Thermodynamic Automaton Computer
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Founder, TWIST POOL Labs · TAC Research · NanoCERN Unit, Pune
First-principles finance educator · 10+ years in Indian capital markets
ORCID: 0009-0003-1953-7932You sell a stock for a profit. The government wants a share. The question is: how much, when, and on which assets? Getting this wrong costs real money. Getting it right saves it.…
You sell a stock for a profit. The government wants a share. The question is: how much, when, and on which assets? Getting this wrong costs real money. Getting it right saves it.
This guide covers the complete capital gains tax framework for Indian investors, updated for FY2025-26 (Budget 2024 changes).
1. What is Capital Gain? (The First Principle)
Capital gain = Sale price − Cost of acquisition
When you sell an asset (stock, mutual fund unit, property, gold) for more than you paid, the profit is a capital gain. It is taxed separately from your salary or business income.
Two critical variables determine the tax rate:
- Holding period — how long you held the asset before selling
- Asset type — equity, debt, property, gold, etc.
2. Short-Term vs Long-Term: The Holding Period Rules
| Asset Type | Short-Term if held for | Long-Term if held for |
|---|---|---|
| Listed equity shares / equity MFs | ≤ 12 months | > 12 months |
| Debt mutual funds (post-Apr 2023) | Any holding period — all gains taxed as short-term (slab rate) | N/A |
| Real estate (land, house) | ≤ 24 months | > 24 months |
| Unlisted shares | ≤ 24 months | > 24 months |
| Gold / physical gold | ≤ 36 months | > 36 months |
| Sovereign Gold Bonds (SGBs) | ≤ 12 months | > 12 months (or tax-free on maturity) |
3. Tax Rates After Budget 2024 (Effective FY2024-25)
Budget 2024 significantly changed capital gains tax rates. Key changes:
| Asset / Gain Type | Previous Rate | New Rate (FY2024-25 onwards) |
|---|---|---|
| STCG — Listed equity/equity MF | 15% | 20% |
| LTCG — Listed equity/equity MF | 10% (above ₹1 lakh, no indexation) | 12.5% (above ₹1.25 lakh, no indexation) |
| LTCG — Property/gold/unlisted | 20% with indexation | 12.5% WITHOUT indexation (option for property acquired before 23 Jul 2024) |
| STCG — Debt MFs | Slab rate | Slab rate (unchanged) |
| STCG — Property | Slab rate | Slab rate (unchanged) |
Key change for equity investors: LTCG exemption limit increased from ₹1 lakh to ₹1.25 lakh/year. LTCG rate reduced from 10% to 12.5% — but 2.5% increase on gains above the exemption.
Key change for property: Removal of indexation benefit for LTCG on real estate is the most controversial change. Pre-23 July 2024 acquired property has a choice between old (20% with indexation) and new (12.5% without) — whichever is lower.
4. Practical Examples
Example 1: LTCG on Equity
Priya buys 100 units of What is the Stock Market? ETF at ₹180/unit. Sells at ₹260/unit after 14 months.
- Gain = (₹260 − ₹180) × 100 = ₹8,000
- LTCG (held >12 months): ₹8,000 − ₹1,25,000 LTCG exemption = 0 taxable (under exemption)
- Tax = ₹0
If total LTCG across all equity assets in the year exceeds ₹1,25,000, the excess is taxed at 12.5%.
Example 2: STCG on Equity
Ravi buys 50 shares of a mid-cap company at ₹400. Sells at ₹480 after 8 months.
- Gain = (₹480 − ₹400) × 50 = ₹4,000
- STCG (held ≤12 months): Taxed at 20% flat
- Tax = ₹800
Example 3: Debt Mutual Fund
After April 2023, all debt mutual fund gains are taxed at the investor’s income tax slab rate, regardless of holding period.
- No LTCG benefit for debt MFs
- A 30% tax bracket investor pays 30% on all debt MF gains
5. LTCG Exemption Harvesting (Tax Optimisation Strategy)
Since LTCG on equity up to ₹1,25,000 per year is tax-free, investors can “harvest” this exemption annually:
- Every March, calculate your total unrealised LTCG on equity
- Sell enough units to realise ₹1,25,000 in LTCG (tax-free)
- Immediately buy back the same units (no lock-in, no exit load after 1 year for most equity MFs)
- Your cost of acquisition resets to the current price — reducing future taxable gain
This legal strategy, done annually, can save lakhs over a long investment period.
6. Set-Off and Carry-Forward Rules
- Short-term capital loss can be set off against both STCG and LTCG
- Long-term capital loss can be set off only against LTCG
- Unabsorbed capital losses can be carried forward for 8 assessment years
- Capital losses can only be carried forward if you file ITR on time (before the due date)
Summary: The Capital Gains Tax in India Tax Cheat Sheet
| Scenario | Holding | Rate |
|---|---|---|
| Sell equity MF/stock < 1 year | Short-term | 20% flat |
| Sell equity MF/stock > 1 year | Long-term | 12.5% (exempt up to ₹1.25 lakh/year) |
| Sell debt MF (any period) | N/A | Slab rate |
| Sell property < 2 years | Short-term | Slab rate |
| Sell property > 2 years | Long-term | 12.5% without indexation (post-Jul 2024) |
| Sell SGB on maturity | Exempt | 0% |
The Smart Friend’s Verdict
Capital gains tax is not avoidable — but it is manageable. The key levers are: hold equity assets beyond 12 months, harvest the ₹1.25 lakh annual LTCG exemption, set off capital losses against gains, and use SGBs for gold (tax-free on maturity).
File ITR on time to preserve the right to carry forward losses. A loss that cannot be carried forward is tax money wasted.
Read next: How to File ITR for Stock Market Income in India — the step-by-step filing guide.
Frequently Asked Questions
Priya buys 100 units of Nifty 50 ETF at ₹180/unit.
Ravi buys 50 shares of a mid-cap company at ₹400.
After April 2023, all debt mutual fund gains are taxed at the investor’s income tax slab rate, regardless of holding period.
When you sell an asset (stock, mutual fund unit, property, gold) for more than you paid, the profit is a capital gain.
Asset Type
Short-Term if held for
Long-Term if held for
Listed equity shares / equity MFs
≤ 12 months