Capital Gains Tax India — STCG and LTCG Rates for FY 2025-26

Capital Gains Tax India — STCG and LTCG Rates for FY 2025-26

The Finance Act 2024 reset India's capital gains framework in ways that affect every investor and property owner filing for Assessment Year (AY) 2026-27 and AY 2027-28. Listed equity and equity mutual funds now attract Short-Term Capital Gains (STCG) tax at 20% and Long-Term Capital Gains (LTCG) tax at 12.5% above a ₹1.25 lakh annual exemption. Immovable property LTCG is 12.5% without indexation, with a grandfathering election available for assets acquired before 23 July 2024. Debt mutual funds purchased after 1 April 2023 attract tax at slab rates regardless of how long you hold them. This guide covers every rate, threshold, exemption, and compliance step — with worked rupee examples you can apply to your own situation today.

What the Finance Act 2024 Actually Changed — and Why It Governs FY 2026-27

The structural overhaul took effect on 23 July 2024. The following changes carry forward unchanged into FY 2026-27 (AY 2027-28):

1. STCG on listed equity / equity MFs: raised from 15% to 20% under Section 111A
2. LTCG on listed equity / equity MFs / business trusts: raised from 10% to 12.5% under Section 112A
3. Annual LTCG exemption on equity: raised from ₹1 lakh to ₹1.25 lakh
4. LTCG on immovable property: cut from 20% (with indexation) to 12.5% without indexation for transfers on or after 23 July 2024
5. LTCG on other assets (gold, unlisted shares, pre-April 2023 debt funds): cut from 20% with indexation to 12.5% without indexation
6. Grandfathering for property: resident individuals and HUFs who acquired property before 23 July 2024 may elect either 12.5% without indexation or 20% with indexation — whichever yields lower tax

If you are planning a disposal of shares, property, or mutual fund units during FY 2026-27, these are the exact numbers governing your liability.

Holding Period Rules: When Does Short-Term Become Long-Term?

India does not apply a single holding period across all asset classes. The threshold depends on the type of capital asset:

Date discipline matters more than people realise. For shares bought on a stock exchange, count from the trade date. For shares allotted in an IPO, count from the allotment date — not the listing date. For property, the relevant date is typically the date of registration of the sale deed, not the execution of the agreement to sell or the date of possession.

Selling one day before the LTCG threshold is crossed means the entire gain is classified as STCG and taxed at 20% (equity) or at slab rates (property, gold). On a ₹40 lakh gain from property, rushing the sale by a week could convert a ₹5 lakh LTCG tax bill into a ₹12 lakh STCG tax bill at the 30% slab. Always compute the exact calendar date before signing any sale agreement.

Short-Term Capital Gains (STCG) Rates for FY 2026-27

Listed Equity, Equity MFs, Business Trust Units — Section 111A

STCG where Securities Transaction Tax (STT) has been paid: flat 20%, regardless of your income-tax slab. STT is automatically collected by your broker on exchange-traded equity transactions and by the AMC on equity mutual fund redemptions. You do not compute or pay it separately — it appears on your contract note and Consolidated Account Statement (CAS).

No slab benefit applies. Even if your total income falls below the basic exemption threshold, the STCG on equity is taxed at 20%. However, you may set off short-term capital losses from one equity transaction against STCG from another in the same year, and carry forward unabsorbed losses for up to eight assessment years.

Property, Gold, Unlisted Shares, and Post-March 2023 Debt MFs

STCG on these assets is added to your total income and taxed at applicable slab rates. Under the default new tax regime for FY 2026-27, the slabs are:

• Up to ₹4 lakh: Nil
• ₹4–8 lakh: 5%
• ₹8–12 lakh: 10%
• ₹12–16 lakh: 15%
• ₹16–20 lakh: 20%
• ₹20–24 lakh: 25%
• Above ₹24 lakh: 30% (plus applicable surcharge and 4% health and education cess)

Under the old regime, the top marginal rate is 30% above ₹10 lakh. If you sell property held for under 24 months, the gain lands in your total income at whatever slab applies.

Long-Term Capital Gains (LTCG) Rates for FY 2026-27

Listed Equity and Equity MFs — Section 112A

LTCG is taxed at 12.5% without indexation on aggregate gains exceeding ₹1.25 lakh in a financial year. The ₹1.25 lakh exemption applies to the total LTCG from all equity and equity MF transactions combined — not per scrip, not per scheme.

Gains up to ₹1.25 lakh: nil tax. Gains above ₹1.25 lakh: 12.5% on the excess. You cannot carry the unused exemption forward to the next year — it expires on 31 March.

Section 112A grandfathering (2018 vintage): For equity shares or equity MF units acquired before 31 January 2018, the cost of acquisition is deemed to be the lower of (a) the Fair Market Value (FMV) as at 31 January 2018 or (b) the actual sale consideration. This pre-2024 grandfathering is separate from the property grandfathering introduced in 2024.

Immovable Property — Section 112

LTCG: 12.5% without indexation for transfers on or after 23 July 2024. Residents who acquired property before that date may elect the grandfathering option — see the dedicated section below.

Unlisted Shares (Resident Indians)

LTCG: 12.5% without indexation — changed by Finance Act 2024 from the earlier 20% with indexation.

Gold and Other Capital Assets

LTCG: 12.5% without indexation — changed from the earlier 20% with indexation. A key exception: Sovereign Gold Bonds (SGBs) redeemed at maturity through the RBI are fully exempt from capital gains tax under Section 47(viic). SGBs sold before maturity on a stock exchange are taxed as LTCG at 12.5% (if held beyond 12 months). If you hold SGBs, plan your exit around the maturity window.

Debt Mutual Funds Purchased After 1 April 2023

No LTCG classification or tax benefit is available for this category. Gains are taxed at slab rates regardless of holding period — even if you hold the fund for 10 years. This change (introduced by the Finance Act 2023) permanently altered the attractiveness of debt funds as a tax-efficient vehicle for long-term investors. Debt funds bought before 1 April 2023 retain their old treatment: LTCG at 20% with indexation after 36 months.

The Grandfathering Election for Pre-July 2024 Property — Always Run Both Numbers

If you are a resident individual or HUF selling immovable property that you acquired before 23 July 2024, you may choose between two methods for that specific asset in your ITR:

• Option A: 12.5% on LTCG computed without any CII indexation
• Option B: 20% on LTCG computed after applying the Cost Inflation Index (CII)

The election is made per asset in Schedule CG of the ITR. This option is not available to companies, firms, non-resident individuals, or properties acquired on or after 23 July 2024.

The arithmetic is not intuitive. Run both calculations every time. The result depends on three variables: your purchase year, your purchase price, and the CII accumulation since then.

Worked Example: The Indexation vs. Flat-Rate Decision for Property

Scenario A — Long-held property acquired in FY 2001-02

Facts: Rahul (resident individual) purchased a flat in FY 2001-02 for ₹25 lakh. He sells it in FY 2025-26 for ₹1.5 crore. CII for FY 2001-02 = 100; CII for FY 2025-26 = 384 (as notified by CBDT).

Option A — 12.5% without indexation:

• LTCG = ₹1,50,00,000 − ₹25,00,000 = ₹1,25,00,000
• Tax = 12.5% × ₹1,25,00,000 = ₹15,62,500

Option B — 20% with indexation:

• Indexed cost = ₹25,00,000 × (384 ÷ 100) = ₹96,00,000
• LTCG = ₹1,50,00,000 − ₹96,00,000 = ₹54,00,000
• Tax = 20% × ₹54,00,000 = ₹10,80,000

Verdict: Indexation (Option B) saves Rahul ₹4,82,500. Choose Option B.

Scenario B — Recently acquired property (FY 2022-23)

Facts: Priya purchased a flat in FY 2022-23 for ₹90 lakh. She sells it in FY 2025-26 for ₹1.2 crore. CII FY 2022-23 = 331; CII FY 2025-26 = 384.

Option A — 12.5% without indexation:

• LTCG = ₹1,20,00,000 − ₹90,00,000 = ₹30,00,000
• Tax = 12.5% × ₹30,00,000 = ₹3,75,000

Option B — 20% with indexation:

• Indexed cost = ₹90,00,000 × (384 ÷ 331) = ₹1,04,41,088
• LTCG = ₹1,20,00,000 − ₹1,04,41,088 = ₹15,58,912
• Tax = 20% × ₹15,58,912 = ₹3,11,782

Verdict: Indexation still wins — but by only ₹63,218. The narrower the spread between CII growth and property appreciation, the less indexation helps.

General rule of thumb: Properties held since before 2010 will almost always benefit from indexation. Properties bought after 2018 in fast-appreciating markets may benefit from the flat 12.5% rate — but you must compute both before deciding.

Section 54, 54F and 54B — Reinvesting Your Gain in Residential Property

Section 54 — House Sold, House Bought

Who: Individuals and HUFs only. Asset sold: Residential house property (long-term). Reinvestment: One residential house in India, within these windows:

• Purchase 1 year before or 2 years after the date of transfer
• Construct a house within 3 years after the date of transfer

Exemption amount: Lower of (a) the LTCG or (b) the cost of the new house.

Two-house option: If your LTCG exceeds ₹2 crore, you may claim Section 54 against the purchase of two residential houses — but only once in your lifetime.

CGAS is not optional. If your ITR due date (typically 31 July for non-audit cases) arrives before you complete the reinvestment, deposit the unutilised LTCG amount in a Capital Gains Account Scheme (CGAS) with a designated public sector bank before filing. Parking the money in a regular FD or savings account does not protect the exemption — the Assessing Officer will disallow it.

Section 54F — Any LTCG Asset Sold, Residential House Bought

Section 54F extends similar relief when the asset sold is any long-term capital asset other than a residential house — equity shares, gold, commercial property, unlisted shares. Key additional conditions:

• You must invest the entire net sale consideration (not just the gain) in the new house to claim full exemption. Partial investment gives proportionate exemption.
• On the date of transfer, you must not own more than one other residential house.
• You must not sell the new house within 3 years of purchase/completion.

Section 54B — Agricultural Land to Agricultural Land

If you sell agricultural land that was used for agricultural purposes by you or your parent for at least two years before sale, you can invest the gain in new agricultural land within 2 years and claim full exemption. This covers both urban and rural agricultural land. Reinvest in CGAS if the ITR falls due before the purchase.

Section 54EC Bonds — Step-by-Step Procedure

Section 54EC shelters LTCG from the sale of immovable property (land, building, or both) by investing in notified government-backed bonds. Follow these steps exactly:

1. Fix the transfer date. Your 6-month investment window runs from this date. Sale deed registered on 10 September 2026 → you must invest by 9 March 2027.

1. Compute your LTCG. Only amounts up to ₹50 lakh can be sheltered under Section 54EC. If your gain is ₹80 lakh, a maximum of ₹50 lakh is eligible; the remaining ₹30 lakh is taxable at 12.5%.

1. Select the issuer. Currently notified issuers under Section 54EC: NHAI, REC, PFC, and IRFC. Bonds are issued in tranches. Confirm current tranche availability directly with the issuer's website or through your bank's relationship manager before assuming a tranche is open. Tranches close once their notified issue size is fully subscribed.

1. Respect the ₹50 lakh annual cap. The ceiling is per financial year, across all 54EC bonds combined. If your 6-month window spans two financial years (e.g., property sold in October 2026, window ends April 2027), you may invest ₹50 lakh in FY 2026-27 and ₹50 lakh in FY 2027-28 — potentially sheltering up to ₹1 crore — subject to the total 6-month deadline.

1. Do not pledge or transfer within 5 years. The lock-in is 5 years from the date of allotment. Selling, gifting, or pledging the bonds as collateral for any loan before 5 years causes the entire exempted gain to become taxable in the year of breach.

1. Report interest income annually. These bonds pay interest (around 5–5.5% per annum, as notified by each issuer). Interest is fully taxable at slab rates each year under "Income from Other Sources" — it is not exempt. Account for this in your year-on-year tax planning.

Worked example: Anjali sells a plot in August 2026 for ₹1.2 crore. Her LTCG is ₹75 lakh. She invests ₹50 lakh in REC 54EC bonds by February 2027. Exempt gain = ₹50 lakh. Taxable LTCG = ₹25 lakh. Tax at 12.5% = ₹3,12,500 — versus ₹9,37,500 had she made no 54EC investment. She considers using the remaining ₹25 lakh gain for a Section 54F reinvestment into a residential house to extinguish the residual liability.

TDS, STT and Schedule CG — Keeping the Compliance Trail Clean

Section 194-IA — Property Purchases Above ₹50 Lakh

When you buy immovable property for ₹50 lakh or more, you (as buyer) must:

• Deduct TDS at 1% of the total consideration at the time of payment (or credit, whichever is earlier)
• File Form 26QB on the TIN NSDL portal within 30 days from the end of the month in which TDS was deducted
• Download Form 16B (TDS certificate) from TRACES and provide it to the seller

For transactions with multiple buyers or sellers, each buyer deducts 1% on their proportionate payment. The seller claims this TDS credit in Schedule TDS of their ITR. Mismatches between the TDS amount shown in Form 26AS or AIS versus Schedule CG are the leading cause of CPC-143(1) adjustments and refund delays.

AIS / TIS Reconciliation Before Filing

Before filing your ITR for AY 2027-28, download your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) from the income tax portal (incometax.gov.in). These now capture:

• All listed equity and MF transactions (sourced from depositories and AMCs)
• Property sale consideration (sourced from sub-registrar data via Form 26QB filings)
• 54EC bond interest income (from issuer TDS returns filed under Form 26Q)
• STT paid (from stock exchange reporting)

Reconcile every figure against your broker contract notes, CAS statement, and property sale deed before you file. Post-filing mismatches attract prima facie adjustments under Section 143(1)(a), which convert into demands and, where you are owed a refund, delay it by months.

Common Mistakes That Trigger Demands and Delayed Refunds

1. Treating the ₹1.25 lakh equity LTCG exemption as per-transaction

The ₹1.25 lakh exemption under Section 112A is your annual aggregate cap across all equity and equity MF gains. If ten stock sales each generate ₹10,000 LTCG, your aggregate is ₹1 lakh — fully exempt. One more sale for ₹50,000 takes your aggregate to ₹1.5 lakh, making ₹25,000 taxable at 12.5%.

2. Skipping CGAS when reinvestment is incomplete before the ITR date

Leaving the LTCG amount in a regular savings account or FD while you search for a new property does not protect the Section 54 exemption. The Supreme Court and multiple High Courts have held that the CGAS deposit requirement is not directory — it is mandatory. Open the CGAS account before the ITR due date.

3. Applying the debt MF indexation rule to post-March 2023 purchases

Units purchased after 1 April 2023 are slab-rated regardless of holding period. Many wealth managers still model these as 20%-with-indexation assets. This error compounds over years — and the tax liability at redemption comes as a shock.

4. Pledging 54EC bonds as loan collateral within 5 years

Banks will sometimes accept 54EC bonds as collateral without flagging the capital gains consequence. Using the bonds as security — even temporarily — constitutes a "transfer" that breaks the 5-year lock-in condition and makes the entire exempted gain taxable in the year of pledge.

5. Starting the 6-month 54EC clock from the wrong date

The 6-month window begins on the date of transfer, which is the date the sale deed was registered — not the date of signing the agreement to sell, not the date of receipt of the advance, and not the date of handing over possession. Missing this distinction can lead you to believe you have more time than you actually do.

6. Adding pre-2001 improvement costs to the indexed cost of property

The CII can only be applied to improvement expenditure incurred on or after 1 April 2001. Pre-2001 renovation costs are ignored under Section 55(1)(b). Assessees who add the full cost of improvements — including pre-2001 additions — inflate their indexed cost and risk disallowance during scrutiny assessment.

Key Takeaways

• Holding period is your first lever. One day short of the LTCG threshold means STCG at 20% (equity) or slab rate (property, gold) — potentially a 2–3× tax increase on the same gain.
• Equity LTCG is 12.5% above ₹1.25 lakh aggregate; STCG is 20% flat. Both rates have been stable since 23 July 2024 and apply fully through FY 2026-27 (AY 2027-28).
• For pre-July 2024 property, always compute both the grandfathered options. For properties held since before 2010, indexation at 20% is almost certain to win. For properties acquired after 2018, the flat 12.5% rate may be better — model it, don't guess.
• Debt MFs bought after 1 April 2023 are permanently slab-rated. Factor this into redemption sequencing and portfolio rebalancing decisions.
• Section 54EC has three hard limits: six months from the transfer date, ₹50 lakh per financial year, five-year lock-in with no pledging. Missing any one of them negates the exemption entirely.
• CGAS is mandatory if reinvestment under Section 54 or 54F is not complete before your ITR filing date — a regular bank account does not qualify, and courts have consistently upheld this.
• Reconcile AIS/TIS with your records before filing. Discrepancies between portal data and your returns are the single largest driver of CPC notices and delayed refunds on capital gains returns.