Treatment of Taxes for Capital gains in India

How Capital Gains Are Taxed Under the New Regime?

Classification, Tax rates, addition to slab income, and Rebate under section 87A

Topic Category: Tax Or Interest Computation

Applicable under the new tax regime – FY 2025–26

In India, capital gains taxation depends on

• Classification as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG)
• Nature of the asset
• Period of holding
• Date of acquisition and transfer (important due to transitional rules)

Feel free to use our ITR 2 Tax Calculator that computes the taxes on capital gains in addition to other income such as salary. Other calculators only support the computation of capital gains in isolation. The computation becomes complex when capital gains are on top of your salary income. Our ITR 2 calculator helps you do that efficiently and is a key differentiator.

Capital Gains Overview

Capital gain in India is the profit earned from transferring or selling a capital asset—such as stocks, mutual funds, or real estate—that exceeds its original purchase price. It is taxable under the Income Tax Act in the year the transfer occurs. These gains are categorized as either Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG), depending on the holding period of the asset.

While this article talks more on taxation rules for Capital Gains, you may want to navigate to this page to learn more on exemptions against capital gains.

Quick summary of the primary changes to capital gains taxation

Capital gains tax rules changed substantially in mid-2024. If you sell shares, mutual funds, property, gold or other capital assets, those changes affect how much tax you pay and how you compute gains. This guide explains the new regime in plain language, shows worked examples, highlights planning points and pitfalls, and answers common questions so you can file confidently.

• Many long-term capital gains (LTCG) are now taxed at a flat 12.5% (indexation largely removed for assets acquired after the effective date).
• Short-term capital gains (STCG) on STT-paid (know more on STT) listed equity and equity-oriented funds are taxed at 20% (previously 15% under section 111A).
• The exemption threshold for LTCG on listed equity/equity funds increased to ₹1.25 lakh per financial year.
• Holding-period rules were simplified — broadly 12 months for listed securities and 24 months for other assets.

Why these changes matter?

The 2024 reforms aimed to simplify capital-gains taxation and discourage short-term speculative trading. For many retail investors the immediate impact is higher STCG on equities (20% vs 15%) and changed computation for LTCG (uniform 12.5% for many long-term gains). Property sellers were particularly vocal because removal of indexation for real estate could materially increase tax on long-held assets; the government later added transitional options for pre-July-23,-2024 acquisitions to reduce hardship. These policy shifts are significant for traders, investors, real-estate sellers and NRIs who face different practical consequences.

Key Aspects of Capital Gains in India

• Definition: Profit realized = Sale Price - (Purchase Price + Transfer Expenses).
• Asset Types: Includes, but is not limited to, land, buildings, equity shares, bonds, and jewellery.
• Types of Capital Gains:
  • Short-Term Capital Gains (STCG): Profits from assets held for a shorter duration (generally <= 12 or 24 months depending on asset type).
  • Long-Term Capital Gains (LTCG): Profits from assets held for a longer duration (generally > 12 or 24 months).
• Tax Rates (Budget 2024/2025 Updates):
  • LTCG:
    • For many asset classes, LTCG is taxed at a flat 12.5% (without indexation) where previously there were different treatments (10%/20% with indexation).
    • For listed equity shares and equity mutual funds, the first ₹1.25 lakh of LTCG in a financial year is exempt; gains above that are taxed at the LTCG rate.
    • For debt mutual funds (acquired after 1 Apr 2023), the gain is added to slab income. (Know more about debt funds)
    • For debt mutual funds (acquired before 1 Apr 2023), transitional rules apply.
  • STCG
    • For STT-paid (know more on STT) listed equity shares, equity-oriented mutual funds and units of business trusts sold within 12 months, STCG is taxed at 20% (plus surcharge and cess). This replaced the earlier concessional 15% for such gains. (know more on STT)
    • For other assets (property, debt funds, gold, unlisted shares) treated as short-term, STCG is added to your total income and taxed at your applicable slab rates. (Know more about debt funds)
• Indexation: Long-term capital gains on certain assets were previously adjusted for inflation, but indexation benefits have been removed for some, with tax rates adjusted to 12.5%.
• Transitional rules (property & pre-cut-off acquisitions): Since indexation removal can be punitive for longstanding property owners, the government permitted an option for assets bought before 23 July 2024. Taxpayers can, in many cases, choose between the new 12.5% rate without indexation or the old 20% rate with indexation (whichever is beneficial), subject to conditions and applicability. This amendment followed feedback and legislative adjustments.
• Exemptions: Sections 54, 54F, and 54EC of the Income Tax Act allow for exemptions from capital gains tax if the profits are reinvested in specific assets, such as a new residential house or specified bonds.

  Learn more about exemptions against capital gains.

Special Transitional Rule for Property

For property: If acquired before 23 July 2024 and transferred on or after 23 July 2024, the taxpayer may choose between:

• 12.5% without indexation OR
• 20% with indexation

Special Transitional Rule for Debt Mutual Funds

Learn more about debt funds

Transitional rules in debt mutual fund taxation distinguish between investments made before and after April 1, 2023. Units purchased on/before March 31, 2023, retain old tax benefits (20% LTCG with indexation if held > 3 years), while those bought on/after April 1, 2023, are taxed at slab rates regardless of holding period.

Key Transitional Rules and Tax Implications

Cut-off Date is April 1, 2023. Units acquired before this date are "grandfathered" under old rules (long-term if > 36 months). Units acquired on or after this date are taxed as short-term capital gains (STCG) at your income tax slab rate, even if held for years.

Old Investments (Before April 1, 2023)

• < 36 Months: Short-term, taxed at slab rate.
• > 36 Months: Long-term, taxed at 20% with indexation benefits.

New Investments (On/After April 1, 2023)

• Gain out of all the new investments is treated as short term gain (STCG) regardless of the period for which funds were held.
• Gain is added to your slabs-based income and taxed at your applicable income tax slab rate.
• No indexation benefits are available.

Absolute provisions for Section 87A Rebate eligibility for Capital Gains In India

Learn more about Section 87A rebate in India

• Slab-taxed gains (e.g., STCG on property, gold, and debt funds acquired after April 1, 2023) are eligible for rebate (if income within limit). (Know more about debt funds)
• Following special-rate gains are not eligible for rebate.
  • LTCG under Section 112A (equity)
  • STCG under Section 111A (equity)
  • LTCG taxable under Section 112

Indexation

Indexation for capital gain is a tax mechanism that adjusts the purchase price of long-term assets for inflation using the Cost Inflation Index (CII), reducing the taxable gain. Following the 2024 budget, indexation benefits are removed for most assets, with a 12.5% tax rate applied to long-term gains, except for properties bought before July 23, 2024, which may still use this method.

Key Aspects of Indexation

• Purpose: To prevent paying tax on gains caused merely by inflation rather than real appreciation.
• Application: Generally applicable to long-term capital assets like immovable property (held >24 months) and debt instruments. (Know more about debt funds)
• Calculation: Indexed cost=Original cost * (CII of Sale year/CII of Purchase year)
• CII Values: The CBDT sets these values yearly (e.g., 363 for FY 24-25, e.g., 376 for FY 25-26).

Recent Changes (Budget 2024)

• Removal of Indexation: For assets acquired after July 23, 2024, indexation is generally removed, and long-term capital gains (LTCG) are taxed at 12.5%.
• Grandfathering Clause: For real estate purchased before July 23, 2024, taxpayers may choose between 12.5% without indexation or 20% with indexation.
• Debt Funds: Long-term capital gains on debt mutual funds are now taxed at slab rates without indexation benefits. (Know more about debt funds)

Securities Transaction Tax

Securities Transaction Tax (STT) is a direct tax levied by the Indian government on the purchase and sale of securities (shares, derivatives, equity mutual funds) listed on recognized stock exchanges. Introduced in 2004 to curb tax evasion, it is a percentage-based charge applied to the transaction value, regardless of profit or loss.

Key Aspects of STT

• Applicability: Applies to equity delivery, intraday trades, futures, and options traded on exchanges like NSE and BSE.
• Exemptions: Not applicable to off-market transactions, commodity trading, or currency trading.
• Rates (Budget 2026 Updates): As proposed, STT on options is increased to 0.15% (on premium) and futures to 0.05% (on turnover). For delivery-based equity, it is generally 0.1%.
• Collection: Collected by stock exchanges/brokers from the investor, making it a "turnover tax".
• Non-Claimable: STT paid cannot be claimed as a deduction against capital gains tax liability, but it can be claimed as a business expense if trading is treated as a business.
• Impact: Increases transaction costs for active traders and investors.

What are debt funds?

A debt fund is a type of mutual fund that invests in fixed-income securities, such as government bonds, corporate bonds, treasury bills, and money market instruments. Designed for safer, consistent returns compared to equity, they aim to generate regular income and preserve capital by lending money to entities. They are generally suitable for short-to-medium-term goals, offering better liquidity than fixed deposits.

Key Aspects of Debt Funds

• Asset Allocation: Investments are primarily in debt instruments with pre-decided interest rates and maturity dates, such as company deposits and government securities.
• Risk Level: Considered low-to-moderate risk compared to equity, focusing on stability.
• Returns: They offer relatively stable returns, often better than a standard savings account.
• Types: Ranging from overnight funds (lowest risk/duration) to corporate bond funds, Gilt funds (government securities), and dynamic bond funds.
• Liquidity: Investors can generally take their money out whenever needed, making them useful for emergency funds.

Debt funds are managed by professional fund managers who make investment decisions to optimize returns based on interest rate cycles. They are suitable for conservative investors looking for steady income.

Tax Summary Table

Examples of Computation

These examples combine the computation of Capital Gains with Salary and/or other income.

Example 1 — Long-term capital gains on listed equity With Salary

You bought shares (STT paid; learn more on STT) two years ago for ₹150,000 and sold them today for ₹350,000. You also have a Salary of ₹1075000 (before applying standard deduction of ₹75000). Thus it becomes ₹1000000 (₹10 lakh) after applying standard deduction.

• Gain = ₹200,000.
• First ₹1.25 lakh of LTCG on equities is exempt, so taxable LTCG = ₹200,000 − ₹125,000 = ₹75,000.
• Tax at 12.5% = ₹9,375 (plus surcharge/cess as applicable).
• Salary income tax: ₹40000
• Rebate is allowed only on salary income tax (not on the LTCG tax on equities). Rebate: ₹40000
• Tax to be paid: ₹9,375 + ₹375 (Cess) = ₹9750

Example 2 — Short-term capital gains on listed equity With Salary

You bought listed shares six months ago for ₹100,000 and sold them today for ₹140,000. You also have a Salary of ₹1075000 (before applying standard deduction of ₹75000). Thus it becomes ₹1000000 (₹10 lakh) after applying standard deduction.

• STCG = ₹40,000.
• Tax at flat 20% = ₹8,000 (plus surcharge/cess).
• Salary income tax: ₹40000
• Rebate is allowed only on salary income tax (not on the STCG tax on equities). Rebate: ₹40000
• Tax to be paid: ₹8000 + ₹320 (Cess) = ₹8320

Example 3 — LTCG on property sale where property was bought prior to 23 July 2024

You bought a flat in 2005 for ₹10 lakh and sold it in 2026 for ₹30 lakh. You also have a Salary of ₹1075000 (before applying standard deduction of ₹75000). Thus it becomes ₹1000000 (₹10 lakh) after applying standard deduction. Under the old system you would index the cost and pay 20% on indexed gain. Under the new system you can:

• Option 1: Pay 12.5% on the simple (non-indexed) gain; or
  • LTCG = ₹2,000,000
  • Tax at 12.5% without indexation.% = ₹250000.
  • Salary income tax: ₹40000
  • Rebate is allowed only on salary income tax (not on the STCG tax on equities). Rebate: ₹40000
  • Tax to be paid: ₹250000 + ₹10000 (Cess) = ₹260000
• Option 2: Choose the old method (20% with indexation) if that produces a lower tax.
  • LTCG = ₹2,000,000
  • Indexed cost of property purchased in 2005 and sold in 2026: ~₹3213675
  • Gain = (selling price - indexed cost) = -₹213675. Hence selling price is less than indexed cost. So gain is considered ₹0.
  • Gain = ₹0
  • With indexation, tax = 20% of (gain of ₹0) = ₹0
  • Salary income tax: ₹40000
  • Rebate is allowed only on salary income tax (not on the STCG tax on equities). Rebate: ₹40000
  • Tax to be paid: ₹0 + ₹0 (Cess) = ₹0

Example 4 — STCG on Debt Funds (acquired after 1 Apr 2023)

You have a gain of ₹300000 on debt funds (learn more about debt funds) which you had acquired after 1 Apr 2023. You also have a Salary of ₹1075000 (before applying standard deduction of ₹75000). Thus it becomes ₹1000000 (₹10 lakh) after applying standard deduction. Under the current rules, debt mutual funds acquired after April 1, 2023, are deemed Short-Term Capital Gains (STCG) regardless of how long you hold them. They do not qualify for the 12.5% long-term rate or indexation benefits. Instead, these gains are added to your regular income and taxed at your applicable slab rates.

• STCG = ₹300000
• Gain added to slab income. Total income: ₹1000000 + ₹300000 = ₹1300000.
• Tax: ₹75000
• Tax to be paid: ₹75000 + ₹3000 (Cess) = ₹78000

How to compute gains under the new rules

• Step 1: Determine the asset type (listed equity, equity mutual fund, property, gold, unlisted shares, etc.).
• Step 2: Establish holding period (≤12 months or >12 months for equities; ≤24 or >24 months for others).
• Step 3: Compute sale consideration minus allowable costs (brokerage, transfer fees, stamp duty where allowed).
• Step 4: Apply indexation or not — generally indexation is not available for assets acquired on/after 23 July 2024 (except where transitional options apply); follow the specific rule for the asset.
• Step 5: Apply the correct rate — STCG: 20% for STT (learn more on STT) equity; otherwise slab rates. LTCG: 12.5% for many assets, with the ₹1.25 lakh exemption for listed equities/equity funds.
• Step 6: Account for surcharges and cess and any available exemptions/rollovers (Sections 54, 54EC, 54F for property reinvestment, where applicable).

Practical planning tips and traps to avoid

• Don't assume the lowest percentage is always best. For property acquisitions prior to Jul'23, 2024, you may still prefer 20% with indexation — compute both ways before filing.
• STCG on equities is expensive now. Short-term trading strategies need to factor in the higher 20% tax; sometimes holding a little longer (beyond 12 months) may convert STCG to LTCG with the ₹1.25 lakh exemption and lower rate.
• Carry-forward of losses still applies; short-term and long-term capital losses have rules for set-off and carry-forward (file returns on time to preserve loss set-off rights). Consult the ITR schedules and rules.
• NRIs should check specific clauses related to TDS, compliance rules. Options such as indexation may not be uniformly available to NRIs. We recommend professional advice. Please navigate to view our services.
• Records matter. Keep purchase invoices, indexation tables (for pre-2024 purchases), broker statements and proof of reinvestment (for exemptions) meticulously.

Filing and compliance reminders

• Report gains in the Capital Gains schedule of the ITR in the year of transfer.
• Claim exemptions with supporting documents and timelines (e.g., reinvestment windows).

  Learn more about exemptions against capital gains.

• If you have capital losses, ensure you file the return before due date to preserve loss carry-forward rights.
• For large property transactions, TDS thresholds and e-filing steps must be followed; noncompliance attracts interest and penalties.

FAQs

• Q. How do transitional rules affect capital gains on property?
  A. For property, if acquired before 23 July 2024 and transferred on or after 23 July 2024, the taxpayer may choose between 12.5% without indexation OR 20% with indexation
• Q. How are capital gains taxed under the new regime in FY 2025–26?
  A. Many long-term capital gains (LTCG) are now taxed at a flat 12.5% (indexation largely removed for assets acquired after the effective date). Short-term capital gains (STCG) on STT-paid (know more on STT) listed equity and equity-oriented funds are taxed at 20% (previously 15% under section 111A).
• Q. From which date do the new capital gains rules apply?
  A. Most of the new provisions (rates, holding-period simplification and exemption change) apply for transfers made on or after 23 July 2024.
• Q. What is the tax rate for long-term capital gains in India?
  A. A uniform 12.5% applies to many long-term gains (without indexation), though transitional provisions let some taxpayers choose indexation/old method for certain pre-cut-off assets.
• Q. Is there any exemption for equity LTCG?
  A. Yes — LTCG from listed equity and equity-oriented mutual funds has an annual exempt amount of ₹1.25 lakh. Gains above that are taxable at LTCG rates.
• Q. How is STCG on shares taxed now?
  A. STCG on STT-paid (learn more on STT) listed equity shares and equity funds sold within 12 months is taxed at 20% (plus surcharge/cess). Other STCG is taxed at slab rates.
• Q. What about indexation for property bought long ago?
  A. For properties acquired before 23 July 2024, taxpayers are allowed an option to compute tax either at 20% with indexation or at 12.5% without indexation (choose the more favorable).
• Q. Can I set off capital losses against other income?
  A. Short-term capital losses can generally be set off against any capital gains (short or long) in the same year. Long-term capital losses can be set off only against long-term gains. Unset losses can often be carried forward for 8 assessment years if you file on time.

Final checklist before you sell

• Confirm holding period (12 vs 24 months).
• Compute both indexation and non-indexation methods if your asset qualifies for a transitional option.
• Factor in STCG at 20% for short-term equity gains.
• Preserve paperwork: purchase deed/invoices, broker contracts, transfer costs, proof of reinvestment.
• File ITR on time if you want to carry forward losses.

Quick Summary of Capital Gains Tax Computation (FY 2025–26 and beyond)

Capital gains arise when a capital asset—such as equity shares, mutual funds, property, or gold—is sold at a profit. The tax outcome depends on whether the gain is short term (STCG) or long term (LTCG) and on the type of asset.

Equity and Equity Mutual Funds

STCG (Section 111A)

Taxed at 20% on short term gains from listed equity and equity mutual funds under the new regime.

LTCG (Section 112A)

Taxed at 12.5% on long term gains exceeding ₹1.25 lakh in a financial year. Gains up to ₹1.25 lakh are exempt.

Other Capital Assets (Property, Gold, Debt Funds, etc.)

LTCG (Section 112)

Generally taxed at 20% with indexation, allowing inflation adjustment of cost.

STCG

Taxed at slab rates for most non equity assets.

Indexation

Indexation adjusts the purchase cost for inflation and is available for most non equity long term assets, reducing taxable gains.

Exemptions

Frequently used Reinvestment-based exemptions continue to apply:

• Section 54 — reinvestment into residential property
• Section 54F — reinvestment from non residential assets
• Section 54EC — investment in specified bonds (up to ₹50 lakh)

Navigate to learn further details on exemptions against capital gains.

Transitional Rules

Budget 2024 introduced new holding periods, rates, and thresholds effective from FY 2025–26, affecting both computation and classification of capital gains.