Capital Gains

What it means

A capital gain is the profit you make when you sell a capital asset for more than it cost you. Capital assets include shares, equity mutual funds, debt funds, gold, land, a flat or a house. The gain is taxed in the year of sale. How much tax you pay depends on how long you held the asset and what type of asset it is.

How it works

• Holding period: listed shares and equity mutual funds are long-term after more than 12 months. Most other assets, such as property, gold and unlisted shares, are long-term after more than 24 months.

• Listed equity, long-term: 12.5% on gains above ₹1.25 lakh in a year

• Listed equity, short-term (section 111A of the old Act): 20%

• Other long-term assets (property, gold, unlisted shares): 12.5% without indexation

• Resident individuals and HUFs selling land or a building bought before 23 July 2024 can choose 20% with indexation if that gives lower tax.

• Other short-term gains, and gains on debt mutual funds bought on or after 1 April 2023: taxed at your slab rate

• Add 4% cess, and surcharge where applicable.

Gain = sale price minus cost of acquisition, cost of improvement and transfer expenses such as brokerage.

Example

Karan sells shares in FY 2025-26:

• Shares bought in January 2024 for ₹3,00,000 and sold in August 2025 for ₹6,00,000. Held for over 12 months, so the gain of ₹3,00,000 is long-term.

• Taxable LTCG: ₹3,00,000 minus the ₹1,25,000 exemption = ₹1,75,000. Tax at 12.5% = ₹21,875.

• Shares bought in March 2025 for ₹1,00,000 and sold in October 2025 for ₹1,50,000. The gain of ₹50,000 is short-term. Tax at 20% = ₹10,000.

• Total: ₹31,875 plus 4% cess of ₹1,275 = ₹33,150

Even if Karan’s salary income is below ₹12 lakh, the section 87A rebate does not cover this tax, because these gains are taxed at special rates.

Key points to remember

• The ₹1.25 lakh exemption applies to equity LTCG only, once a year in total, not per sale.

• Sections 54 and 54F of the old Act let you save tax on long-term gains by buying a residential house, within limits and timelines.

• Capital losses can be set off against gains and carried forward for 8 years, but only if you file your return by the due date.

• Large gains need advance tax. Pay it in the instalment due after the sale to avoid interest.

• Check the AIS, which shows all sales reported by brokers and registrars, before you file.