Capital Gains Tax India:
STCG, LTCG Rates & Exemptions

Capital gains tax in India for FY 2025-26 works on one deceptively simple rule: hold one extra day past 12 months on equity and your LTCG tax rate drops from 20% (STCG) to 12.5%, saving ₹7,500 on every ₹1L of profit. Most guides stop at the rate table. This one goes further: the grandfathering clause worked to the rupee, correct use of Section 54/54EC/54F, how tax harvesting legally eliminates LTCG permanently, and the one-time loss set-off window closing March 2026.

1. What is Capital Gains Tax?

Capital gains tax (CGT) is the tax on profit earned from selling a capital asset: shares, mutual fund units, real estate, gold, bonds, or any investment held for appreciation. It is not a tax on the full sale amount, only on the profit (sale price minus purchase price minus allowable expenses).

India taxes capital gains differently from salary income. The LTCG tax rate on equity is 12.5% (for gains above ₹1.25L); the STCG tax rate is 20%. For property, the Cost Inflation Index (CII) determines whether 12.5% without indexation or 20% with indexation gives you a lower bill. Get the asset class and holding period right. The rest is arithmetic. Use our capital gains calculator to run the numbers instantly.

Capital gains tax is the most misunderstood element of investing in India. Most investors know it exists but cannot answer three basic questions: at what rate will they pay tax on their mutual fund redemption, whether they should sell before or after a specific date to qualify for lower rates, and how to legally use losses to reduce tax. Getting these wrong costs money on every investment exit. The tax rules were significantly restructured by Budget 2024 (Finance Act 2024, effective July 23, 2024) , with STCG on equity rising from 15% to 20% and LTCG rising from 10% to 12.5%, while the exemption threshold increased from ₹1L to ₹1.25L. Budget 2026 made no further changes to rates or holding periods , the current framework is now stable for FY 2026-27. This guide uses the 2026-applicable numbers throughout. Use the Capital Gains Calculator to compute exact tax on any specific transaction , enter purchase price, sale price, date of purchase, and asset type. The LTCG tax on mutual funds guide covers the mutual fund-specific rules in detail.

2. Holding Periods , The Clock That Changes Everything

The boundary between short-term and long-term is not uniform across asset classes. Listed equity has a 12-month threshold. Real estate, gold, and most unlisted assets require 24 months.

The holding period clock starts from the date of purchase and ends on the date of sale (date of transfer). For equity shares and equity mutual funds: the clock resets every time you switch funds within the same AMC, every time you redeem and reinvest, and every time you receive new units (e.g., bonus units get a fresh purchase date). For SIP investments, each monthly instalment has its own independent clock. A SIP started 3 years ago is not entirely LTCG , only the instalments from more than 12 months before redemption qualify as LTCG. The instalments from the last 12 months are STCG. This is the most common tax calculation error in SIP redemptions: treating the entire corpus as LTCG because "I started this SIP 5 years ago." The Mutual Fund Tax Calculator handles this per-instalment calculation automatically. For ELSS funds, the 3-year lock-in means all units always qualify as LTCG on redemption , no STCG ever applies to ELSS, making them the one category where the clock complexity disappears entirely. For real estate: the 24-month clock runs from the date of possession or registration of sale deed, not from the date of booking or first payment.

3. Capital Gains Tax Rate Cheat Sheet , FY 2025-26

Note: FD interest is not a capital gain , it is taxed as "income from other sources" at your full slab rate, identical to debt MF gains post-April 2023. This means the post-2023 tax parity between debt mutual funds and FDs is complete. If you hold FDs alongside equities, use our FD calculator with tax slab selector to model the exact post-tax yield on your FD alongside your capital gains from equity.

The 4% health and education cess applies on top of all capital gains tax rates. So STCG effective rate on equity = 20% × 1.04 = 20.8%. LTCG effective rate on equity = 12.5% × 1.04 = 13%. Surcharge applies at higher incomes (above ₹50L) and can further increase the effective rate. Budget 2024 removed indexation from real estate LTCG for assets sold on or after July 23, 2024 , but offered a choice for properties purchased before July 23, 2024: 12.5% without indexation OR 20% with indexation, whichever is lower. Use the Capital Gains Calculator to compare both options for pre-2024 property sales.

4. Equity & Mutual Funds , Worked Examples

The single most important change from Budget 2024: STCG on equity jumped from 15% to 20%. Holding equity for even one extra day beyond 12 months now saves 7.5% on your gains, which is ₹7,500 on every ₹1 lakh of profit. For larger portfolios, the holding period decision is worth more careful attention than most investors give it.

Example A , STCG (Sold within 12 months)

Example B , LTCG (Held over 12 months)

Example C , Large LTCG above exemption limit

The per-instalment rule for SIPs creates complexity that most investors underestimate. A ₹10,000/month SIP running for 2 years has 24 separate purchase dates. When you redeem after 2 years, the first 12 instalments (12+ months old) are LTCG , taxed at 12.5% above ₹1.25L. The last 12 instalments (under 12 months old) are STCG , taxed at 20% with no exemption. The SIP Calculator shows your corpus; the Mutual Fund Tax Calculator shows the tax breakdown across all instalments. The ELSS exception is the cleanest: mandatory 3-year lock-in means every instalment is LTCG at redemption. The grandfathering clause (for equity assets purchased before January 31, 2018) uses the higher of actual purchase price or January 31, 2018 price as cost basis , protecting gains accrued before LTCG was introduced. Use the Capital Gains Calculator to enter pre-2018 purchase prices and see how grandfathering affects your actual LTCG.

5. Real Estate , The Grandfathering Clause Worked Out

Capital gains on property sale in India changed materially after Budget 2024. The most misunderstood part is the grandfathering clause: if you bought property before July 23, 2024, you can choose between two computation methods and pay whichever results in lower tax. The Cost Inflation Index (CII) for FY 2025-26 is 363. This is the number that determines whether indexation saves you money.

For property bought on or after July 23, 2024, only 12.5% without indexation applies. No choice, no grandfathering.

Grandfathering Clause , Actual Calculation

6. Gold Taxation , Physical, ETF, and Sovereign Gold Bonds

Sovereign Gold Bonds are the most tax-efficient gold investment for long-term holders. Capital gains on SGB redemption at maturity are completely exempt, a significant advantage over physical gold and ETFs that face 12.5% LTCG. This makes SGB the clear winner if you can lock money for 8 years. To understand how gold's real return compares after tax and inflation, see our inflation calculator.

7. Section 54 vs 54EC vs 54F , Which Exemption to Use?

Most Indian investors know vaguely that "property exemptions exist" but confuse when each section applies. Here is the definitive comparison. This is the table no other guide gives you clearly.

8. Tax Harvesting , The Legal Way to Eliminate LTCG

Tax harvesting is the most underused equity tax planning strategy in India. The ₹1.25 lakh annual LTCG exemption is not a fixed deduction. It is a planning tool you can use actively every March to permanently eliminate future tax liability. This works best for SIP investors with multi-year accumulations. Use our SIP calculator to project your corpus and identify how much LTCG you are accumulating annually, or the step-up SIP calculator if your contributions increase each year.

How LTCG Harvesting Works

1. Before March 31 each year, identify equity mutual fund units held over 12 months with accumulated LTCG.
2. Sell units with gains up to ₹1.25 lakh. No LTCG tax is payable since you are within the exemption limit.
3. Immediately repurchase the same units at the current NAV. Your cost basis resets to today's price.
4. The ₹1.25L gain that existed before harvest no longer exists as an embedded tax liability. Future LTCG on these units starts fresh from the new (higher) cost basis.

9. Capital Loss Set-Off Rules , The Matrix

Capital losses cannot reduce your salary income or business income. They can only be set off against other capital gains. The rules differ between STCL and LTCL.

To carry forward losses to future years, your ITR must be filed by the due date (typically July 31). If you miss the deadline, the loss is forfeited and cannot be carried forward. This is the most common tax planning mistake investors make: missing the ITR deadline in a loss year. Calculate your net tax position including set-offs using our income tax calculator before you file.

The carry-forward rules add critical time pressure: capital losses can be carried forward for 8 assessment years (tax years) to set off against future gains. But they must be reported in the ITR for the year they are incurred, even if total income is below the filing threshold. Investors who skip filing ITR in a loss year permanently lose the carry-forward benefit , a common and expensive mistake. The Capital Gains Calculator tracks your set-off calculations across asset classes for the current year and flags remaining losses for carry-forward.

10. Tax Regime Choice & the Section 87A Trap

For STT-paid listed equity and equity mutual funds, STCG at 20% and LTCG at 12.5% are fixed rates independent of your tax regime choice. Switching from old to new regime or vice versa does not change these rates.

However, for assets taxed at slab rate (property STCG, debt MF gains, unlisted equity, and FD interest), the new tax regime's lower slab structure (5%, 15%, 20%, 25%, 30%) vs old regime does affect the tax payable. If your property STCG pushes you into the 30% slab, the tax regime choice matters here.

The Section 87A trap catches many investors by surprise. In the new tax regime, the ₹60,000 rebate (effective for incomes up to ₹12L) does not apply to capital gains from equity shares or equity mutual funds. A salaried investor with ₹11L salary income and ₹2L STCG from equity: salary after deductions = below ₹12L threshold, qualifies for 87A rebate on salary income. But the ₹2L STCG is taxed at 20% separately , the rebate cannot offset it. Total tax: ₹0 on salary (87A covers it) + ₹40,000 on STCG. This interaction means investors cannot assume that staying under the ₹12L effective zero-tax threshold makes all their income tax-free , capital gains sit outside the rebate mechanism. The Income Tax Calculator handles this interaction correctly when you enter both salary and capital gains income. The old vs new tax regime guide has the worked examples for investors with significant capital gains in both regimes.

11. Budget 2026 Updates to Capital Gains

Union Budget 2026 (February 2026) proposed one notable change: share buybacks will be taxed as capital gains in the hands of shareholders from AY 2027-28. Previously, companies paid a buyback distribution tax and shareholders received buyback proceeds tax-free. Under the new proposal, buyback proceeds will be treated as capital gains, classified as STCG or LTCG depending on holding period.

All other capital gains rates remain unchanged for FY 2025-26 and FY 2026-27: STCG 20% (equity, STT), LTCG 12.5% (all assets), ₹1.25L equity LTCG exemption intact.

For holistic tax planning integrating capital gains with salary income, NPS 80CCD(2) benefits, and home loan deductions, the retirement planning guide covers how each piece interacts under the new tax regime.

Budget 2026 confirmed no changes to STCG (20%) or LTCG (12.5%) rates , the government explicitly chose stability over reform. Three specific changes were made or confirmed in Budget 2026: First, buyback proceeds are now taxed as capital gains in the shareholder's hands (covered in §14). Second, no new SGB tranches announced for FY 2026-27 , existing SGB holders are unaffected. Third, the debt mutual fund slab-rate taxation (introduced April 2023) continues unchanged despite AMFI lobbying for restoration of LTCG with indexation. AMFI's key proposals for Budget 2026 that were NOT passed: raising LTCG exemption from ₹1.25L to ₹2L; restoring LTCG with indexation for debt MFs held over 36 months; complete exemption on equity MF LTCG held over 5 years. These remain investor wishlist items for Budget 2027. The dividend TDS threshold was raised to ₹10,000 in FY 2025-26 , this applies for FY 2026-27 as well. For tax planning purposes, the current regime (STCG 20%, LTCG 12.5%, ₹1.25L exemption) is locked in for at least another year. The old vs new tax regime guide covers how capital gains interact with your chosen tax regime , STCG on equity can use the basic exemption in the old regime, but not in the new regime in certain cases.

12. The Debt Mutual Fund Tax Trap , The Rule Most Investors Still Don't Know

The single most consequential and most misunderstood change in mutual fund taxation in recent years happened quietly on April 1, 2023. Before that date, debt mutual funds held for more than 3 years qualified for LTCG with indexation , typically resulting in near-zero tax because inflation adjustments reduced the taxable gain significantly. From April 1, 2023, all units purchased in debt mutual funds are taxed at slab rate regardless of holding period. There is no LTCG. There is no indexation. Hold a debt fund for 10 years and the entire gain is taxed at 20% or 30% depending on your slab. This makes debt mutual funds tax-equivalent to FDs for new purchases , the supposed advantage of "LTCG with indexation" no longer exists.

The important exception: units purchased in debt funds BEFORE April 1, 2023 retain the old LTCG-with-indexation treatment. Many investors still have legacy debt fund holdings from before the rule change , these should be evaluated carefully before redemption. The indexation benefit on pre-2023 holdings can reduce tax significantly. The practical implication for new investors: if you want a debt-like return profile with better tax treatment, consider: arbitrage funds (taxed as equity, 12.5% LTCG after 12 months), hybrid aggressive funds with 65%+ equity (equity tax treatment), or PPF/SCSS for completely tax-efficient debt returns. Use the FD Calculator alongside the Mutual Fund Tax Calculator to compare post-tax returns between FD and debt mutual funds at your specific slab rate , for most investors in the 20-30% bracket, the advantage has narrowed significantly post-2023.

13. NRI Capital Gains Tax , TDS, Filing and Treaty Benefits

NRI investors face the same capital gains tax rates as residents , STCG 20% on equity, LTCG 12.5% above ₹1.25L , but with a critical procedural difference: TDS is deducted at source on every redemption or sale. For equity funds and stocks: 20% TDS on STCG, 12.5% TDS on LTCG. For debt fund redemptions: TDS at 30% (maximum slab rate, since the broker doesn't know your actual slab). This creates a common refund scenario: an NRI in the 10% or 20% slab has TDS deducted at 30% on debt gains, and must file an Indian income tax return to claim the excess TDS back. The ₹1.25L LTCG exemption technically applies to NRIs on equity gains, but the TDS deduction mechanism may not always account for it , requiring the NRI to claim the exemption and refund via ITR filing.

Double Taxation Avoidance Agreements (DTAAs) between India and the NRI's country of residence can reduce or eliminate Indian capital gains tax in some cases. Countries with favourable DTAAs for capital gains include Mauritius (historic but now largely unwound for equity), Singapore (similar), Netherlands, and UAE. However, most NRIs from the US, UK, Canada, and Australia do not benefit from DTAA exemptions on Indian capital gains , they pay Indian CGT and then claim a foreign tax credit in their home country against their domestic tax. NRIs selling Indian property must apply for a lower TDS certificate from the Income Tax Department before the sale to avoid 20% TDS on the entire sale consideration (not just the gain). Without this certificate, the buyer must deduct 20% of ₹1 crore sale price = ₹20L, even if the actual capital gain is only ₹5L. The TDS Calculator models NRI TDS scenarios. Filing Indian ITR (ITR-2 or ITR-3) is mandatory for NRIs with Indian capital gains above the basic exemption limit, and is the mechanism for claiming DTAA benefits and excess TDS refunds.

14. The ₹2.25L Crossover , When Old 10% Rate Was Actually Better Than New 12.5%

A question many equity investors asked after Budget 2024 raised LTCG from 10% to 12.5%: "Is the new rate worse for me?" The answer depends on your annual gains, and there is a precise crossover point. At ₹1.25L annual gains: tax = ₹0 (fully exempt). Same under both old and new regime. At ₹2.25L annual gains: old system (₹2.25L gains, ₹1L exemption, 10% on ₹1.25L) = ₹12,500 tax. New system (₹2.25L gains, ₹1.25L exemption, 12.5% on ₹1L) = ₹12,500 tax. Exactly equal. Above ₹2.25L annual gains: new rate (12.5%) with higher exemption produces more tax than old rate (10%) with lower exemption. Below ₹2.25L annual gains: new system is better , the larger exemption outweighs the higher rate.

The practical implication: most retail SIP investors with annual equity gains under ₹2.25L are better off under the new system. Only investors with large equity portfolios generating ₹3L+ annual LTCG actually pay more under the new regime. Tax harvesting , redeeming equity fund units each March to book gains up to ₹1.25L and immediately reinvesting , is the standard technique to keep annual LTCG within the exemption limit indefinitely. Use the Capital Gains Calculator to see exactly where your annual LTCG falls relative to the ₹2.25L crossover point, and the Mutual Fund Tax Calculator to plan your March redemption-and-reinvestment for tax harvesting.