Long Term Capital Gains Tax – Rates, Rules, and Budget 2026 Updates

• Equity shares and equity mutual funds: 12.5% LTCG tax after a 12-month holding period, with Rs. 1.25 lakh annual exemption.
• Property, unlisted shares, and most other assets: 12.5% LTCG tax after a 24-month holding period, without indexation in most cases.
• Property bought before 23 July 2024 qualifies for grandfathering — resident individuals/HUFs can choose the old 20%-with-indexation method if it results in lower tax.
• Debt mutual funds bought on or after 1 April 2023 get no LTCG benefit at all — always taxed like short-term gains.
• Budget 2026 kept the capital gains structure unchanged for FY 2026-27, disappointing investors who expected a higher exemption or lower rate.
• Reinvesting gains in a residential property (up to Rs. 10 crore cap) or Section 54EC bonds (up to Rs. 50 lakh) can exempt LTCG from tax.

Long-Term Capital Gain refers to profits earned from selling certain assets held over a defined minimum period. The rules vary by asset type: assets held for more than 24 months qualify as long-term in most cases, while listed equity shares, units of equity-oriented mutual funds, and units of business trusts qualify as long-term if held for more than 12 months.

LTCG taxation is governed under two provisions: Section 112A covers listed equity shares, equity-oriented funds, and business trust units; Section 112 applies to all other long-term capital gains.

From 23 July 2024, LTCG tax rates were revised under the Finance (No. 2) Bill, 2024:

Worked example — why this date genuinely matters: Consider a resident individual who bought a property before 23 July 2024 for Rs. 50 lakh, now selling it for Rs. 90 lakh. Under the new 12.5%-without-indexation rule, tax applies to the full Rs. 40 lakh gain: Rs. 5 lakh tax. Under the grandfathered 20%-with-indexation option, if indexation brings the effective cost basis up to, say, Rs. 65 lakh, the taxable gain shrinks to Rs. 25 lakh, producing Rs. 5 lakh tax at 20% — potentially similar or even lower depending on the specific indexation factor for the holding period. Since this individual specifically qualifies for the choice (property bought before 23 July 2024), calculating both methods before filing is genuinely worth the effort, since the better option isn't always obvious without running the numbers.

Budget 2026 maintained the existing capital gains framework for FY 2026-27 instead of overhauling it. Equity investments continue to attract LTCG at 12.5% after a one-year holding period, with the Rs. 1.25 lakh annual tax-free threshold unchanged. Short-term gains on shares remain taxable at 20%. Many investors had hoped for either a higher exemption limit or a lower rate, especially given rising market participation — since this relief didn't materialise, LTCG became a widely discussed topic following the Budget.

Other Budget 2026 developments affecting capital gains:

• Share buyback taxation shifted from companies to shareholders through capital gains tax
• Sovereign Gold Bonds purchased from the secondary market after April 2026 lose the tax-free-at-maturity benefit that original investors still enjoy
• Securities transaction tax on futures and options increased, raising derivatives trading costs indirectly influencing LTCG-versus-trading decisions

Despite Budget 2026's continuity approach, tax professionals highlight genuine ongoing complexity: multiple asset categories each with different rules, different computation methods for NRIs versus resident individuals versus HUFs, and loss set-off provisions that differ based on whether gains are short-term or long-term. Experts have specifically suggested expanding Section 87A rebates to cover a wider range of capital gains, and better integration of tax data in Form 26AS and AIS to support more accurate pre-filled returns.

For NRIs specifically, unique challenges persist around property transactions — while resident sellers face 1% TDS on property sales above Rs. 50 lakh, NRIs often face delays obtaining lower withholding certificates, creating cash flow complications tax experts have flagged as needing simplification.

Gains can be exempt from tax if fully reinvested in a residential property, subject to a cap of Rs. 10 crore. Alternatively, investing up to Rs. 50 lakh in bonds under Section 54EC provides exemption. If reinvestment isn't completed within the financial year, funds must be deposited into a Capital Gains Account Scheme before the ITR filing deadline. For securities-related gains, exemption requires reinvesting the entire sale proceeds, not just the gain portion.

If you're selling an existing asset with LTCG liability, reinvesting the proceeds in a residential property can exempt the gain entirely, up to the Rs. 10 crore cap — worth factoring into your broader property purchase planning.

Bajaj Housing Finance offers home loans from 7.25% p.a.* p.a.* with amounts up to Rs. Rs. 15 Crore* and tenures up to 32 years years. Check eligibility today.