Capital Gains Tax in India: What You Owe When You Sell Investments

When you sell a share, redeem a mutual fund, or sell a property for more than you paid for it, the profit is called a capital gain — and it's taxable.

Capital gains tax in India is not a single rate or a single rule. The tax depends on the type of asset, how long you held it, and when you sold it. Budget 2024 changed several key rates, adding to the complexity for investors who were used to the previous rules.

This is a working guide to how capital gains tax works across the most common asset classes.

Two Categories: Short-Term vs Long-Term

The most fundamental distinction is between short-term capital gains (STCG) and long-term capital gains (LTCG). This is based purely on the holding period — how long you owned the asset before selling.

Short-term gains are taxed at higher rates. Long-term gains usually have concessional rates or exemptions.

What counts as "long-term" varies by asset class:

Asset Type	Long-Term if Held For
Listed equity shares	More than 12 months
Equity-oriented mutual funds	More than 12 months
Debt mutual funds (pre-April 2023 purchases)	More than 36 months
Debt mutual funds (purchased April 2023 onwards)	No long-term benefit — all taxed at slab rate
Unlisted shares	More than 24 months
Immovable property (land, building)	More than 24 months
Gold ETF and gold funds	More than 36 months
Sovereign Gold Bonds	See note below

Equity and Equity Mutual Funds (Post Budget 2024)

These are the rules applicable from July 23, 2024:

Short-Term Capital Gains (STCG) — held 12 months or less: Flat 20% tax (increased from 15% in Budget 2024). Does not depend on your income tax slab.

Long-Term Capital Gains (LTCG) — held more than 12 months: 12.5% tax on gains above ₹1.25 lakh per year (up from 10% in Budget 2024; exemption limit increased from ₹1 lakh to ₹1.25 lakh).

Note: The ₹1.25 lakh LTCG exemption applies per financial year to the aggregate LTCG from equity and equity mutual funds.

Example — LTCG: You sold equity shares with a gain of ₹2,00,000 after holding them 2 years.

• Exempt LTCG: ₹1,25,000
• Taxable LTCG: ₹75,000
• Tax at 12.5%: ₹9,375
• Plus cess (4%): ₹375
• Total tax: approximately ₹9,750

Important for SIPs: Each monthly SIP instalment starts its own 12-month holding period clock. If you've been investing ₹10,000/month via SIP and start redeeming after exactly 12 months of the first SIP, only that first instalment is LTCG. The subsequent 11 months of SIPs would be STCG. After 24 months of SIP, the first 12 months of instalments become LTCG.

Debt Mutual Funds (Post March 2023)

Budget 2023 made a critical change: for debt mutual funds purchased from April 1, 2023 onwards, there are no long-term capital gains benefits. All gains — regardless of holding period — are taxed at your applicable income tax slab rate.

This effectively killed the tax efficiency advantage that debt mutual funds had over bank FDs for most investors. An FD interest is taxed at slab rate; a debt mutual fund redeemed after 3 years is now also taxed at slab rate.

Debt mutual funds purchased before April 1, 2023: If you have older investments made before April 2023, the old rules still apply for those units — LTCG (after 36 months) with indexation benefit at 20%.

Indexation: For assets eligible for indexation (older debt MF purchases, property), the cost of acquisition is adjusted for inflation using the Cost Inflation Index (CII) published by the government. This reduces the taxable gain by accounting for the erosion of money value over time.

Property (Immovable Assets)

Short-Term (held 24 months or less): Taxed at your applicable slab rate — the gain is added to your total income and taxed accordingly.

Long-Term (held more than 24 months):

Budget 2024 changed property LTCG rules significantly:

• New rate: 12.5% without indexation benefit
• Old rate (for assets sold before July 23, 2024): 20% with indexation benefit

For properties acquired before July 23, 2024 and sold on or after that date, taxpayers were initially given a choice between the old and new rates — subsequent clarifications have confirmed this grandfathering for older properties. Consult a CA for properties purchased before this date, as the rules have been subject to litigation and clarification.

Section 54 — Exemption on Property LTCG: If you sell a residential property and invest the LTCG in purchasing or constructing another residential property within 2 years (purchase) or 3 years (construction), the LTCG is exempt. The new property must be in India. You can claim this exemption under Section 54.

Section 54EC: LTCG from property can also be exempt if you invest in specified bonds (NHAI, REC) within 6 months of sale. Limit: ₹50 lakh. Lock-in: 5 years.

Capital Gains Account Scheme: If you've sold property and intend to use the proceeds for an exempt purpose (Section 54 or 54F) but haven't done so before filing ITR, deposit the unused amount in a Capital Gains Account at a designated bank before the ITR due date. This preserves the exemption option while the proceeds are held.

Gold

Physical gold and gold ETFs:

• STCG (held up to 36 months): Taxed at slab rate
• LTCG (held more than 36 months): 12.5% without indexation (post Budget 2024); previously 20% with indexation

Sovereign Gold Bonds (SGBs): The interest paid semi-annually is taxable at slab rates. The capital gain on maturity (after 8 years) in SGBs is fully exempt from capital gains tax — this is a significant tax advantage over physical gold or gold ETFs. Early redemption or secondary market sale is treated as capital gains and taxed accordingly.

Where to Report Capital Gains in ITR

Capital gains are reported in Schedule CG of ITR-2 (for individuals with capital gains who are not running a business) or ITR-3 (for business/profession income).

You need:

• Annual Capital Gains Statement from your broker or mutual fund platform
• Transaction history with purchase date, purchase price, sale date, and sale price for each transaction

Most brokers (Zerodha, Groww, etc.) and mutual fund platforms generate this statement automatically, usually labeled "Capital Gains Report" or "Tax P&L Statement."

STT (Securities Transaction Tax): STT is deducted at source on equity transactions. The 12.5% LTCG tax on equity requires that STT has been paid on the transaction — this is automatically satisfied when you trade through a registered Indian broker.

Tax-Loss Harvesting

If you have unrealised losses on some investments and unrealised gains on others, you can sell the loss-making holdings to create a capital loss that offsets your gains, reducing your tax liability.

After the loss is realised and reported, you can buy back the same investment (there's no wash-sale rule in India like the US). This is called tax-loss harvesting and is a legitimate tax planning strategy.

Important constraints:

• Short-term losses can offset both STCG and LTCG
• Long-term losses can only offset LTCG
• Carry forward of losses requires timely ITR filing
• Losses cannot be set off against salary, business income, or other non-capital-gain income

Advance Tax on Capital Gains

If you have capital gains during the year (from equity redemptions, property sales), you may need to pay advance tax. Capital gains that arise after March 15 can be paid by March 31 without any interest penalty. For gains arising before March 15, they should have been included in the advance tax calculation.

This matters particularly when selling property — a large one-time gain can result in a significant tax outflow that you need to plan for, not discover when filing the ITR.

Section 54 and 54F Exemptions: Detailed Conditions

These are the most valuable exemptions available on property capital gains — but they come with strict conditions.

Section 54: Sale of Residential Property, Reinvestment in Residential Property

Eligibility: Individual or HUF selling a long-term residential property

Exemption: LTCG is exempt if invested in:

• Purchase: One residential property in India within 1 year before sale or 2 years after sale
• Construction: One residential property in India within 3 years after sale

Conditions:

• The new property cannot be sold within 3 years of purchase/construction
• If new property sold within 3 years, the exemption is reversed (added back in year of sale)
• Maximum investment for exemption: Up to the amount of LTCG (not total sale proceeds)
• From FY 2023-24: maximum exemption under Section 54 is capped at ₹10 crore

Example: Sold residential flat for ₹80 lakh; purchased for ₹35 lakh in 2010. LTCG: ₹45 lakh (post-Budget 2024, without indexation).

If you buy a new flat for ₹50 lakh: Exemption = ₹45 lakh (entire LTCG), since new property cost ≥ LTCG. Tax: ₹0.

If you buy a new flat for ₹30 lakh: Exemption = ₹30 lakh. Taxable LTCG = ₹45L − ₹30L = ₹15 lakh. Tax at 12.5% = ₹1,87,500 + cess.

Section 54F: Sale of Any Long-Term Asset (Other Than Residential Property), Reinvestment in Residential Property

Eligibility: Individual or HUF selling any long-term capital asset that is NOT a residential property (e.g., equity shares, gold, commercial property, agricultural land held long-term)

Exemption: Proportional — (Investment in new property ÷ Net consideration from sale) × LTCG

Conditions:

• Invest net sale proceeds (not just gains) in a new residential property within 1 year before / 2 years after sale
• You must not own more than one residential property at the time of sale (other than the new one being purchased)
• The new property cannot be sold within 3 years
• Maximum exemption cap: ₹10 crore from FY 2023-24

Example: Sold equity shares (long-term) with LTCG of ₹40 lakh. Sale consideration: ₹70 lakh. Invest ₹70 lakh in new residential property.

Exemption = ₹40 lakh (100%, since entire proceeds reinvested). Zero tax.

If only ₹50 lakh reinvested out of ₹70 lakh: Exemption = (₹50L/₹70L) × ₹40L = ₹28.57 lakh. Taxable = ₹40L − ₹28.57L = ₹11.43 lakh. Tax at 12.5% = ₹1,42,875 + cess.

Capital Gains Account Scheme: Protecting Exemption While Investing

If you've sold an asset and intend to claim Section 54 or 54F exemption but haven't yet purchased/constructed the new property before the ITR filing date, you must deposit the unused proceeds in a Capital Gains Account Scheme (CGAS) account before the ITR filing due date (July 31, or the extended deadline).

How CGAS works:

• Open a Type A (savings) or Type B (FD) account with a designated bank (most nationalised banks)
• Deposit the capital gains amount (for Section 54) or net sale proceeds (for Section 54F)
• Withdraw only for the specific purpose of constructing/purchasing the property
• Must utilise funds within the prescribed time period (2 years for purchase, 3 years for construction)
• Unutilised amount is taxable as capital gains in the year the time period expires

Failing to deposit in CGAS before ITR filing forfeits the exemption — the full LTCG becomes taxable for that year.

Indexed Cost of Acquisition: When It Applies

Indexation adjusts the purchase price for inflation using the Cost Inflation Index (CII), reducing the taxable gain. It was widely used for property LTCG but was eliminated for assets sold after July 22, 2024 (Budget 2024 change).

Where indexation is still relevant:

• Debt mutual fund units purchased before April 1, 2023 (old units with 36-month LTCG treatment)
• Property purchased before July 23, 2024 and sold after that date — Budget 2024 eliminated indexation but the grandfathering provisions have been subject to clarifications. Consult a CA for assets in this window.

How indexation worked (historical reference):

Indexed cost = (CII of year of sale ÷ CII of year of purchase) × Original cost

If you bought property for ₹20 lakh in 2005 (CII: 117) and sold in 2024 (CII: 363): Indexed cost = (363/117) × ₹20L = ₹62.05 lakh. Even if sale price is ₹80 lakh, taxable LTCG = ₹80L − ₹62.05L = ₹17.95 lakh (not ₹60 lakh without indexation).

Post-Budget 2024, for property: LTCG = ₹80L − ₹20L = ₹60 lakh, taxed at 12.5% = ₹7.5 lakh. Under the old 20% with indexation: ₹17.95L × 20% = ₹3.59 lakh.

The elimination of indexation hurt most long-held property sellers. For properties purchased before July 23, 2024, the grandfathering rules are being interpreted to allow choice between old and new rates — this is an active area of tax law and requires professional guidance.

STT (Securities Transaction Tax) and Capital Gains

For equity shares and equity mutual funds, LTCG at 12.5% and STCG at 20% apply only when the transaction was subject to STT (Securities Transaction Tax). STT is automatically collected when you trade through a registered Indian stock exchange or redeem equity MF units through a registered AMC.

Cases where equity LTCG/STCG rates might not apply:

• Unlisted equity shares: Not subject to STT; LTCG (>24 months) at 12.5% without indexation; STCG at slab rate
• Off-market share transfers (private transactions): Not subject to STT; different tax treatment

For 99% of retail investors trading through registered brokers and mutual fund platforms, STT is automatically paid and the standard rates apply.

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This article is for educational purposes only. Capital gains tax rules change with each Budget. The figures cited here were current as of the analysis date but may have changed. Always verify rates with a qualified chartered accountant before filing or making investment decisions based on tax treatment.