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

Direct answer: Equity (>12 months) is taxed at 12.5% LTCG above ₹1.25 lakh a year, or 20% STCG below 12 months. Property, physical gold and other non-financial assets (>24 months) are 12.5% LTCG without indexation; debt mutual funds bought since April 2023 are taxed at slab rate regardless of holding period. This rate card took effect on 23 July 2024 and is still what applies to a sale you make in FY 2026-27 — tax year 2026-27, what the old numbering called AY 2027-28. Budget 2026 left it alone.

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. The rates below were set on 23 July 2024 and have survived two Budgets since, so they are the settled position rather than a fresh announcement — but rates are reset by each year's Finance Act, not fixed permanently, so treat "current" as meaning this filing year specifically.

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:

There used to be a third bucket at 36 months. It was abolished for transfers on or after 23 July 2024: everything now falls into either 12 months (securities listed on an Indian exchange, plus equity-oriented mutual fund units) or 24 months (everything else). If a guide still tells you gold or old debt funds need 36 months, it is describing a rule that no longer exists.

Equity and Equity Mutual Funds

These rules took effect on 23 July 2024 and are unchanged for FY 2026-27:

Short-Term Capital Gains (STCG) — held 12 months or less: Flat 20% tax. Budget 2024 raised this from 15% and it has stayed there since. 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. Budget 2024 raised the rate from 10% and lifted the exempt slice from ₹1 lakh to ₹1.25 lakh; both of those numbers still hold.

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: Those older units keep a long-term category, but on today's terms rather than the ones they were bought under. Hold them more than 24 months and the gain is LTCG at 12.5% — without indexation. The 36-month clock and the 20%-with-indexation rate that applied to these units are both gone, withdrawn for every redemption made on or after 23 July 2024.

Indexation: Where indexation still applies — which for most individuals now means land and buildings acquired before 23 July 2024, and nothing else — 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 rewrote property LTCG, and the position it created is still the one in force:

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

There is a carve-out, and it sits in the statute rather than in a clarification. If you are a resident individual or HUF selling land or a building acquired before 23 July 2024, the tax is computed both ways — 12.5% without indexation and 20% with indexation — and you pay whichever is lower. This was not a transitional window that has since closed: it attaches to the acquisition date, so it still applies to a sale made in FY 2026-27, and it will keep applying for as long as pre-July-2024 property changes hands. On a long-held flat the difference runs to several lakh, so run both numbers rather than assuming 12.5% is the answer. Non-residents, companies and firms do not get the choice.

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 capital gains bonds issued by a CBDT-notified issuer within 6 months of sale. Do not treat any published list of issuers as settled — CBDT notifies them one at a time and has kept adding to the set: HUDCO's bonds were notified with effect from 1 April 2025 and IREDA's from 9 July 2025, alongside long-standing issuers such as REC. It moves the other way too — NHAI, historically the largest, stopped issuing 54EC bonds in 2022, so do not go looking for those. Check the current notified list and confirm the issuer actually has a series open before you commit. Limit: ₹50 lakh in total across the year of sale and the following year — it does not reset in April. 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 savings funds:

• STCG (held 24 months or less): Taxed at slab rate
• LTCG (held more than 24 months): 12.5% without indexation. Until 23 July 2024 this was a 36-month clock and 20% with indexation; both are gone.

Gold ETFs: A gold ETF is listed, so it runs on the 12-month clock: more than 12 months is LTCG at 12.5% without indexation, 12 months or less is STCG at your slab rate. These were briefly caught by the Section 50AA "specified mutual fund" net, which deems every gain short-term and taxes it at slab rate whatever the holding period. That definition was narrowed to funds putting more than 65% of their money into debt and money-market instruments, which pulled gold ETFs back out of it from FY 2025-26. Unlisted gold fund-of-funds sit on the 24-month clock instead.

Sovereign Gold Bonds (SGBs): The interest paid semi-annually is taxable at slab rates. The capital gain on maturity (after 8 years) in Sovereign Gold Bonds is exempt from capital gains tax, but only on one path: the Finance Act, 2026 substituted Section 70(1)(x) of the Income-tax Act, 2025 so that from tax year 2026-27 the exemption applies only where the bond is "held by an individual from the date of original issue till maturity". A bond bought on the exchange, a bond sold and re-bought, an early redemption with the RBI from year 5, and a secondary-market sale before maturity are all taxable capital gains. Where it does apply, the exemption is still a significant advantage over physical gold or gold ETFs.

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 computed without indexation. (Because the flat was acquired before 23 July 2024, a resident seller could also compute it with indexation at 20% and pay the lower of the two — but where Section 54 applies in full, the tax is nil either way.)

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 and was withdrawn as a general rule for assets sold on or after 23 July 2024 (Budget 2024 change). It did not disappear entirely, and CBDT still notifies a fresh index every year — 384 for FY 2026-27, up from 376 for FY 2025-26.

Where indexation is still relevant:

• Land or a building acquired before 23 July 2024 and sold by a resident individual or HUF — the 20%-with-indexation computation survives alongside the 12.5% one, and you pay the lower
• Very little else, for a retail investor. Debt mutual fund units bought before April 2023 lost indexation on 23 July 2024 along with everything else, even though they kept a long-term category

How the two computations compare:

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

Say you bought property for ₹20 lakh in FY 2005-06 (CII: 117) and sell it for ₹80 lakh in FY 2026-27 (CII: 384).

• With indexation: indexed cost = (384/117) × ₹20L = ₹65.64 lakh. LTCG = ₹80L − ₹65.64L = ₹14.36 lakh. Tax at 20% = ₹2.87 lakh.
• Without indexation: LTCG = ₹80L − ₹20L = ₹60 lakh. Tax at 12.5% = ₹7.5 lakh.

Add 4% cess to whichever figure you end up paying. A resident individual here pays the ₹2.87 lakh, because the pre-July-2024 acquisition date lets them take the lower of the two. Someone who acquired after 23 July 2024 — say in September 2024, selling in March 2027, so the 24-month clock has comfortably cleared — has only the second line available to them.

That gap is the whole story of the change. On a property held for two decades, indexation is worth far more than the lower headline rate — which is exactly why the option was written back in for people who had already bought before the rules moved.

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.

Limitations and What Can Change

Everything above describes the mechanics of the tax, not advice for your specific transaction — large or unusual disposals (inherited assets, ESOP shares, off-market transfers, NRI sales) have edge cases that deserve a CA's sign-off before you file. Two structural things are also worth tracking, separate from any rate change: first, capital gains rates are reset by the Finance Act each year, so the figures here are current for FY 2026-27 gains specifically — tax year 2026-27, AY 2027-28 in the old numbering — confirmed unchanged by Budget 2026, not a permanent fixture. Second, the Income-tax Act, 2025 has been in force since 1 April 2026, replacing the Income-tax Act, 1961 under which Section 112A, Section 54 and Section 54F sat. It is a 536-section consolidation rather than a rewrite of the rates: 12.5% and 20% are unchanged, but the sections are renumbered and "Assessment Year" is now "Tax Year." Two practical consequences. A sale you made before 1 April 2026 is still governed by the 1961 Act, so an earlier year you are still cleaning up keeps the old section numbers. And returns under the new Act — for tax year 2026-27, the gains this article is about — are not due until mid-2027, so the forms and utilities are still settling. Expect older guides, and your CA's shorthand, to keep saying "112A" for a while yet; the substance is what matters.