Capital Gains Tax in India — Complete Guide for FY 2025-26
What Changed in Budget 2024
The Union Budget 2024 (effective 23 July 2024) significantly overhauled capital gains taxation. LTCG on equity was raised from 10% to 12.5%, STCG on equity from 15% to 20%, and the annual LTCG exemption on equity was increased from ₹1 lakh to ₹1.25 lakh. For non-equity assets, indexation benefit was removed and a uniform 12.5% LTCG rate now applies. Property gets a special transition rule: if acquired before 23 July 2024, taxpayers can choose between 12.5% without indexation or 20% with indexation, whichever results in lower tax.
Holding Periods That Determine LTCG vs STCG
The classification of short-term vs long-term depends on the asset type and how long you held it. Listed equity shares and equity-oriented mutual funds need more than 12 months. Property (land and buildings) requires more than 24 months. Gold, jewellery, debt mutual funds, and unlisted shares also require more than 24 months (revised from 36 months by Budget 2024). Selling before these thresholds makes the gain short-term, which is either taxed at a flat rate (equity) or at your income tax slab rate (everything else).
The Grandfathering Rule for Equity
For listed equity shares and equity mutual fund units held before 1 February 2018, a special grandfathering provision protects gains accrued before LTCG tax was introduced. The cost of acquisition is taken as the higher of the actual purchase price or the fair market value on 31 January 2018 — but capped at the sale price. This means if you bought a stock at ₹100 in 2015 and its FMV on 31 January 2018 was ₹400, your effective cost becomes ₹400. Only gains above this grandfathered cost are taxed.
Indexation and the Property Exception
Indexation adjusts the purchase price for inflation using the Cost Inflation Index (CII), which reduces the taxable gain. Post July 2024, indexation has been removed for all asset classes except property with a special choice. If you bought property before 23 July 2024 and sell it after, you can compute tax both ways — 12.5% on unindexed gain vs 20% on indexed gain — and pay whichever is lower. This calculator automatically compares both options and picks the better one for you.
How to Save Tax Using Exemptions
Three key sections help reduce capital gains tax. Section 54 allows exemption on property sale gains when reinvested in a new residential house within 2 years (purchase) or 3 years (construction), capped at ₹10 crore. Section 54EC lets you invest up to ₹50 lakh in specified government bonds (NHAI, REC) within 6 months of the sale. Section 54F applies to gains from non-residential assets (gold, equity, debt) reinvested in a residential house. The exemption under 54F is proportional — if you reinvest only part of the sale proceeds, only that proportion of the gain is exempt.