With the ITR filing deadline of 31 July 2026 approaching, calculating capital gains tax correctly is one of the most critical — and error-prone — parts of filing your return for FY 2025-26 (AY 2026-27).
Finance Act 2024 overhauled capital gains taxation in a way not seen since 2018. New rates, a higher exemption limit, reduced holding periods for gold, and a contentious change on indexation for property — all took effect from 23 July 2024 onwards. This guide walks through every asset class with the exact rules and worked numbers.
1. What are Capital Gains?
A capital gain arises when you sell a capital asset — shares, property, gold, mutual funds, bonds — for more than you paid for it. The profit is your capital gain, and it is taxed separately from your salary or business income.
Capital gains are classified into two types based on how long you held the asset:
- Long-Term Capital Gains (LTCG): Asset held beyond the prescribed holding period for that asset class. Taxed at concessional flat rates.
- Short-Term Capital Gains (STCG): Asset held for the prescribed period or less. Taxed at higher flat rates or at your income slab rate.
Key point: Capital gains are reported in Schedule CG of your ITR. They are computed separately from your other income, though they may affect your slab rate in certain situations.
2. Finance Act 2024 — What Changed
The Union Budget 2024 (Finance Act 2024), presented on 23 July 2024, made the following changes, effective from that date:
| Change | Before 23 Jul 2024 | After 23 Jul 2024 |
|---|---|---|
| Equity LTCG rate (Sec 112A) | 10% above ₹1 lakh | 12.5% above ₹1.25 lakh |
| Equity LTCG exemption limit | ₹1,00,000 | ₹1,25,000 |
| Equity STCG rate (Sec 111A) | 15% | 20% |
| Real estate LTCG rate | 20% with indexation | 12.5% without indexation |
| Gold / jewellery LTCG holding | 36 months | 24 months |
| Gold LTCG rate | 20% with indexation | 12.5% without indexation |
| Debt MF taxation | Slab rate (since Apr 2023) | Slab rate (unchanged) |
Property sold after 23 Jul 2024 but acquired before that date? You have a choice: 12.5% without indexation, or 20% with indexation — whichever gives you lower tax. This applies only to property acquired before 23 July 2024.
3. Complete Rate Table FY 2025-26
| Asset Class | Holding for LTCG | LTCG Rate | STCG Rate | Section |
|---|---|---|---|---|
| Listed Equity / Equity MF (STT paid) | > 12 months | 12.5% above ₹1.25L | 20% | 112A / 111A |
| Unlisted Equity | > 24 months | 12.5% | Slab rate | 112 |
| Real Estate | > 24 months | 12.5% (no indexation)* | Slab rate | 112 |
| Gold / Jewellery / SGB | > 24 months | 12.5% | Slab rate | 112 |
| Debt MF / Bonds (post Apr 2023) | All at slab rate | — | Slab rate | 50AA |
| Debt MF (acquired pre Apr 2023) | > 36 months | 20% with indexation | Slab rate | 112 |
| * Pre-23 Jul 2024 acquisitions: choice between 12.5% without indexation or 20% with indexation. Add 4% cess on all tax. Surcharge applies for income > ₹50L. | ||||
4. Equity & Mutual Funds — Section 112A and 111A
Listed equity shares and equity-oriented mutual funds (where at least 65% is invested in equity) sold on a recognised exchange with Securities Transaction Tax (STT) paid attract the special rates under Sections 112A (LTCG) and 111A (STCG).
Long-Term Capital Gains (LTCG) — Sec 112A
- Holding period: More than 12 months
- Rate: 12.5% on gains above ₹1,25,000 per financial year
- Exemption: First ₹1.25 lakh of LTCG in the year is fully tax-free
- Rebate u/s 87A: NOT available against tax on Sec 112A LTCG
- Surcharge: Capped at 15% even for very high incomes
Tax = Taxable LTCG × 12.5%
Add: Health & Education Cess = Tax × 4%
Total LTCG Tax = Tax + Cess
The ₹1.25L exemption is per financial year, not per transaction. If you sold multiple scrips during FY 2025-26, aggregate all your equity LTCG — you get only one ₹1.25L exemption across all of them. Plan your redemptions accordingly to stay within the limit.
Short-Term Capital Gains (STCG) — Sec 111A
- Holding period: 12 months or less
- Rate: 20% (raised from 15% by Finance Act 2024)
- Rebate u/s 87A: NOT available against Sec 111A STCG tax
5. Grandfathering for Equity Acquired Before 31 January 2018
When LTCG on equity was reintroduced in 2018 after a 14-year gap, Parliament included a grandfathering provision to ensure gains already accrued before that date were not taxed retroactively.
If you hold equity shares or equity mutual funds that you acquired on or before 31 January 2018, your deemed cost of acquisition for LTCG purposes is calculated as follows:
(a) Actual purchase price, and
(b) FMV (closing price / NAV) on 31 Jan 2018
Step 2: Deemed cost = min(Step 1 result, Actual sale price)
LTCG = Sale price − Deemed cost
The practical effect: if the stock's value on 31 Jan 2018 was higher than your purchase price, you use the higher FMV as your cost — shielding those pre-2018 gains from tax. But if the stock has fallen below its 31 Jan 2018 value, you are capped at the sale price (meaning your LTCG is zero, not negative — you cannot claim a loss using the FMV).
Grandfathering — Worked Illustration
| Scenario | Purchase Price | FMV 31 Jan 2018 | Sale Price | Deemed Cost | LTCG |
|---|---|---|---|---|---|
| A — FMV highest | ₹40 | ₹100 | ₹150 | ₹100 | ₹50 |
| B — Purchase highest | ₹120 | ₹100 | ₹150 | ₹120 | ₹30 |
| C — Sale below FMV | ₹40 | ₹100 | ₹80 | ₹80 | ₹0 (not a loss) |
In Scenario C, the investor bought at ₹40, FMV on 31 Jan 2018 was ₹100, but they sold at ₹80. Deemed cost is capped at sale price (₹80), so LTCG = ₹0. The pre-2018 gain of ₹40 (from purchase to FMV) is tax-free, but the post-2018 loss of ₹20 (from ₹100 FMV to ₹80 sale) cannot be claimed either.
Where to find FMV on 31 Jan 2018: For listed shares — NSE/BSE historical closing price on 31 Jan 2018. For mutual funds — the fund house's NAV history on 31 Jan 2018. Many fund houses publish these on their websites.
6. Real Estate Capital Gains
Capital gains on land, buildings, and residential property are among the most complex to compute — primarily because of the indexation option introduced by Finance Act 2024 for properties acquired before 23 July 2024.
Holding Period
For real estate, the holding period for LTCG classification is more than 24 months. Property held for 24 months or less is STCG, taxed at your income slab rate.
Cost of Acquisition
Your cost includes:
- Purchase price (including stamp duty and registration charges)
- Cost of improvement / renovation (any capital expenditure that adds to the property's value)
- Brokerage paid on purchase
Note: Brokerage on sale is deducted from sale consideration, not added to cost.
7. The Indexation Option for Pre-23 July 2024 Property
This is the most discussed change from Finance Act 2024 for property owners. If you acquired your property before 23 July 2024, you can choose between two options for LTCG computation:
| Option | Rate | Indexation | When better? |
|---|---|---|---|
| Option A (new default) | 12.5% | No | When property has appreciated significantly relative to inflation |
| Option B (old regime) | 20% | Yes (CII) | When property appreciation was modest and inflation was high |
You must compute tax under both options and choose the one resulting in lower tax. The government mandates this comparison — you cannot arbitrarily pick one.
Cost Inflation Index (CII) — CBDT Notified
| Financial Year | CII | Financial Year | CII |
|---|---|---|---|
| 2001-02 (Base) | 100 | 2014-15 | 240 |
| 2005-06 | 117 | 2017-18 | 272 |
| 2007-08 | 129 | 2020-21 | 301 |
| 2010-11 | 167 | 2022-23 | 331 |
| 2012-13 | 200 | 2023-24 | 348 |
| 2013-14 | 220 | 2024-25 | 363 |
| 2025-26 | 371 |
LTCG (with indexation) = Sale Price − Indexed Cost
Tax = LTCG × 20% + 4% cess
LTCG (without indexation) = Sale Price − Actual Cost
Tax = LTCG × 12.5% + 4% cess
→ Pay the lower of the two
Section 54 / 54F Exemption
If you reinvest your LTCG from property sale into a new residential house property, you can claim exemption under Section 54 (if sold property was residential) or Section 54F (if sold property was non-residential). Key conditions:
- Buy the new house within 1 year before or 2 years after the sale, or
- Construct a new house within 3 years of the sale
- If entire proceeds are not reinvested, proportional exemption applies
- Cannot own more than one residential house on the date of transfer (Sec 54F)
8. Gold & Jewellery
Finance Act 2024 reduced the LTCG holding period for gold from 36 months to 24 months. Tax rates:
- LTCG (held > 24 months): 12.5% without indexation
- STCG (held ≤ 24 months): Slab rate
Sovereign Gold Bonds (SGBs) redeemed at maturity are fully exempt from capital gains tax (Sec 10(47)). However, premature redemption through the exchange is taxed at capital gains rates. If you hold SGBs, check whether you are at the 8-year maturity mark before selling.
9. Debt Mutual Funds & Bonds
Under Finance Act 2023, debt mutual funds acquired on or after 1 April 2023 are taxed at your income slab rate regardless of holding period. There is no LTCG/STCG distinction and no indexation benefit for these funds.
Debt MFs acquired before 1 April 2023 retain the old treatment: LTCG (held > 36 months) at 20% with indexation; STCG at slab rate.
| Fund Type | Acquired | Tax Treatment |
|---|---|---|
| Debt MF / Liquid Fund / FMP | On or after 1 Apr 2023 | Slab rate — all gains, always |
| Debt MF | Before 1 Apr 2023, held > 36 months | 20% LTCG with indexation |
| Debt MF | Before 1 Apr 2023, held ≤ 36 months | Slab rate |
| Listed bonds / NCDs | Any date, held > 12 months | 12.5% LTCG (no indexation) |
| Unlisted bonds | Any date, held > 36 months | 20% LTCG with indexation |
10. Comprehensive Worked Example
Let's walk through Priya Sharma's FY 2025-26 capital gains across all four asset classes.
Priya's profile: Salaried professional, income tax slab 30%, FY 2025-26. She sold equity mutual funds, an apartment, gold and an equity share during the year.
Transaction A — Equity Mutual Fund (LTCG)
| Detail | Amount |
|---|---|
| Units purchased | 10,000 @ NAV ₹45 (Oct 2022) |
| Purchase cost | ₹4,50,000 |
| Sale proceeds | ₹8,20,000 (Nov 2025 — held 37 months) |
| Gross LTCG | ₹3,70,000 |
| Exemption u/s 112A | ₹1,25,000 |
| Taxable LTCG | ₹2,45,000 |
| LTCG Tax @ 12.5% | ₹30,625 |
| Cess @ 4% | ₹1,225 |
| Tax on Transaction A | ₹31,850 |
Transaction B — Apartment (LTCG, pre-23 Jul 2024 acquisition)
| Detail | Option A: 12.5% no indexation | Option B: 20% with indexation |
|---|---|---|
| Purchase (May 2015) — CII 254 | ₹35,00,000 | ₹35,00,000 |
| Cost of improvement | ₹5,00,000 | ₹5,00,000 |
| Total cost | ₹40,00,000 | ₹40,00,000 |
| Sale (Sep 2025 — held > 24 months) — CII 371 | ₹95,00,000 | ₹95,00,000 |
| Indexed cost (40,00,000 × 371/254) | — | ₹58,42,520 |
| Taxable LTCG | ₹55,00,000 | ₹36,57,480 |
| Tax | ₹6,87,500 @ 12.5% | ₹7,31,496 @ 20% |
| Cess @ 4% | ₹27,500 | ₹29,260 |
| Total Tax | ₹7,15,000 ← Lower | ₹7,60,756 |
Priya chooses Option A (12.5% without indexation) — it saves her ₹45,756 compared to the old indexation regime. In this case, the property's appreciation (136%) far outpaced inflation, making the lower flat rate more beneficial.
Transaction C — Gold (STCG)
| Detail | Amount |
|---|---|
| Gold purchased (Aug 2024) | ₹3,50,000 |
| Gold sold (Feb 2026 — held 18 months) | ₹4,80,000 |
| Gross gain | ₹1,30,000 |
| Gain type | STCG (18 months ≤ 24 months threshold) |
| Tax @ 30% slab rate | ₹39,000 |
| Cess @ 4% | ₹1,560 |
| Tax on Transaction C | ₹40,560 |
Transaction D — Equity Share (STCG)
| Detail | Amount |
|---|---|
| Shares purchased (Jan 2026) | ₹2,00,000 |
| Shares sold (May 2026 — held 4 months) | ₹2,70,000 |
| STCG (Sec 111A) | ₹70,000 |
| Tax @ 20% (Sec 111A) | ₹14,000 |
| Cess @ 4% | ₹560 |
| Tax on Transaction D | ₹14,560 |
Priya's Total Capital Gains Tax — FY 2025-26
| Transaction | Asset | Gain Type | Taxable Gain | Tax + Cess |
|---|---|---|---|---|
| A | Equity MF | LTCG (112A) | ₹2,45,000 | ₹31,850 |
| B | Apartment | LTCG (12.5%) | ₹55,00,000 | ₹7,15,000 |
| C | Gold | STCG (slab) | ₹1,30,000 | ₹40,560 |
| D | Equity shares | STCG (111A) | ₹70,000 | ₹14,560 |
| Total Capital Gains Tax | ₹8,01,970 | |||
11. ITR Schedule CG — Filing Tips
Use ITR-2 (not ITR-1)
Capital gains of any amount require ITR-2. ITR-1 (Sahaj) does not have Schedule CG. If you have capital gains, you must file ITR-2 or ITR-3 (if you also have business income).
Reconcile with Form 26AS and AIS
The Income Tax Department pre-fills capital gains in AIS (Annual Information Statement) from information received from stock exchanges, registrars and mutual funds. Cross-check your records against AIS — discrepancies trigger notices.
Report each transaction separately for equity
For equity shares and equity MF, the ITR requires reporting either scrip-wise (pre-filled from SEBI/exchanges) or consolidated figures in the new simplified format. Use consolidated mode if you have many transactions — it's allowed and reduces filing effort.
File before 31 July to carry forward losses
Capital losses can be set off against capital gains of the same or next 8 years. But to carry forward losses, you must file your ITR on time. A belated return (filed after 31 July) forfeits the right to carry forward capital losses. This is one of the most costly filing mistakes.
Pay advance tax if liability exceeds ₹10,000
If your total tax liability (after TDS) exceeds ₹10,000, you are required to pay advance tax. Large capital gains mid-year — especially property sales — require advance tax payment by the quarterly due dates (15 Jun, 15 Sep, 15 Dec, 15 Mar) to avoid interest under Sec 234B and 234C.
12. Six Common Mistakes to Avoid
1. Ignoring the ₹1.25L LTCG exemption is shared
Many investors think each equity MF redemption gets a separate ₹1.25L exemption. It is one limit for all equity LTCG in the year combined. If you sell five funds with ₹50K LTCG each (₹2.5L total), you get one ₹1.25L deduction — not five.
2. Not doing the indexation comparison for property
Post Finance Act 2024, the default for property LTCG is 12.5% without indexation. Many taxpayers assume they must use this and miss checking if the old 20% with indexation would actually be cheaper. Always compute both — especially for properties bought before 2010 where inflation gains are large.
3. Using the wrong FMV for grandfathering
For equity bought before 31 Jan 2018, using an incorrect FMV — especially for stocks with bonus/split history — is a very common audit trigger. The FMV must be the actual closing price on 31 Jan 2018, adjusted for any corporate actions between purchase and 31 Jan 2018.
4. Treating debt MF as LTCG after 36 months
For debt MFs acquired after 1 April 2023, many investors still expect LTCG benefit after 3 years. There is none — Finance Act 2023 removed it. All gains are at slab rate regardless of holding period.
5. Claiming 87A rebate on equity LTCG/STCG
Rebate under Section 87A (₹60,000 for income ≤ ₹12L in FY 2025-26 under new regime) is NOT available against tax computed under Sec 112A or Sec 111A. Tax on equity capital gains at special flat rates is fully payable even if your other income qualifies for rebate.
6. Failing to report a capital loss
If you have made a capital loss during the year, report it even if you have no gains to set it off against. Capital losses carry forward for 8 years and can save significant tax in future years — but only if you filed your return on time and reported the loss.
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