Capital Gains Tax — Complete Guide to Types, Rates & Calculations
Understand STCG vs LTCG, holding periods, tax rates across all asset classes, exemption routes, set-off rules, and worked examples — your foundation before diving into shares, property, gold, and mutual funds separately.
What Are Capital Gains? The Foundation of Investment Taxation
When you sell a capital asset — a house, shares, gold, mutual funds, bonds, land, or even jewellery — at a price higher than what you paid for it, the profit is called a Capital Gain. Under Section 45 of the Income Tax Act 1961 (and its successor provision in the IT Act 2025), this profit is taxable as a separate head of income: “Capital Gains.”
Capital gains taxation is different from salary or business income in one crucial way: the tax rate depends not on your income slab but on the type of asset and how long you held it. This guide covers the complete framework — from understanding what qualifies as a capital asset to calculating your exact tax liability, claiming exemptions, and carrying forward losses.
This is also your foundation guide — in upcoming blogs we will go deeper into each asset class: listed shares & stocks, immovable property, mutual funds, gold, and bonds — each with its own detailed calculations and planning strategies.
23 July 2024 is the pivot date. The Finance (No. 2) Act, 2024 fundamentally reformed capital gains taxation:
• Uniform LTCG rate of 12.5% across most asset classes (replaces old 20% with indexation)
• Indexation benefit removed for assets transferred on or after 23 July 2024
• Equity LTCG exemption raised from ₹1 lakh to ₹1.25 lakh per year
• Equity STCG rate raised from 15% to 20%
• Holding period simplified to 12 months (listed assets) or 24 months (others)
• Budget 2025 made no further changes — these rules continue unchanged for FY 2025-26.
What Qualifies as a Capital Asset?
A capital asset is any property of any kind held by a taxpayer — whether or not connected to the business or profession. This is a very wide definition under Section 2(14) of the Income Tax Act.
- Land, buildings, house property
- Listed & unlisted shares, debentures, bonds
- Mutual fund units (equity, debt, hybrid)
- Gold, silver, jewellery, precious metals
- Patents, trademarks, copyrights
- Virtual Digital Assets (crypto, NFTs)
- Foreign securities and overseas assets
- Stock-in-trade, consumable stores, raw materials (business use)
- Agricultural land in rural India (outside 8 km limit)
- Personal effects — clothes, furniture, car for personal use
- 6.5% Gold Bonds (GoI) and Special Bearer Bonds
- Gold Deposit Bonds under Gold Deposit Scheme
STCG vs LTCG — How Holding Period Determines Your Tax
The most important factor in capital gains taxation is how long you held the asset before selling it. The same profit on the same asset can attract dramatically different tax rates depending purely on the holding period.
| Asset Class | STCG Threshold | LTCG Threshold | STCG Rate | LTCG Rate |
|---|---|---|---|---|
| Listed Equity Shares (STT paid) | ≤ 12 months | > 12 months | 20% | 12.5% (above ₹1.25L) |
| Equity Mutual Funds / ETFs (STT paid) | ≤ 12 months | > 12 months | 20% | 12.5% (above ₹1.25L) |
| Immovable Property (land, building) | ≤ 24 months | > 24 months | Slab Rate | 12.5% (no indexation)* |
| Gold & Jewellery | ≤ 24 months | > 24 months | Slab Rate | 12.5% (no indexation) |
| Debt Mutual Funds (post-Apr 2023) | Always | N/A | Slab Rate | Slab Rate |
| Unlisted Shares | ≤ 24 months | > 24 months | Slab Rate | 12.5% (no indexation) |
| Bonds / Debentures (listed) | ≤ 12 months | > 12 months | Slab Rate | 12.5% |
| Virtual Digital Assets (Crypto / NFT) | Any Period | 30% Flat (+ 1% TDS on each transaction) | ||
*For immovable property acquired before 23 July 2024, the taxpayer may choose between 12.5% without indexation OR 20% with indexation — whichever results in lower tax.
Capital Gains Calculation — Step by Step
The Basic Formula
Capital Gain = Full Value of Consideration (sale price)
− Expenditure on Transfer (brokerage, stamp duty, legal fees)
− Cost of Acquisition (original purchase price / indexed cost if applicable)
− Cost of Improvement (renovation, structural additions — only for property)
For LTCG on equity / MF (Section 112A): Gains up to ₹1.25 lakh per year are fully exempt. Tax @ 12.5% only on gains exceeding this threshold.
Mr. Sai buys 500 shares of Infosys @ ₹1,200 in April 2024, sells @ ₹1,900 in June 2025
Mrs. Kavitha sells her Hyderabad flat purchased in 2019 for ₹45L, sold in 2025 for ₹90L
💡 Since purchased before 23 July 2024, Mrs. Kavitha can also calculate tax @ 20% with indexation and choose whichever is lower. In upcoming property blog we cover this in full detail.
Mr. Ravi buys 200 shares of TCS @ ₹3,500, sells @ ₹4,200 after 8 months
Same profit, shorter holding = higher tax. Had Ravi waited just 4 more months, tax would have been ₹0 (gains within ₹1.25L LTCG exemption).
Capital Gains Tax — All Asset Classes at a Glance
Here is a quick reference for every major asset class. We will cover each of these in dedicated upcoming blogs with detailed examples and tax-saving strategies.
How to Reduce Capital Gains Tax — Key Exemption Sections
The Income Tax Act provides powerful reinvestment-based exemptions to reduce or eliminate LTCG tax. These are available only on Long-Term Capital Gains and require reinvestment within prescribed time limits.
| Section | Asset Sold | Reinvestment Required | Time Limit | Cap |
|---|---|---|---|---|
| Section 54 | Residential house property | Purchase or construct another residential house in India | 1 yr before / 2 yrs after sale (purchase); 3 yrs (construction) | ₹10 crore |
| Section 54F | Any LTCG asset EXCEPT residential house | Invest net sale proceeds in new residential house in India | 1 yr before / 2 yrs after (purchase); 3 yrs (construction) | ₹10 crore |
| Section 54EC | Land or building (LTCG) | Invest LTCG amount in NHAI or REC specified bonds | Within 6 months of transfer | ₹50 lakh |
| Section 112A | Listed equity / equity MF (STT paid) | No reinvestment needed — automatic annual exemption | N/A | ₹1.25 lakh per year |
If you have sold a capital asset and want to claim exemption under Sections 54, 54F, or 54EC but haven’t yet reinvested before the ITR filing date, you must deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) with any designated PSU bank before the due date of filing your return (31 July 2026 for most). The amount can be withdrawn later for the specified reinvestment purpose within the allowed time.
Failure to deposit in CGAS and not reinvesting by the ITR due date means the exemption is forfeited and the full LTCG becomes taxable.
If you have opted for the New Tax Regime, you cannot claim reinvestment exemptions under Section 54, 54F, or 54EC on capital gains from sale of residential property. This is a critical planning consideration — taxpayers expecting large property sale gains should evaluate whether switching to the old regime for that year makes financial sense.
Capital Loss Set-Off & Carry Forward — 8 Year Rule
Not every investment ends in profit. When you make a loss on sale of a capital asset, the Income Tax Act allows you to set off that loss against capital gains in the same year, or carry it forward for up to 8 assessment years.
- Can be set off against STCG in the same year
- Can also be set off against LTCG in the same year
- Unabsorbed STCL carried forward for 8 years
- Carry-forward allowed against both STCG and LTCG
- Can be set off ONLY against LTCG — NOT against STCG
- Unabsorbed LTCL carried forward for 8 years
- Carry-forward only against LTCG — strict
- CRITICAL: ITR must be filed by due date to carry forward losses — missed deadline = losses lapse forever
Loss from Virtual Digital Assets (crypto, NFTs) cannot be set off against any other income or capital gains — not even against gains from another cryptocurrency. Each VDA transaction stands alone. This is an intentionally restrictive rule under Section 115BBH to discourage tax-loss harvesting in crypto.
Upcoming Blog Series — Capital Gains Deep Dives
This blog covered the foundation. In the upcoming series, we will go deep into each asset class with detailed calculations, real-world examples, planning strategies, and compliance tips:
2. Income Tax Act, 1961 — Section 45 (Chargeability), Section 48 (Computation), Section 111A (Equity STCG @ 20%), Section 112 (LTCG @ 12.5%), Section 112A (Equity LTCG), Section 54 / 54F / 54EC (Exemptions)
3. Finance (No. 2) Act, 2024 — Key changes effective 23 July 2024: uniform 12.5% LTCG, removal of indexation, STCG raised to 20%, LTCG equity exemption raised to ₹1.25L
4. Budget 2025 — No changes to capital gains rates for FY 2025-26 (AY 2026-27)
5. Section 115BBH — Taxation of Virtual Digital Assets at 30% flat (no set-off allowed)
6. CBDT Circular on Capital Gains Account Scheme, 1988 — Deposit before ITR due date
7. Income Tax Act 2025 — Chapter on Capital Gains (substantive rules preserved; section numbers renumbered)