If you sell shares, mutual fund units, gold or property at a profit, the gain is taxed as either short-term or long-term capital gains. The label depends on how long you held the asset, and it changes the rate you pay. The rules changed sharply on 23 July 2024. On 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, and the section numbers changed with it. This guide covers the rules as they stand in October 2026.
What changed recently
Budget 2024 (Finance (No. 2) Act, 2024), effective for transfers on or after 23 July 2024:
- STCG on listed equity and equity mutual funds went up from 15% to 20%.
- LTCG on listed equity went up from 10% to 12.5%, and the yearly exemption went up from Rs 1 lakh to Rs 1.25 lakh.
- LTCG on most other assets now has one rate: 12.5% without indexation. Before this change, many assets were taxed at 20% with indexation.
- Holding periods were simplified: 12 months for listed securities and 24 months for everything else.
Budget 2026 (1 February 2026) kept these capital gains rates the same. It changed two things:
- Money you receive in a share buyback is now taxed as capital gains instead of dividend income. Promoters pay extra tax, for an effective rate of 22% or 30%.
- Securities transaction tax (STT) on futures and options went up from 1 April 2026.
The Income-tax Act, 2025 has applied from 1 April 2026. It mostly renumbers the old rules without changing what they do. Old Section 111A is now Section 196, 112A is now 198, 54 is now 82, 54EC is now 85, and 54F is now 86. The new law also uses the term "tax year" in place of "previous year".
Holding periods by asset
| Asset | Long-term if held more than | STCG rate | LTCG rate |
|---|---|---|---|
| Listed equity shares, equity MFs, listed business trust units (STT paid) | 12 months | 20% | 12.5% on gains above Rs 1.25 lakh a year |
| Other listed securities (e.g. listed bonds), listed gold ETFs | 12 months | Slab rate | 12.5% |
| Unlisted shares | 24 months | Slab rate | 12.5%, no indexation |
| Land and buildings | 24 months | Slab rate | 12.5%, no indexation (see the older-property option below) |
| Physical gold, digital gold, gold mutual funds/FoFs | 24 months | Slab rate | 12.5% |
| Debt MFs (more than 65% in debt/money market) bought on or after 1 Apr 2023; unlisted bonds/debentures | Not applicable | Always slab rate | Always slab rate |
Two points to note:
- Debt mutual funds bought on or after 1 April 2023 are treated as short-term no matter how long you hold them, so the gains are taxed at your slab rate. A debt fund here means one that puts more than 65% of its money in debt and money-market instruments. Debt units bought before 1 April 2023 still follow the normal 24-month rule.
- Gold ETFs are listed, so they turn long-term after 12 months. Gold mutual funds (fund-of-funds) are not listed and need more than 24 months.
- Surcharge and 4% cess are added on top of all these rates.
Worked examples
1. Equity mutual fund, long-term. Priya sells equity fund units she held for three years. Her gain is Rs 3,00,000.
- Exempt: Rs 1,25,000
- Taxable: Rs 1,75,000 × 12.5% = Rs 21,875, plus cess
2. Shares, short-term. Arjun sells shares eight months after buying them, with a gain of Rs 80,000. Tax at 20% is Rs 16,000, plus cess. If he had waited until after the 12-month mark, the whole Rs 80,000 would have been covered by the Rs 1.25 lakh exemption, assuming he had no other equity LTCG that year.
3. Older property: pick the lower tax. Resident individuals and HUFs who bought land or a building before 23 July 2024 can work out the tax two ways and pay the lower amount:
- 12.5% on the gain without indexation, or
- 20% on the gain after indexation.
For example, a flat bought for Rs 40 lakh sells for Rs 1 crore.
- Without indexation: the gain is Rs 60 lakh. Tax at 12.5% is Rs 7.5 lakh.
- With indexation: suppose the indexed cost is Rs 70 lakh. The gain is Rs 30 lakh, and tax at 20% is Rs 6 lakh.
- Rs 6 lakh is payable, because it is the lower figure.
This option is not available to non-residents or companies, or for property bought on or after 23 July 2024.
Exemptions for reinvesting gains
These three exemptions cover long-term gains only:
- Old Sec 54 / new Sec 82. If you sell a residential house, you can save tax on the LTCG by reinvesting it in another house in India. The new house must be bought within 1 year before or 2 years after the sale, or built within 3 years. The exemption is capped at Rs 10 crore. If the gain is Rs 2 crore or less, you can choose (once in a lifetime) to buy two houses instead of one.
- Old Sec 54F / new Sec 86. If you sell any other long-term asset (shares, gold, a plot), you can claim the exemption by putting the entire sale amount into a house in India. If you invest only part of it, you get proportionate relief. The same Rs 10 crore cap applies. Generally, you must not own more than one other house on the date of sale.
- Old Sec 54EC / new Sec 85. You can invest LTCG from land or buildings in specified bonds, such as NHAI or REC bonds, within 6 months of the sale. These bonds have a 5-year lock-in, and the limit is Rs 50 lakh across the year of sale and the next year.
If you have not reinvested by the time your return is due, deposit the amount in the Capital Gains Account Scheme at a bank before the due date. This keeps your exemption claim alive.
Setting off and carrying forward losses
- Short-term capital losses can be set off against both short-term and long-term gains.
- Long-term capital losses can be set off only against long-term gains.
- Capital losses cannot be set off against salary or any other income head.
- Losses you don't use can be carried forward for 8 years. You can do this only if you file your return by the due date. A belated return loses the carry-forward.
- Losses carried forward from years before 1 April 2026 move over to the new Act under its transition rules. They keep their original 8-year limit.
When you set off losses, it usually makes sense to use them first against gains taxed at a higher rate. For example, use a short-term loss against 20% STCG before using it against 12.5% LTCG.
Tax-harvesting tips
- Use the Rs 1.25 lakh exemption every year. Sell long-term equity holdings to book up to Rs 1.25 lakh of gains, then buy back. This raises your cost price for the future at no tax cost.
- Book losses on purpose. Sell holdings that are showing a loss to offset gains you have already booked. Long-term losses can only reduce long-term gains, so keep that in mind.
- Watch the 12-month mark. For equity, holding a little longer can move the tax from 20% to 12.5%, or to zero if the gain is within the exemption.
- Count transaction costs. Brokerage, STT, exit loads and the time your money spends out of the market all eat into what harvesting saves.
- Check the rebate. Since the Finance Act, 2025 (effective from FY 2025-26), the rebate for low incomes (old Section 87A, now Section 156) cannot be used against tax on special-rate gains such as 20% STCG or 12.5% LTCG. So even if your other income is within the rebate limit, you can still owe tax on these gains.
Reporting gains in your income tax return
- ITR-1 (Sahaj) can now report listed-equity LTCG of up to Rs 1.25 lakh. You cannot use it if you have STCG, any other capital gains, or losses to set off or carry forward.
- ITR-2 is the form for most individuals with capital gains. Use ITR-3 if you also have business income, which includes F&O trading.
- Fill in the capital gains schedule separately for each asset type. Listed equity requires scrip-wise or ISIN-wise details in Schedule 112A.
- Match your figures against your AIS, the capital gains statements from your broker and fund registrar (CAMS/KFintech), and Form 26AS.
- Report exempt gains as well, because the exemption has to be claimed in the return. The Rs 1.25 lakh exemption is one example.
- Pay advance tax on large gains in the quarter you book them, so you are not charged interest.
This article is for general information only and is not tax advice. Please consult a chartered accountant about your situation.
Sources
- https://www.incometaxindia.gov.in/w/tax-on-long-term-capital-gains%E2%80%8B
- https://www.incometaxindia.gov.in/w/section-54ec-25
- https://www.business-standard.com/economy/news/individual-taxpayers-with-ltcg-up-to-1-25-lakh-can-use-simplified-itr-1-125043001472_1.html
- https://indiacode.ecourtsindia.com/income-tax-act-2025/section/82/
- https://indiacode.ecourtsindia.com/income-tax-act-2025/section/85/
- https://indiacode.ecourtsindia.com/income-tax-act-2025/section/86/
- https://indiacode.ecourtsindia.com/income-tax-act-2025/section/196/
- https://indiacode.ecourtsindia.com/income-tax-act-2025/section/198/
- https://www.incometaxindia.gov.in/w/section-50aa-3
- http://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/set-offcarry-forward-losses
- https://cleartax.in/s/set-off-carry-forward-capital-losses
- https://economictimes.indiatimes.com/wealth/tax/selling-gold-your-tax-bill-depends-on-how-you-own-it-etfs-sgbs-jewellery-and-digital-gold-compared/articleshow/132413012.cms
- https://www.taxmann.com/post/blog/section-87a-rebate-restriction-on-special-rate-income-is-prospective-itat/
- https://www.business-standard.com/budget/news/budget-2026-ltcg-tax-rates-unchanged-for-fy27-fm-sitharaman-126020100424_1.html
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- https://www.mondaq.com/india/capital-gains-tax/1742458/union-budget-2026
- https://taxguru.in/income-tax/sold-property-23-july-2024-indexation-works-tax-ceiling.html
- https://cleartax.in/s/itr1
