What is Capital Gains Tax — STCG vs LTCG Basics
Capital gains tax in India applies to profits earned from the sale of capital assets — shares, mutual funds, property, gold, bonds, and other investments. The Income Tax Act 1961 divides capital gains into two categories based on the holding period of the asset before sale: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). The tax rate differs significantly between the two categories, and the holding period threshold itself varies by asset type.nnFor listed equity shares and equity-oriented mutual funds, the holding period threshold is 12 months. Assets held for 12 months or less generate STCG; assets held for more than 12 months generate LTCG. For real estate (land, buildings), the threshold is 24 months — held up to 24 months is STCG, held more than 24 months is LTCG. For debt mutual funds, bonds, gold, and unlisted shares, the threshold is 36 months.nnCapital gains are computed as: Sale Consideration minus Cost of Acquisition minus Cost of Improvement minus Transfer Expenses. Under the old framework, LTCG on certain assets benefited from indexation — adjusting the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax Department annually. The Budget 2024 removed indexation for LTCG on assets sold after 23 July 2024, significantly increasing the taxable LTCG for long-held properties where inflation had substantially eroded real returns.
Capital Gains Tax Rates FY 2025-26 — Complete Rate Chart
The capital gains tax framework for FY 2025-26 reflects the changes introduced by the Union Budget 2024, which took effect from 23 July 2024 and apply fully to FY 2025-26. The most significant changes are the increase in STCG rate on equity from 15% to 20%, the removal of indexation for LTCG on property and other Section 112 assets, and the increase in the LTCG exemption threshold under Section 112A from Rs.1 lakh to Rs.1.25 lakh per year.nnFor equity shares listed on recognised stock exchanges and equity-oriented mutual funds, Section 111A governs STCG at 20%. Section 112A governs LTCG at 12.5% on gains exceeding Rs.1,25,000 in a financial year — the first Rs.1.25 lakh of LTCG on equity remains exempt. For all other LTCG — property, gold, debt funds (held >3 years under old rules), bonds, unlisted shares — Section 112 applies at a flat 20% with no indexation benefit from Budget 2024 onwards.
| Asset Type | Holding Period for LTCG | STCG Rate | LTCG Rate | Special Notes |
|---|---|---|---|---|
| Listed equity shares | More than 12 months | 20% (Section 111A) | 12.5% above Rs.1.25L (Section 112A) | STT must be paid at purchase and sale |
| Equity-oriented mutual funds | More than 12 months | 20% (Section 111A) | 12.5% above Rs.1.25L (Section 112A) | Equity orientation: >65% equity |
| Debt mutual funds | More than 36 months | Slab rate | Slab rate (no indexation from Apr 2023) | Budget 2023 change — all taxed at slab |
| Real estate (land/building) | More than 24 months | Slab rate | 20% (no indexation from Jul 2024) | Budget 2024 removed indexation |
| Gold (physical/ETF) | More than 36 months | Slab rate | 20% (no indexation from Jul 2024) | Gold ETF held >12 months may qualify as equity |
| Unlisted equity shares | More than 24 months | Slab rate | 20% (no indexation) | Indexed cost option removed |
| Bonds and debentures | More than 12/36 months | Slab rate | 10% (listed bonds) / 20% (unlisted) | Tax-free bonds: interest exempt, LTCG taxable |
| NRI property sale (by resident buyer) | More than 24 months | 30% deduction at source | 20% deduction at source | Section 195 applies — buyer deducts TDS |
LTCG on Property — Indexation Removed from Budget 2024
The removal of indexation for long-term capital gains on property is the most impactful capital gains change of the last decade. Prior to 23 July 2024, taxpayers selling property held for more than 24 months could adjust the purchase price for inflation using the Cost Inflation Index, significantly reducing the taxable LTCG. For a property purchased in 2005 at Rs.30 lakh and sold in 2025 at Rs.2 crore, indexation would have increased the deemed cost to approximately Rs.1.2 crore (using CII of 363/117), making LTCG = Rs.80 lakh instead of Rs.1.70 crore.nnPost Budget 2024, the same transaction attracts LTCG of Rs.1,70,00,000 (Rs.2 crore minus Rs.30 lakh) taxed at 20% = Rs.34,00,000. Without indexation, the tax has effectively increased by Rs.18,00,000 in this example. The government did introduce a grandfathering provision for assets acquired before 23 July 2024 — taxpayers can choose to apply the old 20% with indexation or the new 12.5% without indexation for assets acquired before this date, and must pick whichever results in lower tax. For assets acquired after 23 July 2024, only the 20% without indexation rate applies.nnTo save LTCG on property, the most effective option remains Section 54 (reinvestment in another residential property within 2 years of sale or 3 years for construction) which provides a full LTCG exemption on the reinvested amount. Section 54EC allows investment of up to Rs.50 lakh in specified bonds (NHAI, REC) within 6 months of sale for LTCG exemption, subject to a 5-year lock-in.
STCG and LTCG on Equity Shares and Mutual Funds
Equity investors face a significantly higher STCG rate of 20% from FY 2025-26 after the Budget 2024 revision from the previous 15%. This rate applies to gains from the sale of listed equity shares, equity mutual funds (funds with more than 65% allocation to equity), and units of business trusts traded on stock exchanges, provided Securities Transaction Tax (STT) was paid at the time of both purchase and sale. Derivatives (futures and options) do not qualify for Section 111A — F&O gains are always treated as business income taxable at slab rates.nnFor LTCG on equity under Section 112A, the rate is 12.5% on gains exceeding Rs.1,25,000 per financial year. Gains up to Rs.1.25 lakh are exempt — this makes the first Rs.1.25 lakh of annual equity LTCG a tax-free zone. Strategic investors who generate moderate equity gains can harvest gains up to Rs.1.25 lakh annually without any tax. The grandfathering provision for equity LTCG continues — the fair market value (highest price on stock exchange) as on 31 January 2018 is deemed as cost for shares or equity fund units acquired before that date.nnFor debt mutual funds held beyond 36 months, the Budget 2023 removed the special 20% with indexation rate — gains from debt funds are now taxed at slab rates regardless of holding period. This made debt funds tax-neutral compared to bank FDs for investors in the 30% slab. However, for lower tax bracket investors, debt funds held for longer periods still benefit from deferred taxation since tax is payable only on redemption.
How to Report Capital Gains in ITR and Save Tax Legally
Capital gains must be reported in ITR-2 (for individuals without business income) or ITR-3 (for individuals with business income). ITR-1 (Sahaj) cannot be used if the taxpayer has any capital gains income. The ITR requires separate schedules for each type of capital gain — Schedule CG for capital gains from property, gold, and other assets, and Schedule 112A specifically for LTCG on listed equity and equity mutual funds.nnFor equity transactions, the broker's capital gains statement (available from the broker's portal or Zerodha's console, Groww, Upstox etc.) provides the detailed trade-wise gain/loss information required for Schedule 112A. For property sales, the registered sale deed and purchase deed with cost computation including stamp duty and registration charges are used. For mutual funds, the CAMS or KFintech account statement with capital gains report by financial year is the primary source document.nnLegal tax-saving strategies for capital gains include: harvesting equity LTCG up to Rs.1.25 lakh annually to use the exempt threshold (sell and repurchase units to reset cost base), investing property LTCG in Section 54 (new house) or Section 54EC bonds within prescribed timelines, setting off capital losses against capital gains of the same type (STCG can be set off against STCG; LTCG against LTCG; STCG can also be set off against LTCG), and carrying forward unabsorbed capital losses for up to 8 assessment years.
