Key Highlights
- Capital Gains provisions under Sections 67–93, Chapter IV-D, ITA 2025
- LTCG on listed equity shares/equity MF: 12.5% (above ₹1.25 lakh exemption) — Section 195
- STCG on listed equity shares/equity MF: 20% — Section 196
- LTCG on property, gold, unlisted shares: 12.5% without indexation
- No indexation benefit for property sold after 23 July 2024
- LTCG exemption up to ₹1.25 lakh per year for equity/equity MF (Section 195)
- Section 175 (54 equivalent): Reinvestment exemption on property capital gains
- Capital losses can be carried forward for 8 years
1. Overview
A "capital gain" is the profit you make when you sell or transfer a capital asset for more than what you paid for it. Capital assets include land, buildings, shares, mutual funds, bonds, gold, jewellery, patents, and virtually any property of value. Under the Income Tax Act, 2025, capital gains are taxed under Chapter IV-D, Sections 67 to 93.
Capital gains tax in India was significantly overhauled by the Finance Act 2024 (effective from 23 July 2024). The key changes — removal of indexation for property, reduction of LTCG rate to 12.5%, increase of STCG rate on equity from 15% to 20%, and increase of LTCG exemption from ₹1 lakh to ₹1.25 lakh — have all been incorporated into the Income Tax Act, 2025.
2. What is a Capital Asset?
Under Section 67 of the Income Tax Act, 2025, a capital asset means property of any kind held by a person. This includes:
- Immovable property (land, buildings, apartments, commercial premises)
- Shares, securities, debentures, bonds
- Mutual fund units
- Gold, silver, jewellery, precious stones
- Archaeological collections, drawings, paintings, sculptures, art
- Patent, trademark, and intellectual property rights
- Equity-linked saving scheme (ELSS) units
NOT a capital asset (Section 67 exceptions):
- Stock-in-trade (goods held for business sale)
- Personal movable property (furniture, car, clothing — except jewellery, art, coins)
- Agricultural land in rural India (as defined)
- 6.5% Gold Bonds, 7% Gold Bonds, National Defence Bonds
3. Short-Term vs Long-Term Capital Asset
| Asset Type | Long-Term if Held For |
|---|---|
| Listed equity shares on recognised stock exchange | More than 12 months |
| Units of equity-oriented mutual funds | More than 12 months |
| Units of debt mutual funds, bonds, debentures | More than 24 months |
| Immovable property (land, building) | More than 24 months |
| Unlisted shares | More than 24 months |
| Gold, jewellery, other assets | More than 24 months |
4. Capital Gains Tax Rates for Tax Year 2026-27
| Asset | Type | Tax Rate | ITA 2025 Section | Exemption |
|---|---|---|---|---|
| Listed equity shares (STT paid) | LTCG | 12.5% | 195 | ₹1.25 lakh/year exempt |
| Listed equity shares (STT paid) | STCG | 20% | 196 | No exemption |
| Equity-oriented mutual funds (STT paid) | LTCG | 12.5% | 195 | ₹1.25 lakh/year exempt |
| Equity-oriented mutual funds (STT paid) | STCG | 20% | 196 | No exemption |
| Debt mutual funds | Both | Slab rates | General | No special exemption |
| Immovable property | LTCG | 12.5% (no indexation) | 195 | Section 175 exemption if reinvested |
| Immovable property | STCG | Slab rates | General | No special exemption |
| Unlisted shares | LTCG | 12.5% | 195 | No exemption |
| Unlisted shares | STCG | Slab rates | General | No exemption |
| Gold / jewellery | LTCG | 12.5% | 195 | No exemption |
| Gold / jewellery | STCG | Slab rates | General | No exemption |
| VDA / Cryptocurrency | Both | 30% | 102–106 | No exemption; no loss set-off |
5. LTCG on Equity: How the ₹1.25 Lakh Exemption Works
All examples below are illustrative only.
Under Section 195 of ITA 2025, LTCG arising from the transfer of listed equity shares and equity mutual funds (on which STT has been paid) is exempt up to ₹1,25,000 per year. Only gains above this threshold are taxed at 12.5%.
Example (Illustrative only):
- LTCG from equity shares: ₹3,00,000
- Less: Exemption: ₹1,25,000
- Taxable LTCG: ₹1,75,000
- Tax at 12.5%: ₹21,875
- Add: 4% Cess: ₹875
- Total LTCG tax: ₹22,750
The ₹1.25 lakh exemption applies per taxpayer per year — not per transaction or per stock. All LTCG from all equity transactions in the Tax Year are pooled together, and then ₹1.25 lakh is deducted.
6. No Indexation on Property Capital Gains — The Big Change
Until 22 July 2024, long-term capital gains on immovable property were taxed at 20% WITH indexation — meaning the cost of acquisition was inflated by the Cost Inflation Index (CII) to account for inflation, reducing the taxable gain significantly.
From 23 July 2024, as per the Finance (No. 2) Act 2024, indexation has been removed and the rate reduced to 12.5%. This change is reflected in Section 195 of ITA 2025.
Example (Illustrative only):
| Particulars | Old Regime (Pre-23 Jul 2024) | New Rule (ITA 2025) |
|---|---|---|
| Purchase price (2010) | ₹30,00,000 | ₹30,00,000 |
| Sale price (2026) | ₹1,00,00,000 | ₹1,00,00,000 |
| Indexed cost (CII) | ₹74,40,000 (approximate) | Not applicable |
| Taxable LTCG | ₹25,60,000 | ₹70,00,000 |
| Tax Rate | 20% | 12.5% |
| Tax Amount | ₹5,12,000 | ₹8,75,000 |
For properties held for a long time in high-inflation environments, the old system was often better. For recently purchased properties, the 12.5% rate without indexation may result in lower tax.
7. Capital Gains Exemptions: Section 175 Onwards
The Income Tax Act, 2025 preserves the reinvestment exemptions that were available under old Sections 54, 54EC, 54F of ITA 1961. These are now codified under Section 175 and related provisions:
| Exemption | ITA 2025 Section | Old Section | Condition | Max Exemption |
|---|---|---|---|---|
| Reinvestment of residential property LTCG into new house | 175 | 54 | Buy new house within 1 year before / 2 years after sale; construct within 3 years | Full LTCG or cost of new house (lower); max ₹10 crore |
| LTCG reinvested in capital gain bonds (NHAI, REC) | 176 | 54EC | Invest within 6 months of sale; lock-in 5 years | ₹50 lakh per year |
| LTCG on any asset reinvested in residential house | 177 | 54F | Must not own more than 1 house; buy/construct new house | Proportionate LTCG if reinvestment < full sale proceeds |
8. Set-Off and Carry Forward of Capital Losses
- LTCL can be set off only against LTCG — not against STCG or any other income
- STCL can be set off against both STCG and LTCG
- Capital losses carried forward for 8 Tax Years
- To carry forward losses, ITR must be filed before the due date
- VDA losses cannot be set off against any other income or carried forward
9. Advance Tax on Capital Gains
Capital gains income must be included in advance tax computation. However, for capital gains that arise late in the year (e.g., in Q4), the entire advance tax on such gains can be paid in the instalment falling after the gains arise — you are not required to go back and revise earlier instalments.
10. Latest Updates Under ITA 2025
- Finance Act 2024 (23 July 2024): Removed indexation; reduced rate to 12.5% for LTCG; increased STCG on equity to 20%; increased LTCG exemption to ₹1.25 lakh — all incorporated in ITA 2025
- VDA: Sections 102–106 codify the 30% flat tax on virtual digital assets introduced by Finance Act 2022
- Debt mutual funds: Taxed at slab rates (Finance Act 2023) — confirmed in ITA 2025
- Section 175 (54) cap: ₹10 crore maximum exemption for residential property — carried into ITA 2025
11. Penalties for Incorrect Capital Gains Reporting
- Omitting capital gains from ITR = under-reporting → 50% penalty on tax amount (Section 439, ITA 2025)
- Wrong classification (e.g., reporting STCG as LTCG) = under-reporting → 50% penalty
- Interest for late/short advance tax on capital gains = 1% per month (Section 418/419, ITA 2025)
12. Why TaxClue
Capital gains tax is complex — rates vary by asset type, holding period, and transaction date. The removal of indexation, the new exemption caps, and the VDA provisions make expert guidance essential. TaxClue's tax advisors help you compute capital gains accurately, claim applicable exemptions, optimise loss set-offs, and file your ITR correctly. Contact us for capital gains tax planning and filing under ITA 2025.
13. Resources & Checklist
- ☐ Collect all capital asset sale documents (contract notes, sale deeds, redemption statements)
- ☐ Determine holding period for each asset
- ☐ Calculate STCG and LTCG separately for each asset class
- ☐ Apply ₹1.25 lakh exemption for equity/equity MF LTCG
- ☐ Check if Section 175/176/177 reinvestment exemption is available
- ☐ Set off capital losses optimally before paying tax
- ☐ Include capital gains in advance tax computation
- ☐ File ITR on time to preserve loss carry-forward rights
14. Contact Us
Capital gains tax planning can save significant amounts — whether through timing of sales, reinvestment exemptions, or loss harvesting. TaxClue's experts specialise in capital gains tax computation and planning under the Income Tax Act, 2025. Contact us today.