment, gains from debt funds (where equity allocation is less than 65%) are taxed at your income tax slab rate regardless of holding period — the LTCG benefit with indexation no longer applies. This made debt mutual funds less tax-efficient compared to the pre-2023 regime.
Real estate and gold: Short-term (less than 24 months for real estate, 36 months for gold/other assets) gains are taxed at slab rates. Long-term gains are taxed at 12.5% without the benefit of indexation (post-Budget 2024 rules). The removal of indexation particularly impacts real estate sellers in high-inflation periods.
Tax-Saving Strategies for Capital Gains
Several legitimate strategies can reduce or defer your capital gains tax. Tax-loss harvesting is the most powerful — sell underperforming investments at a loss to offset gains from profitable ones. Short-term losses can be set off against both short-term and long-term gains, while long-term losses can only offset long-term gains. Unabsorbed losses can be carried forward for 8 years.
For equity LTCG, the ₹1.25 lakh annual exemption can be maximised by systematically booking profits each financial year rather than holding for very long periods and triggering a large taxable gain in one year. If you have ₹10 lakh in unrealised equity LTCG, selling ₹1.25 lakh worth of gains each year in March and immediately repurchasing resets your cost base while utilising the exemption — legally saving ₹15,625 in tax each year.
For real estate capital gains, Section 54 allows exemption if you reinvest the gains in another residential property within 2 years (purchase) or 3 years (construction). Section 54EC allows exemption by investing gains (up to ₹50 lakh) in specified bonds (NHAI/REC) with a 5-year lock-in. These provisions can save lakhs in tax on property sales.
Capital Gains on Mutual Fund Switching
Many investors don’t realise that switching between mutual fund schemes — even within the same fund house — triggers a capital gains event. If you switch from a large-cap fund to a flexi-cap fund, it’s treated as a redemption from the first fund and a fresh purchase in the second. Plan switches carefully, considering the tax impact. For systematic rebalancing, use the SIP route to redirect future investments rather than switching existing holdings, which avoids triggering gains.
Reviewed by: MoneyPundit Team | Last updated: July 2, 2026
Data source: Income Tax Department (incometax.gov.in), current STCG/LTCG rules.
Methodology: Applies current short-term and long-term capital gains tax rules based on the asset type (equity, debt, property) and your holding period.
