How are Capital Gains Taxed in India?
Tax on capital gains is one of the most crucial subjects of personal finance and investment planning in India. Whether selling real estate, equity shares, mutual funds, or gold, if you understand the tax on capital gains, you can plan better and avoid any shock when paying taxes. In this comprehensive guide, we’ll examine how are capital gains taxed in India? and how to calculate and report these gains under Indian tax laws.
What is Capital Gains Tax?
Capital gains tax is levied on the gain or profit incurred in selling a capital asset. A capital asset would be any kind of property owned by an individual, whether land, stocks, bonds, jewellery, or even patents. The gain is the difference between the sale price and the cost price of the asset, made up to date and inflation-adjusted, and otherwise.
Types of Capital Gains in India
Capital gains in India are generally classified into two types based on the holding period of the asset:
1. Short-Term Capital Gains (STCG)
If the asset is held for a limited duration (shorter than 36 months in the case of immovable property or shorter than 12 months in the case of listed equity shares and mutual funds), the gain so made is referred to as short-term capital gain.
2. Long-term Capital Gains (LTCG)
If the asset is held for a longer period (over 36 months in the case of immovable property, over 12 months in the case of listed equity shares and mutual funds), the gain is referred to as long-term capital gain.
The categorisation influences taxability and tax rate, and the availability of exemptions.
Capital Gains Tax Rate in India
In India, capital gains tax is levied on profits from the sale of capital assets like property, stocks, bonds, and mutual funds. The tax rate depends on the type of asset and how long it was held before being sold. Here’s a breakdown:
1. Equity Shares & Equity-Oriented Mutual Funds
- Short-Term Capital Gains (STCG):
- Holding period: Less than 12 months
- Tax rate: 15% (plus surcharge and cess)
- Long-Term Capital Gains (LTCG):
- Holding period: More than 12 months
- Tax rate: 10% on gains exceeding Rs. 1 lakh/year (without indexation)
2. Debt Mutual Funds, Bonds, Gold, and Real Estate
- Short-Term Capital Gains (STCG):
- Holding period:
- Less than 36 months for real estate, gold, and debt funds (before April 1, 2023)
- Note: As per the 2023 Budget, debt mutual funds are taxed as per slab rates (no LTCG benefit) if acquired after April 1, 2023
- Tax rate: As per your income tax slab
- Holding period:
- Long-Term Capital Gains (LTCG) (before Budget 2023 changes):
- Holding period: More than 36 months
- Tax rate: 20% with indexation benefit
3. Unlisted Shares
- STCG: Taxed as per your income tax slab
- LTCG: 20% with indexation (if held for more than 24 months)
Exemptions on Capital Gains
As a measure to encourage savings and reinvestment, the Indian Income Tax Act provides exemptions under different sections
1. Section 54 (Sale of Residential Property)
You are exempt from capital gain tax if you sell a residential property and use the proceeds to invest in another residential house (within 1 year before or 2 years after the sale).
2. Section 54ec
Invest your long-term capital gains in some bonds (e.g., NHAI or REC) within 6 months of transfer. The maximum investment eligible for exemption is Rs 50 lakh.
3. Section 54f
If the entire wholesale consideration (not just the profit) of any long-term asset (other than residential house property) is utilized for buying a residential house, exemption can be availed on the entire profit.
4. Section 10(38) [Now deleted from 2018]
Listed shares’ long-term gains were previously tax-free under this section but have been substituted with the 10% LTCG tax (from AY 2019-20).
How to Report Capital Gains?
Capital gains have to be reported in your Income Tax Return (ITR) under the relevant schedule. The choice of ITR form depends on the nature of your income and whether you are a salaried individual, a businessman, or a professional.
Maintain records of:
● Purchase and sale deeds
● Demat statements (in case of shares/mutual funds)
● Proof of reinvestment (in the event of availing of exemptions)
● Cost Inflation Index used
Recent Changes in Capital Gains Taxation (As of FY 2025–26)
India has seen significant changes to its capital gains tax regime following the Union Budget 2024, with these changes effective from July 23, 2024. No further major changes were introduced in Budget 2025, so the rules from 2024 continue to apply for FY 2025-26 (AY 2026-27).
1. Uniform Long-Term Capital Gains (LTCG) Tax Rate
- The LTCG tax rate on all assets (equity shares, mutual funds, property, gold, bonds, etc.) is now 12.5% without indexation.
- Previously, LTCG on listed equity and equity mutual funds was taxed at 10% (over ₹1 lakh), while other assets were taxed at 20% with indexation. The new regime standardizes this to 12.5% for all asset classes, removing indexation benefits.
2. Short-Term Capital Gains (STCG) Tax Rate Increase
- For listed equity shares, equity-oriented mutual funds, and units of business trusts (where Securities Transaction Tax is paid), the STCG tax rate has increased from 15% to 20%.
- For other assets, STCG continues to be taxed as per the individual’s income tax slab.
3. Revised Holding Periods
- The holding period to qualify as LTCG is now simplified:
- Listed securities (including equity shares, equity mutual funds, REITs, InvITs): 12 months (was 36 months for some instruments earlier).
- Other assets (including gold, unlisted securities except unlisted shares): 24 months (was 36 months earlier).
- Immovable property and unlisted shares: Remain at 24 months.
4. Increased LTCG Exemption Limit
- The basic exemption limit for LTCG on equity shares and equity mutual funds has been raised from ₹1 lakh to ₹1.25 lakh per financial year.
- Gains above this threshold are taxed at 12.5%.
5. Removal of Indexation Benefit
- The indexation benefit for long-term capital gains (which allowed adjusting the purchase price for inflation) has been eliminated for all asset classes.
6. ITR Form Changes and Reporting
- Taxpayers with LTCG up to ₹1.25 lakh from listed equity shares or mutual funds can now use the simpler ITR-1 or ITR-4 forms.
- Capital gains must be reported separately for transactions made before and after July 23, 2024, reflecting the change in tax rules.
- The threshold for mandatory asset and liability reporting in ITR-2 has increased from ₹50 lakh to ₹1 crore.
- Proceeds from share buybacks by domestic listed companies (from October 1, 2024) are now treated as deemed dividends and must be reported as such.
Tips to Save Capital Gains Tax
Here are five tips to save capital gains tax in India:
● Structure the sale of assets so that they fall within long-term holding.
● Avail exemptions under Sections 54, 54EC, and 54F prudently.
● Reap losses to offset capital gains at the end of the financial year.
● Maintain records of all transactions and reinvestments.
● Invest in capital gain bonds to legally postpone taxes.
Get Started with TaxDunia
Indian capital gains tax can be perplexing, but with some information and planning, you can lower the tax liability and invest wisely. With recent changes in taxation and effective use of exemptions, you can save a significant amount of money in the long run. Always consult a tax advisor or financial planner for individualized guidance based on your asset profile and income level.
