1. What are long-term capital gains?
Long-term capital gains (LTCG) arise when you sell a capital asset after holding it for a specified period — more than 12 months for listed equity and equity mutual funds, and more than 24 months for most other assets. LTCG is taxed at preferential rates compared to short-term gains.
2. LTCG tax rates (FY 2024-25)
| Asset | Long-term holding | LTCG rate | Exemption |
|---|---|---|---|
| Listed equity shares | > 12 months | 12.5% | ₹1.25L/year |
| Equity mutual funds | > 12 months | 12.5% | ₹1.25L/year |
| Debt mutual funds | > 24 months | 12.5% | None |
| Real estate | > 24 months | 12.5% (no index) / 20% (index) | Section 54/54F |
| Gold / commodities | > 24 months | 12.5% | None |
| Unlisted shares | > 24 months | 12.5% | None |
💡 The ₹1.25 lakh equity LTCG exemption is per financial year. If your total equity LTCG is below ₹1.25L, you pay zero tax. Above that, the excess is taxed at 12.5%.
3. How to compute LTCG
The basic formula:
- Gross LTCG = Net sale consideration − Cost of acquisition − Transfer expenses
- Taxable LTCG = Gross LTCG − Exemptions
- Tax = Taxable LTCG × Applicable rate (+ cess + surcharge)
4. Indexation for property
For property bought before July 23, 2024, you can choose between:
- 12.5% without indexation — simpler, often better for recent purchases
- 20% with indexation — adjusts purchase price for inflation, often better for older properties
The Cost Inflation Index (CII) is used to adjust the purchase price. Indexed cost = Purchase price × (CII in year of sale / CII in year of purchase).
⚠️ For property bought on or after July 23, 2024, indexation is not available. LTCG is taxed at 12.5% without indexation.
5. Exemptions & savings
- Section 54: LTCG on property reinvested in a residential house is exempt (up to the gain or reinvestment).
- 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 exemption: Automatic, no reinvestment needed.
- Tax harvesting: Book up to ₹1.25L of LTCG each year tax-free by selling and repurchasing equity.
6. Setting off losses
- Long-term losses can only offset long-term gains.
- Short-term losses can offset both short-term and long-term gains.
- Unused losses can be carried forward for up to 8 years if you file your ITR on time.
7. Common mistakes
- Selling just before the long-term threshold: A few days can cost you significantly more tax.
- Not using the ₹1.25L exemption: Many investors overpay by not harvesting gains annually.
- Forgetting indexation for old property: Indexation can reduce taxable gains substantially.
- Missing Section 54 reinvestment deadlines: 2 years for purchase, 3 years for construction.
- Not keeping expense records: Brokerage and stamp duty reduce gains — keep receipts.
- Ignoring advance tax: LTCG is subject to advance tax; missing deadlines attracts interest.
8. Final thoughts
LTCG is the most tax-efficient way to realise investment gains. Hold equity for over 12 months (and other assets for over 24 months), use the ₹1.25L annual exemption, harvest gains yearly, and consider Section 54/54F if selling property.
Use this calculator to see your exact liability, then plan your sale timing and reinvestment strategy accordingly.
