Top Rules of Capital Gains Tax in India.
When you sell things like property, stocks, or mutual funds and make money, you have to pay capital gains tax. The tax rate for long-term capital gains is 0%, 15%, or 20%, depending on how long you’ve owned the asset and how much money you make.
What is the tax on capital gains in India?
When you sell something valuable, such as property, stocks, mutual funds, or bonds, you have to pay capital gains tax on the money you make. The Income Tax Act of 1961 divides these gains into short-term and long-term categories based on how long you keep the asset before selling it. When you sell something valuable for a profit, you have to pay the government a capital gains tax on some of that money.
The Union Budget 2025 says that short-term capital gains will still be taxed at higher rates, starting at 15%. Long-term gains, on the other hand, have been changed to 12.5% for some assets, starting in April 2026. For example, Unit Linked Insurance Plans (ULIPs) with yearly premiums over ₹2.5 lakh will now be taxed at 12.5% LTCG. The tax on long-term capital gains for Foreign Institutional Investors (FIIs) has also gone up to 12.5%.
There are different types of capital gains.
We talked about how there are two types of capital gains, depending on how long you keep an asset before selling it. When you sell capital assets, knowing these categories might help you prepare better and lower your tax bill. Let’s go into detail about these two types:
Long-Term Capital Gains (LTCG)
LTCG happens when you sell something after owning it for a long time (more than 36 months). Debt-oriented mutual funds, jewels, and other investment plans that don’t involve stocks are examples of assets that fit into this group. But for some assets, such as real estate, the holding period is only 24 months to be considered long-term.
Holding some assets for more than 12 months qualifies them as long-term. These include:
- Equity shares or preference shares that are traded on a well-known Indian stock exchange.
- Units of equity-oriented mutual funds, whether they are listed or not; zero-coupon bonds, whether they are listed or not; and units of the Unit Trust of India (UTI).
- Long-term capital gains taxes were lower until now, usually starting at 10%. But after the Union Budget 2025, some assets are now taxed at a rate of 12.5% LTCG.
Short-Term Capital Gains (STCG)
When you sell something you have owned for 36 months or fewer, you get STCG. For immovable assets like land, buildings, or houses, we reduce the short-term holding period to 24 months.
The previous owner’s holding duration is also taken into account when evaluating whether a property is short-term or long-term if you inherit it or get it as a gift. The same goes for bonus shares or rights shares: the holding period commences on the day they were given out.
The short-term capital gains tax is still higher, starting at 15% for investments in stocks and bonds. The STCG tax rates have not changed in the Union Budget 2025.
Important Changes to the Union Budget 2025
The Union Budget 2025 made some significant changes to the regulations about capital gains tax, which will affect taxpayers in different ways. Here is a short list of some of the most important changes:
Long-Term Capital Gains Tax Rates Are Higher
As of April 1, 2025, the LTCG tax rate on some securities will be up from 10% to 12.5%. This adjustment only affects certain types of assets, and taxpayers should read the full details to see if they apply to them.
Exemption for Pension Funds (PFs) and Sovereign Wealth Funds (SWFs)
SWFs and PFs would still not have to pay taxes on profits from unlisted debt securities, which will encourage them to invest for the long term.
No Tax Break for Capital Gains
The new tax system gives a credit on incomes up to ₹12 lakh, although this does not apply to capital gains. People that make money from capital gains won’t be able to get this rebate, so they should organize their finances accordingly.
How to Figure Out Capital Gains?
How long you’ve had the asset (short term or long term) will affect how you figure out your capital gains. You can figure out your capital gains by taking into account these factors and then subtracting the selling price from the total costs (acquisition and improvement).
- Cost of Improvement: You can add up any costs you incur to make changes or additions to the property. But any changes made before April 1, 2001, don’t count.
- Cost of Acquisition: This number is the price you paid to buy the item in the first place.
- Full Value of Consideration: This is the total value you get when you give up the asset. The gains are still counted for the year the transaction is made, even if the money comes later.
- If the asset was inherited or given as a gift, the computation also includes the original purchase price and any improvements made by the prior owner.
Tax Rates on Long-Term and Short-Term Capital Gains.
This straightforward structure makes it easy to tell the difference between the tax rates for short-term and long-term gains, making it clear for all sorts of investors.
Long-Term Capital Gains Tax Rates
| Condition | Tax Rate |
| Sale of equity shares or mutual funds (listed) | 12.5% on gains exceeding ₹1.25 lakh |
| Sale of other assets (e.g., property, gold) | 12.5% with indexation benefits |
Short-Term Capital Gains Tax Rates
| Condition | Tax Rate |
| Sale of equity shares or mutual funds (listed) where Securities Transaction Tax (STT) applies | 20% |
| Sale of other assets or transactions where STT does not apply | Added to your income and taxed as per your income tax slab |
Exemption from Capital Gains.
Exemptions for capital gains are excellent ways to lower your tax bill and provide you more financial independence. Some of the parts that let you keep your capital gains are.
Section Part 54.
If you sell a house and use the money to buy another one, you can exploit this exemption. You can only use this exemption once in your life, and only if the capital gain is less than ₹2 crores. You don’t have to invest all of the money you make from the sale, just the capital gain. You can buy the new house one year before or two years after the old one is sold, so you have some freedom here. You can also utilize the profits to build a new house, but you have to finish it within three years. And keep in mind that you have to keep that new house for at least three years, or the exemption will be taken away.
Section Part 54F.
This exemption applies to capital gains from the sale of any long-term capital asset, except for a residential residence, as long as the entire net sale price is used to buy or build a new residential property. The deadlines are the same as in Section 54: you can buy the new property within one year before or two years after the sale, or you can build it within three years. But if you sell the new house within three years, you will also lose the exemption.
Section Part 54EC.
You can invest your profits (up to ₹50 lakhs) in certain bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC) to get an exemption under this clause. You can’t sell these bonds for five years, but you can cash them in after three years. To get this exemption, you need to invest before the tax filing deadline.
Section Part 54B.
This exemption applies to capital gains from selling farmland. If you put the money you make from the sale back into new farmland within two years, you can get this exemption. But keep in mind that you have to keep the new land for at least three years after you buy it.
Last Thoughts.
The capital gains tax is not just a cost; it is also a useful financial instrument. You may use this tool to your advantage by making smart plans, timing your actions carefully, and making smart financial selections. Also, keeping your capital gains statement up to date can make it easier to claim exemptions and make sure you don’t make mistakes when you file your taxes.
If you learn these ideas and take advantage of the several tax breaks that are available, you may turn capital gains tax from a problem into a stepping stone on your way to financial freedom.
Frequently Asked Questions About Capital Gains Tax
1. What is the tax on capital gains?
When you sell a capital item, such as property, stocks, or mutual funds, you have to pay capital gains tax on the money you make.
2. What kinds of capital gains are there?
There are two kinds of capital gains: short-term (for assets sold in a short timeframe) and long-term (for assets kept longer, usually more than 12–36 months).
3. How do you figure out how much capital gains tax you owe?
To figure out the capital gains tax, you take the selling price and remove the cost of buying the item and any improvements. Indexation benefits are available for long-term gains.
4. What is the difference between taxes on short-term and long-term capital gains?
Short-term profits are taxed at higher rates (15% for shares or your income slab), whereas long-term gains are taxed at lower rates (10% or 20%, depending on the asset). The Budget 2025 says that the long-term gains tax on several types of assets, including equity funds and ULIPs with premiums over ₹2.5 lakh, has gone up to 12.5%.
5. Are there any exceptions to the capital gains tax?
Yes, sections 54, 54F, 54EC, and 54B allow for exclusions, especially for reinvesting in certain assets like property or bonds. But Budget 2025 has made it harder to claim exemptions for property reinvestments under Section 54. Now, you can only enjoy the benefits for one property investment.
6. What can I do to lower my capital gains tax?
You can save money on taxes by putting the money you make back into assets that qualify, such as bonds, agricultural land, or residential property.
7. What is the capital gains tax rate for different kinds of property?
Long-term gains over ₹1 lakh from equity shares and equity funds are taxed at 12.5%, and short-term gains are taxed at 15%. Long-term gains on other assets, including property or gold, are taxed at 20%. Short-term gains are taxed based on your income level.
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