Capital Gains Tax in India: Types, Calculation, Rates, and Exemptions (FY 2025–26)

What changed after the July 2024 Budget

From 23 July 2024, capital gains tax became simpler in three big ways:

• LTCG rate rationalisation: A broad move to 12.5% for long-term capital gains under Sections 112 and 112A (with different conditions).
• Fewer holding-period buckets: The old 12-month, 24-month, 36-month style split was simplified.
• Indexation largely removed: For many assets transferred on or after 23 July 2024, indexation benefit is not available, paired with the lower LTCG rate. 

Also, for STT-covered equity cases, the concessional STCG rate under Section 111A moved to 20%, and LTCG under Section 112A moved to 12.5%, with the exemption threshold increased to ₹1.25 lakh.

What is a capital asset, and what is not

You pay capital gains tax when you sell a capital asset for a profit. Capital assets include things like property, shares, mutual fund units, gold, bonds, and even intangible assets like trademarks and patents.

Some items are kept outside “capital asset” rules, typically personal-use items. But one common confusion matters:

• Jewellery is not treated as a “personal effect”. So gains on sale of jewellery can still be taxable as capital gains.

Capital Gains vs Capital Loss

If you sell below your purchase price, you have a capital loss. Tax is generally computed on net gains after set-off rules:

• STCL can be set off against STCG and LTCG.
• LTCL can be set off only against LTCG.
• Unabsorbed capital loss can be carried forward for 8 years (subject to return-filing conditions).

These are standard Income Tax Department rules.

How to calculate capital gains

Start here, always:

• Sale value: what you received on sale
• Transfer expenses: brokerage, legal fees, stamp duty paid by seller (if applicable), etc.
• Cost of acquisition: what you originally paid
• Cost of improvement: eligible improvement costs (commonly used in property)

Then classify it as STCG or LTCG based on holding period, and apply the right tax rate.

STCG vs LTCG holding periods after 23 July 2024

In simple terms, many assets now fall into one of these buckets.

Quick note: There are edge cases by instrument type (listed vs unlisted, special instruments). If your asset is unusual, verify the exact holding-period rule before filing.

Tax rates: the cheat sheet

Post 23 July 2024, these are the most-used rates most taxpayers deal with:

• Equity / Equity MF / Business trust units (STT conditions)
  • STCG (Section 111A): 20%
  • LTCG (Section 112A): 12.5% on gains above ₹1.25 lakh in a financial year 
• Other LTCG (Section 112, many assets): 12.5% and generally without indexation for transfers on/after 23 July 2024
• Other STCG (non-111A cases): usually taxed at your slab rate

Remember: final tax payable can include surcharge and cess depending on your income and filing situation.

Special case: “no LTCG” for specified mutual funds and market-linked debentures

Some instruments are treated differently even if you hold them for years.

Under Section 50AA, gains from:

• Specified mutual funds (as defined for this purpose)
• Market-linked debentures

can be treated as short-term capital gains irrespective of holding period. In plain English, you lose the “wait long-term, get LTCG treatment” benefit for these.

How to save tax legally: key capital gains exemptions

These are the exemptions people search for most. They matter mainly for property and large long-term gains.

Section 54: sell a residential house, buy another house

• Applies when you sell a long-term residential house property and invest in another residential house in India.
• Time limits: buy within 1 year before or 2 years after sale, or construct within 3 years.
• If you cannot complete purchase/construction before filing, you may need the Capital Gains Account Scheme route (practical compliance step, not a loophole).

Section 54F: sell any long-term asset (not a house), buy a house

• Applies when you sell a long-term capital asset other than a residential house (example: shares) and invest in a residential house in India, subject to conditions.
• Time limits are broadly similar to Section 54 (purchase window and construction window).

Section 54EC: sell land/building, invest in specified bonds

• For LTCG arising from transfer of land or building (or both), you can invest in notified bonds within the allowed time.
• Common market rule points: invest within 6 months, max ₹50 lakh per financial year, typical lock-in 5 years (confirm current issuer rules when you buy).

Practical heads-up: The Income Tax Department also reflects caps and conditions for exemptions (example: limits around very large investments under Section 54/54F).

Worked examples (3 common scenarios)

Example 1: Equity mutual fund LTCG (Section 112A)

You invested ₹5,00,000 in an equity mutual fund and sold it later for ₹7,50,000 after more than 12 months.

• LTCG = ₹7,50,000 − ₹5,00,000 = ₹2,50,000
• Exempt under 112A threshold = ₹1,25,000
• Taxable LTCG = ₹2,50,000 − ₹1,25,000 = ₹1,25,000
• Tax (12.5%) = ₹15,625 (plus cess/surcharge if applicable)

Rate and threshold are per official FAQs.

Example 2: Property LTCG with Section 54EC route

You sell a long-term plot for ₹90,00,000. After transfer expenses, your LTCG works out to ₹30,00,000.

• If you do nothing, LTCG may be taxed at 12.5% (Section 112) for transfers on/after 23 July 2024, generally without indexation.
• If eligible, you invest ₹30,00,000 of capital gains into Section 54EC specified bonds within the allowed time window, you can claim exemption to that extent (subject to conditions).

Example 3: Using capital loss set-off

This year, you have:

• STCG (111A) from equity sale: ₹1,00,000
• LTCG (112A) from equity sale: ₹2,00,000
• STCL from another equity sale: ₹70,000

Set-off logic:

• STCL can be set off against STCG first: ₹1,00,000 − ₹70,000 = ₹30,000 STCG remains
• If STCL is still left, it can also be set off against LTCG
• LTCL can only be set off against LTCG

These set-off rules are per Income Tax Department FAQs/tutorials.

Documents to keep ready (makes filing smoother)

• Purchase and sale contract notes (shares), statement of capital gains from broker, MF capital gains statement
• Property purchase deed, sale deed, brokerage proof, legal fee receipts
• Proof of improvement cost for property (invoices, bank trail)
• 54/54F: new property agreement, payment proofs, possession documents, CGAS deposit proof if used
• 54EC: bond allotment proof, investment date, lock-in details

Takeaway

Classify the asset correctly, compute gains with the basic formula, apply the right rate (111A, 112A, 112, or 50AA), then check if Section 54, 54F, or 54EC fits your case.

FAQs

1. Is capital gains tax “always 12.5%” now?

No. Many LTCG cases moved to 12.5%, but STCG can still be 20% (111A) or slab rate depending on the asset.

2. Is indexation available for property sold now?

For many transfers on/after 23 July 2024, official guidance states indexation is not available under the rationalised regime.

3. Do I get the ₹1.25 lakh exemption on all LTCG?

The ₹1.25 lakh threshold is specifically highlighted for Section 112A equity-style LTCG cases.

4. Can I set off capital losses against salary?

No. Capital losses are set off only against capital gains, subject to rules.

5. How long can I carry forward capital losses?

Typically up to 8 assessment years, subject to return filing rules.

6. Are debt mutual funds taxed like equity funds?

Not necessarily. Some funds can fall under the Section 50AA “specified mutual fund” definition where gains are treated as short-term irrespective of holding period.

7. Can I use Section 54 if I buy a house before selling the old one?

Section 54 allows purchase within 1 year before the date of transfer, or within 2 years after, or construction within 3 years, subject to conditions.

8. Is Section 54EC limited to ₹50 lakh?

In practice, the cap is commonly reflected as ₹50 lakh per financial year, and issuers also show this limit on their product pages.

Disclaimer: This content is for education. Tax outcomes depend on facts, dates, and instrument type. Use official Income Tax Department guidance and your return-filing context for final decisions.