LTCG on Equity and Mutual Funds Under ITA 2025: 12.5% Tax, Rs 1.25 Lakh Exemption

Long-Term Capital Gains (LTCG) on listed equity shares and equity-oriented mutual funds are taxed under a special regime in the Income Tax Act 2025. The key rule: gains above Rs. 1,25,000 per Tax Year are taxed at 12.5% without indexation, provided Securities Transaction Tax (STT) was paid on both purchase and sale.

Eligibility Conditions

• Asset must be a listed equity share or unit of an equity-oriented mutual fund
• STT must have been paid at the time of both acquisition and transfer
• Holding period must exceed 12 months
• The 12.5% rate applies only to the amount exceeding Rs. 1.25 lakh

Calculation Example

No Indexation Benefit

Unlike LTCG on property (which historically used Cost Inflation Index), LTCG on equity under ITA 2025 has no indexation benefit. The gain is simply sale price minus original purchase price (plus any transfer expenses).

Grandfathering (Pre-February 2018 Gains)

For shares/units acquired before 1 February 2018, the deemed cost is the higher of (a) actual cost and (b) FMV as on 31 January 2018. This grandfathering ensures gains accrued before the LTCG regime was introduced are not taxed. ITA 2025 preserves this grandfathering benefit.

STCG on Equity: 20% Rate

If equity shares or equity MF units are sold within 12 months (short-term), the gain is taxed at 20% (STT paid condition applies). STCG has no threshold exemption — the full gain is taxable at 20%.

Equity-Oriented Mutual Funds — Definition

A mutual fund is equity-oriented if at least 65% of its portfolio is invested in equity shares of domestic companies. Hybrid funds below this threshold are taxed differently (like debt funds at slab rate for LTCG).

Debt Mutual Funds — No LTCG Benefit

Debt mutual funds and fund-of-funds with less than 65% equity allocation are taxed at slab rates for both short-term and long-term gains (effective from 1 April 2023 amendment carried into ITA 2025). No 12.5% LTCG benefit applies.

ELSS Funds and LTCG

Equity Linked Savings Scheme (ELSS) funds have a mandatory 3-year lock-in. Gains on redemption after 3 years qualify as LTCG. Under the default regime of ITA 2025, the 80C deduction for ELSS is not available, but gains on ELSS are still taxed at 12.5% LTCG rate above Rs. 1.25 lakh.

ITR Reporting of LTCG

LTCG on equity must be reported in Schedule CG of ITR-2 (for individuals with capital gains) or ITR-3 (for business income). Statement of financial transactions (SFT) from brokers/depositories is reflected in AIS for cross-verification.