What is Capital Gains Tax?
Tax on investment profits - STCG vs LTCG rates and exemptions
What is Capital Gains Tax?
Capital Gains Tax is the tax you pay on profits made from selling investments like stocks, mutual funds, property, or other assets. When you sell an asset for more than what you paid for it, the profit is called capital gain and is subject to tax.
For example, if you buy shares for ₹1,00,000 and sell them for ₹1,50,000, your capital gain is ₹50,000. This ₹50,000 profit is taxable as per capital gains tax rules, which vary based on the type of asset and holding period.
💡 Key Point: Capital gains tax rates depend on how long you held the asset (short-term vs long-term) and the type of asset (equity, debt, property).
Short-term vs Long-term Capital Gains
Short-term Capital Gains (STCG)
- • Holding period < 12 months (equity)
- • Holding period < 36 months (debt/property)
- • Higher tax rates
- • No indexation benefit
- • Added to income for debt assets
Long-term Capital Gains (LTCG)
- • Holding period ≥ 12 months (equity)
- • Holding period ≥ 36 months (debt/property)
- • Lower tax rates
- • Indexation benefit available
- • Separate tax rates apply
Holding Period Calculation
Example 1 (Equity):
- • Buy Date: Jan 15, 2025
- • Sell Date: Jan 20, 2026
- • Holding: 12+ months
- • Type: LTCG
Example 2 (Property):
- • Buy Date: Jan 15, 2022
- • Sell Date: Feb 20, 2025
- • Holding: 36+ months
- • Type: LTCG
Capital Gains Tax Rates
| Asset Type | Holding Period | STCG Rate | LTCG Rate | Exemption |
|---|---|---|---|---|
| Listed Equity Shares | 12 months | 15% | 10% | ₹1L/year |
| Equity Mutual Funds | 12 months | 15% | 10% | ₹1L/year |
| Debt Mutual Funds | 36 months | Slab Rate | 20% + Index | Nil |
| Real Estate | 24 months | Slab Rate | 20% + Index | ₹2L (54EC) |
| Gold/Jewelry | 36 months | Slab Rate | 20% + Index | Nil |
| Unlisted Shares | 24 months | Slab Rate | 20% + Index | Nil |
Exemptions & Deductions
Section 80C Exemptions
- • LTCG on equity: ₹1L exemption/year
- • Residential property (Section 54)
- • Agricultural land (Section 54B)
- • Bonds investment (Section 54EC)
- • Capital gains bonds: ₹50L limit
Indexation Benefit
- • Available for LTCG on debt/property
- • Adjusts purchase price for inflation
- • Uses Cost Inflation Index (CII)
- • Reduces taxable capital gains
- • Not available for equity assets
Indexation Calculation Example
Property Sale:
- • Purchase (2020): ₹50L
- • Sale (2026): ₹80L
- • CII 2020: 301
- • CII 2026: 348 (assumed)
Indexed Cost:
- • Indexed Cost: ₹50L × (348/301)
- • = ₹57.8L
- • Taxable Gain: ₹80L - ₹57.8L
- • = ₹22.2L (vs ₹30L without indexation)
Capital Gains Calculator
Tax Planning Tips
✅ Hold for Long-term
Lower tax rates
✅ Use ₹1L Exemption
Annual LTCG limit
✅ Harvest Losses
Offset against gains
✅ Reinvest in 54EC
Property gains exemption
Holding Periods
Loss Adjustment
STCG Loss
Can offset STCG & LTCG
LTCG Loss
Can offset only LTCG
Carry Forward
Up to 8 years
Frequently Asked Questions
Is capital gains tax applicable on all investments?
Capital gains tax applies when you sell investments for profit. However, some investments like PPF, NSC, and ELSS have tax exemptions under specific conditions.
Can I avoid capital gains tax legally?
Yes, through exemptions like ₹1L LTCG limit on equity, reinvesting property gains in new property (Section 54), or investing in capital gains bonds (54EC).
What if I don't report capital gains?
Non-reporting can lead to penalties, interest charges, and legal issues. The tax department can track transactions through PAN-linked data from brokers and registrars.
How is capital gains calculated for bonus/split shares?
For bonus shares, cost is zero and holding period starts from original purchase. For splits, cost is proportionally divided and holding period remains same as original shares.
Can capital losses be set off against salary income?
No, capital losses can only be set off against capital gains. They cannot be adjusted against salary, business income, or other sources of income.
Is indexation benefit available for all assets?
Indexation is available only for LTCG on debt instruments, property, and unlisted shares. It's not available for listed equity shares and equity mutual funds.