Capital Gains Tax in India - Complete Guide for FY 2025-26
A capital gain arises when you sell a capital asset - shares, mutual funds, property, gold, or bonds - for more than your cost of acquisition. The profit is taxable under the Income Tax Act, 1961. Two factors determine your tax rate: the type of asset you sold, and the holding period between purchase and sale.
The July 2024 Union Budget made sweeping changes to capital gains tax rates across all asset classes - changes that significantly impact your post-tax returns on equity, property, and gold. Understanding the new rates, the ₹1.25 lakh LTCG exemption on equity, the indexation benefit on property, and the available exemptions under Sections 54, 54EC, and 54F can save you tens of thousands of rupees every year.
This guide covers everything you need to know about capital gains tax in India for FY 2025-26 - with worked examples, a complete CII table, asset-wise rate breakdowns, and tax-saving strategies that are completely legal.
What is a Capital Asset and What is a Capital Gain?
Under Section 2(14) of the Income Tax Act, a capital asset includes any property held by a taxpayer - whether movable or immovable, tangible or intangible - except stock-in-trade, consumables used for personal use, and rural agricultural land. Practically, the assets most Indians deal with as capital assets are:
A capital gain is the difference between the sale price (net of brokerage / transfer charges) and the cost of acquisition (purchase price + any improvement costs). If the result is positive, it is a capital gain - taxable. If negative, it is a capital loss - which can be set off against other gains.
Short-Term vs Long-Term Capital Gains - Holding Periods
The classification of a gain as short-term or long-term depends entirely on how long you held the asset before selling it. Different assets have different minimum holding periods to qualify as long-term. This distinction is critical because LTCG rates are generally lower than STCG rates - and LTCG on equity gets the additional benefit of the ₹1.25 lakh annual exemption.
| Asset class | LTCG holding period | STCG rate | LTCG rate | Indexation | Annual exemption |
|---|---|---|---|---|---|
| Listed equity shares | 12 months | 20% | 12.5% | No | Yes - ₹1.25L/yr |
| Equity mutual funds / ETFs | 12 months | 20% | 12.5% | No | Yes - ₹1.25L/yr |
| Debt mutual funds (post Apr 2023) | N/A | Slab | Slab | No | No |
| Immovable property | 24 months | Slab | 20%* | Yes* | Sec 54 / 54EC |
| Physical gold | 24 months | Slab | 20%* | Yes* | No |
| Gold ETF / gold MF | 12 months | Slab | 12.5% | No | No |
| Sovereign Gold Bonds (SGB) | 12 months | Slab | 12.5% | No | Exempt at maturity |
| Bonds / debentures / FDs | 36 months | Slab | Slab | No | No |
| Unlisted equity shares | 24 months | Slab | 12.5% | No | No |
Budget 2024 Capital Gains Tax Changes - What Changed and From When
The Union Budget presented on 23 July 2024 made the most significant overhaul of capital gains tax in nearly a decade. All changes were effective from 23 July 2024. Transactions completed before that date (for the same FY 2024-25) follow the old rates.
- •STCG on equity/equity MF: 15% → 20% (↑5%)
- •LTCG on equity/equity MF: 10% → 12.5% (↑2.5%)
- •LTCG annual exemption: ₹1L → ₹1.25L (benefit +₹3,125/year at 12.5%)
- •Holding period for LTCG unchanged: still 12 months
- •No cess or surcharge changes for basic rates
- •LTCG rate reduced: 20% → 12.5% (↓7.5%)
- •BUT indexation benefit removed for new purchases
- •Property bought before 23 Jul 2024: choose 20%+indexation OR 12.5% without
- •Property bought after 23 Jul 2024: only 12.5% without indexation
- •STCG (held < 24 months): taxed at slab rate - no change
For equity investors: net negative - rates went up. For long-term property investors with older purchases: potentially neutral to slightly positive - lower rate may offset indexation loss depending on property vintage. For property purchased recently (post Jul 2024): the removal of indexation is a disadvantage for most sellers over long holding periods. The ₹1.25L exemption limit increase saves ₹3,125/year - marginal for large portfolios. Always compute both options (20%+indexation vs 12.5% without) for pre-July 2024 property purchases to determine which gives lower tax.
Capital Gains Tax on Equity Shares and Mutual Funds - Detailed Guide
Equity shares listed on Indian stock exchanges (BSE/NSE) and equity-oriented mutual funds (funds with 65%+ equity allocation) follow the same capital gains tax treatment. Understanding the rules precisely can save significant tax, especially if you are a regular trader or long-term investor with a large portfolio.
When you sell listed equity shares or equity mutual fund units held for 12 months or less, the gain is Short-Term Capital Gain taxed at 20% (flat rate, not your income slab). This applies regardless of your total income. Add 4% health & education cess on the tax amount. No deduction under Chapter VI-A (80C, 80D etc.) is allowed against STCG u/s 111A.
When you sell listed equity shares or equity mutual fund units held for more than 12 months, the gain is LTCG taxed at 12.5%. The first ₹1.25 lakh of LTCG per financial year is completely exempt. No indexation benefit is available for equity - the cost basis remains the actual purchase price. Add 4% cess on the tax amount. LTCG u/s 112A also cannot be reduced by Chapter VI-A deductions.
Equity shares held since before 31 January 2018 benefit from a grandfathering provision. The cost of acquisition for such shares is the higher of: (a) the actual purchase price, or (b) the lower of the actual sale price and the Fair Market Value (FMV) as of 31 January 2018. This effectively exempts gains that had accrued before LTCG tax was reintroduced in 2018.
Equity capital gains - worked examples at different income levels
All amounts annual. 4% cess included in tax shown.
| Scenario | Gain type | Total gain | Taxable gain | Tax rate | Tax payable |
|---|---|---|---|---|---|
| Small LTCG - fully exempt | LTCG | ₹80,000 | ₹0 (under ₹1.25L) | 0% | ₹0 |
| Moderate LTCG | LTCG | ₹3,00,000 | ₹1,75,000 | 12.5% | ₹22,750 |
| Large LTCG | LTCG | ₹10,00,000 | ₹8,75,000 | 12.5% | ₹1,13,750 |
| Short-term gain (< 12 months) | STCG | ₹1,50,000 | ₹1,50,000 | 20% | ₹31,200 |
| LTCG + STCG in same year | Both | ₹2L LTCG + ₹1L STCG | ₹75K LTCG + ₹1L STCG | Mixed | ₹9,375 + ₹20,800 = ₹30,175 |
| LTCG with capital loss offset | LTCG | ₹5L gain, ₹2L LTCL | ₹3L − ₹1.25L = ₹1.75L | 12.5% | ₹22,750 |
Capital Gains Tax on Property Sale - Complete Guide with Indexation
Property is where capital gains tax has the most complex rules - and where the financial stakes are highest, often involving gains of tens of lakhs. The key variables are: when you purchased the property (before or after 23 July 2024), how long you held it, and whether you reinvest the proceeds.
- •Gain is added to total income and taxed at your income tax slab rate
- •No flat rate - a 30% slab taxpayer pays 30% + cess on the gain
- •No indexation benefit available for STCG on property
- •No exemption under Section 54 (which applies only to LTCG)
- •High tax cost - most property flippers face this on quick resales
- •Counted from date of registration, not agreement or possession
- •Pre-Jul 2024 purchase: choose 20% with indexation OR 12.5% without
- •Post-Jul 2024 purchase: only 12.5% without indexation
- •Indexation adjusts your cost upward for inflation (using CII) - reduces taxable gain significantly
- •Exemption u/s 54 available if gain is reinvested in a residential property
- •Exemption u/s 54EC available (up to ₹50L) by investing in NHAI/REC bonds
- •Joint ownership: each co-owner's share of LTCG is taxed separately
Property capital gains - worked examples (purchased before 23 Jul 2024)
| Purchase FY | Purchase price | CII at purchase | CII FY 2024-25 | Indexed cost | Sale price | LTCG | Tax @ 20% |
|---|---|---|---|---|---|---|---|
| 2005-06 | ₹20.00L | 117 | 363 | ₹62.05L | ₹50.00L | ₹0 | ₹0 |
| 2010-11 | ₹40.00L | 167 | 363 | ₹86.95L | ₹1.00 Cr | ₹13.05L | ₹2.72L |
| 2015-16 | ₹60.00L | 254 | 363 | ₹85.75L | ₹1.50 Cr | ₹64.25L | ₹13.36L |
| 2018-19 | ₹80.00L | 280 | 363 | ₹1.04 Cr | ₹2.00 Cr | ₹96.29L | ₹20.03L |
| 2020-21 | ₹1.00 Cr | 301 | 363 | ₹1.21 Cr | ₹2.50 Cr | ₹1.29 Cr | ₹26.92L |
Cost Inflation Index (CII) Table - FY 2001-02 to FY 2024-25
The Cost Inflation Index (CII) is notified by CBDT under Section 48 of the Income Tax Act. It is the basis for indexation benefit. The indexed cost of acquisition = (Actual purchase cost × CII of sale year) ÷ (CII of purchase year). The higher the CII multiplier, the greater the indexation benefit.
Complete CII table (base year FY 2001-02 = 100)
Indexation Benefit - How It Reduces Your Property Capital Gains Tax
Indexation is one of the most powerful tax benefits available to Indian property owners. Without it, your taxable gain would be calculated on the full nominal appreciation - ignoring the fact that much of that gain is simply inflation, not real wealth creation. Indexation adjusts your cost of acquisition upward to account for inflation, dramatically reducing the taxable capital gain.
Equity Tax Harvesting - Save ₹15,625 Per Year Completely Legally
Tax harvesting is one of the most underused legal tax-saving strategies available to Indian equity investors. It exploits the ₹1.25 lakh annual LTCG exemption on equity to systematically reset your cost basis at a higher level - deferring or eliminating future tax liability, without selling your underlying investment position.
The mechanics are simple: before 31st March each year, identify equity holdings (direct stocks or mutual fund units) with unrealised long-term capital gains of up to ₹1.25 lakh. Sell them. Immediately buy back the same quantity. The gain from the sale is fully exempt from tax. Your new cost basis is now the higher current market price. Future tax will be calculated from this higher base - reducing your future LTCG.
- • Only long-term gains (held >12 months for equity) are eligible for the ₹1.25L exemption
- • The ₹1.25L limit is per financial year - not per transaction or per stock
- • STT (Securities Transaction Tax) applies on both the sale and repurchase - a small cost
- • ELSS funds have a 3-year lock-in and cannot be sold and rebought before the lock-in
- • If you sell and repurchase within 1 day, there may be settlement/liquidity differences in price
Capital Loss Set-Off and Carry-Forward Rules in India
Capital losses are not wasted. The Indian tax code allows you to set off capital losses against capital gains - reducing your overall tax liability. The set-off rules are asymmetric: short-term losses are more flexible than long-term losses. Losses that cannot be set off in the current year can be carried forward for up to 8 years.
A critical requirement: you must file your ITR before the due date to carry forward capital losses. If you miss the due date, the right to carry forward that year’s losses is permanently lost.
| Loss type | Can set off against | Cannot set off against | Carry forward period | Condition |
|---|---|---|---|---|
| Short-Term Capital Loss (STCL) | STCG from any asset + LTCG from any asset | Salary, business income, house property income | 8 years | ITR filed before due date |
| Long-Term Capital Loss (LTCL) | LTCG from any asset only | STCG, salary, business, house property income | 8 years | ITR filed before due date |
| Business loss from speculation | Speculation profit only | Capital gains, salary, non-speculation business | 4 years | ITR filed before due date |
Capital Gains Tax Exemptions - Sections 54, 54EC, and 54F Explained
If you sell a property or other long-term capital asset, you can avoid paying LTCG tax entirely (or substantially) by reinvesting the gains or proceeds under specific exemption sections. These exemptions are among the most valuable tax benefits in the Indian tax code - but each has strict conditions that must be met precisely to qualify.
- •Applies only to LTCG on sale of a residential property (house or flat)
- •Reinvest the entire capital gain (not sale proceeds) in one new residential property
- •Purchase must be within 1 year before or 2 years after the date of sale
- •Construction must be completed within 3 years of the date of sale
- •Only one residential property can be purchased under this section
- •New property must be in India - overseas property does not qualify
- •If you do not reinvest before ITR due date, deposit in Capital Gains Account Scheme (CGAS)
- •If new property is sold within 3 years, the exemption is reversed and added back as income
- •Applies to LTCG from any long-term capital asset (property, gold, unlisted shares)
- •Invest LTCG in NHAI (National Highways Authority of India) or REC bonds
- •Investment must be made within 6 months of the date of sale
- •Maximum investment limit: ₹50 lakh per financial year
- •Bonds have a mandatory 5-year lock-in period
- •Interest earned on these bonds is taxable at slab rate
- •If bonds are pledged or transferred within 5 years, exemption is reversed
- •Does NOT require purchase of new property - suitable for sellers who don't want to buy real estate
- •Applies when you sell a long-term capital asset that is NOT a residential house
- •Invest the ENTIRE sale proceeds (not just the gain) in a residential property
- •Purchase within 1 year before or 2 years after sale; construction within 3 years
- •Exemption is proportional: if only 60% of proceeds reinvested, only 60% of LTCG is exempt
- •You must not own more than one residential property on the date of sale (other than the one being purchased)
- •New property must not be sold within 3 years
- •Works for gold, unlisted shares, commercial property, land, bonds etc.
Capital Gains Tax on Gold - Physical, Gold ETFs, SGBs, and Gold Funds
Gold is held in multiple forms by Indian investors - physical gold and jewellery, Gold ETFs listed on NSE/BSE, Sovereign Gold Bonds (SGBs) issued by RBI, and gold savings funds. Each has different capital gains tax treatment, and getting this right matters significantly on large holdings.
| Gold form | LTCG threshold | LTCG rate | Indexation | STCG rate | Special rules |
|---|---|---|---|---|---|
| Physical gold / jewellery | 24 months | 20%* with indexation | Yes* | Slab rate | Post-Jul 2024 purchases: 12.5% no idx |
| Gold ETF (listed) | 12 months | 12.5% | No | Slab rate | Treated like equity ETF from FY 2024-25 |
| Gold mutual fund (FoF) | 24 months | 20%* / 12.5% | Yes* | Slab rate | FoF investing in Gold ETFs |
| SGB - held to maturity | N/A | Fully exempt | N/A | N/A | Sec 47(viic) - zero tax at 8-yr maturity |
| SGB - sold on exchange | 12 months | 12.5% | No | Slab rate | Premature exit on stock exchange |