1. What are capital gains?
Capital gains arise when you sell a capital asset (stocks, mutual funds, property, gold, etc.) for more than its purchase price. The profit is your capital gain, and it's taxable.
The tax rate depends on two things: the type of asset and the holding period. Based on holding period, gains are classified as short-term (STCG) or long-term (LTCG).
2. Holding periods & rates (FY 2024-25)
| Asset | Long-term if held | STCG rate | LTCG rate |
|---|---|---|---|
| Listed equity shares | > 12 months | 20% | 12.5% (> ₹1.25L) |
| Equity mutual funds | > 12 months | 20% | 12.5% (> ₹1.25L) |
| Debt mutual funds | > 24 months | Slab rate | 12.5% |
| Real estate | > 24 months | Slab rate | 12.5% (no indexation) |
| Gold / commodities | > 24 months | Slab rate | 12.5% |
| Unlisted shares | > 24 months | Slab rate | 12.5% |
💡 Equity LTCG enjoys a ₹1.25 lakh annual exemption. If your total equity LTCG for the year is below ₹1.25L, you pay no tax. Above that, the excess is taxed at 12.5%.
3. How to compute capital gains
The basic formula:
- Gross gain = Sale price − Purchase price − Transfer expenses
- Taxable gain = Gross gain − Exemptions
- Tax = Taxable gain × Applicable rate (+ cess + surcharge)
For equity, purchase expenses (brokerage) are added to cost, and sale expenses (brokerage, STT is not deductible) are subtracted from sale price.
4. Exemptions & savings
- Section 54: LTCG on property reinvested in a residential house is exempt (up to the gain or the reinvestment, whichever is lower).
- Section 54F: LTCG on any asset (other than a house) reinvested in a residential house is exempt proportionately.
- Section 54EC: LTCG on property reinvested in specified bonds (NHAI, REC) up to ₹50L is exempt.
- ₹1.25L equity LTCG exemption: Automatic, no reinvestment needed.
- Tax harvesting: Book up to ₹1.25L of LTCG each year tax-free by selling and repurchasing equity.
⚠️ Section 54/54F requires reinvestment within 2 years (purchase) or 3 years (construction). If you don't reinvest in time, the exemption is withdrawn.
5. Indexation: what changed?
Indexation adjusts the purchase price for inflation, reducing taxable gains. From FY 2024-25, indexation has been removed for most assets. Property LTCG is now taxed at 12.5% without indexation (or 20% with indexation, whichever is lower, for property acquired before July 2024).
For debt funds, indexation was removed from April 2023. Debt fund gains are now taxed at your slab rate (STCG) or 12.5% (LTCG).
6. Setting off & carrying forward losses
Capital losses can be set off against capital gains:
- Short-term losses can be set off against both STCG and LTCG.
- Long-term losses can only be set off against LTCG.
- Unused losses can be carried forward for up to 8 years if you file your ITR on time.
This makes tax-loss harvesting a powerful tool — sell loss-making investments to offset gains elsewhere.
7. Common mistakes
- Not tracking holding periods: A few days can make the difference between 20% and 12.5% tax.
- Forgetting the ₹1.25L exemption: Many investors overpay by not accounting for it.
- Not keeping expense receipts: Brokerage and stamp duty reduce gains — keep records.
- Ignoring advance tax: Capital gains are subject to advance tax; missing deadlines attracts interest.
- Not harvesting losses: Booking losses to offset gains can save significant tax.
- Assuming indexation still applies: The rules changed in 2024 — check current rates.
8. Final thoughts
Capital gains tax is manageable with planning. Hold equity for over 12 months, use the ₹1.25L annual exemption, harvest losses, and consider Section 54/54F if selling property. Keep records of all purchase and sale expenses.
Use this calculator to see your exact liability, then plan your sale timing and reinvestment strategy accordingly.
