Capital Gains are the profits earned when a person sells a capital asset, such as land, buildings, jewellery, or even Virtual Digital Assets like cryptocurrencies. After Budget 2024, the way these gains are taxed has changed. Long-Term Capital Gains (LTCG) are now taxed at a flat 12.5%, and indexation benefits have been removed. However, for listed equity shares, gains up to Rs. 1.25 lakh remain exempt. Short-Term Capital Gains (STCG) are mostly taxed at applicable slab rates, though in the case of specific securities, they attract a flat 20% rate. This article breaks down capital gains, slab rates, and taxation rules in detail.
In this article, we will explore the types, exemptions, and calculation process of capital gains tax, along with strategies to reduce its impact.
What are capital gains?
Capital Gains refer to the profit an investor earns when selling a capital asset at a higher value than its purchase price. These assets can include shares, bonds, mutual funds, real estate, or even digital assets. The difference between the sale price and the original cost is considered the gain. When this gain is realised, it becomes taxable under the Income Tax Act. Depending on how long the asset has been held, the gain may be categorised as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG), each of which is subject to different tax rules and rates.
What is capital gains tax?
Capital gains tax (CGT) is a tax imposed on the profit from the sale of an asset. The tax is calculated based on the difference between the selling price and the original purchase price of the asset. For instance, if you sell a stock for Rs. 1,000 that you initially bought for Rs. 800, the Rs. 200 profit is considered a capital gain, which may be taxed. This tax is an integral part of the Income Tax Act in India and applies to individuals, companies, and trusts.
This tax is an integral part of the Income Tax Act in India and applies to individuals, companies, and trusts.
Meaning of capital assets
Capital assets are properties or rights owned by an individual or entity which are not meant for day-to-day consumption but held for generating value. Below are examples of what counts as capital assets and what does not:
Examples of capital assets
Land, building, or house property
Vehicles
Patents, trademarks, and machinery
Leasehold rights
Jewellery
Rights in an Indian company, including management or controlling rights
Assets not considered capital assets
Stock, consumables, or raw materials used for business or professional purposes
Personal belongings such as clothing and furniture meant for personal use
Agricultural land located in rural* areas of India
6½% Gold Bonds (1977), 7% Gold Bonds (1980), or National Defence Gold Bonds (1980) issued by the Government
Special Bearer Bonds (1991)
Bonds under the Gold Deposit Scheme (1999) or deposit certificates issued under the Gold Monetisation Schemes of 2015 and 2019
* To determine whether agricultural land qualifies as rural, two factors are considered: distance from the nearest municipality/ cantonment board and population size.
Shortest aerial distance from municipality/ cantonment board |
Population as per last census |
Considered rural? |
Within municipal/cantonment limits |
≤10,000 |
Yes |
More than 2 km |
>10,000 |
Yes |
More than 6 km |
>1,00,000 |
Yes |
More than 8 km |
>10,00,000 |
Yes |
Types of capital assets
Capital assets are broadly classified into Short-Term Capital Assets (STCA) and Long-Term Capital Assets (LTCA) depending on the period of holding.
1. Short-Term Capital Asset (STCA)
An asset held for 24 months or less is considered short-term.
If sold within this timeframe, any gain is taxed as Short-Term Capital Gain (STCG).
Some assets are treated as STCA if held for 12 months or less:
Equity or preference shares of a listed Indian company
Securities like bonds, debentures, or government securities listed on recognised exchanges
Units of UTI (quoted or unquoted)
Units of equity-oriented mutual funds (quoted or unquoted)
Zero-coupon bonds
2. Long-Term Capital Asset (LTCA)
Assets held for more than 24 months are LTCA.
For immovable property such as land, buildings, or houses, holding beyond 24 months qualifies them as long-term.
However, certain financial instruments are treated as LTCA if held for more than 12 months:
Listed equity shares in an Indian company
Listed securities like bonds or debentures
Units of UTI or equity mutual funds
Note: From 1 April 2023, capital gains from specified mutual funds and market-linked debentures will always be treated as STCG, regardless of the holding period.
Additional points:
If an asset is received through gift, inheritance, or succession, the previous owner’s holding period is included.
For bonus and rights shares, the holding period starts from their date of allotment.
Types of capital gains: Short-term vs. long-term
Type of capital gain |
Holding period |
Tax rate |
Short-term capital gain |
Less than 24 months for real estate; less than 12 months for stocks and mutual funds |
30% for real estate; 15% for listed securities with STT |
Long-term capital gain |
More than 24 months for real estate; more than 12 months for stocks and mutual funds |
20% with indexation benefit (before July 23, 2024) or 12.5% without indexation (after July 23, 2024) |
Short-term capital gains (STCG) occur when an asset is sold within a short time of acquiring it, typically within one year for equities and three years for real estate. If a property is sold within this period, profits are taxed heavily, impacting net returns on home investment.
Long-term capital gains (LTCG) are applicable when the asset is held for a longer period. Holding property long-term can lead to lower tax liabilities, making it more favourable for home loan borrowers looking to maximize their investment.
Understanding the distinction between these two types of gains is crucial, as it determines the applicable tax rate.
Updated LTCG and STCG capital gains tax table by the income tax department
The Income Tax Department has recently issued an updated taxation table for capital gains, reflecting important changes effective from July 2024. Since capital gains are taxed differently depending on whether they are short-term (STCG) or long-term (LTCG), and also depending on the nature of the asset, taxpayers must understand these revised rules. The updates apply under both the new and old tax regimes as these are considered special-rate incomes.
A key change is the revision of tax rates: LTCG from equity shares and equity mutual funds are now taxed at 12.5% (up from 10%) if the transfer is made after 23 July 2024, while STCG rates on such assets rise to 20%. Gains up to Rs. 1.25 lakh from listed equities remain exempt.
The department also highlights that in special cases—such as income from certain securities held by non-residents—the tax rates differ and may include withholding on dividends, royalty, or technical fees.
Tax table (per Income Tax Department)
Eligible assessee |
Securities covered |
Tax rate on income (other than CG) |
Tax rate on LTCG |
Tax rate on STCG |
Adjustment of basic exemption limit |
Deduction under Chapter VI-A |
Any taxpayer |
Equity shares, units of equity-oriented mutual funds, units of business trust |
– |
10% (before 23 July 2024); 12.5% (on/after 23 July 2024). Tax on gains exceeding Rs. 1.25 lakh. |
15% (before 23 July 2024); 20% (on/after 23 July 2024) |
Available to resident individuals and HUFs only |
No |
Non-Resident (NRI) and Foreign Co. taxpayers |
FCCBs, FCEBs, GDRs |
10%–20% on dividend, 4%–20% on interest, 20% on royalty, 20% on fees for technical services |
10% (before 23 July 2024); 12.5% (on/after 23 July 2024) |
– |
No |
No (except limited cases under Section 80LA) |
Non-Resident (NRIs) |
Interest/dividend on certain securities |
10% on interest income, 10% on dividend income |
– |
– |
No |
No |
Calculation of capital gains tax: Step-by-step guide
Determine the purchase price of the asset (including any additional costs like broker fees or renovation expenses for property).
Calculate the selling price of the asset.
Find the difference between the selling price and the purchase price; this is your capital gain.
Apply the relevant tax rate based on whether the gain is short-term or long-term.
Deduct any exemptions that may apply (such as exemptions for residential property).
Pay the applicable tax based on the computed capital gain.
By following these steps, you can determine your capital gains tax liability and ensure timely payment.
Exemptions under capital gains tax
In India, the Income Tax Act provides several exemptions on capital gains tax to help taxpayers reduce their liabilities when selling assets. These exemptions, applicable as of January 2025, cater to various asset types and investment conditions.
Under Section 54, individuals selling residential property can reinvest their capital gains in a new residential property to claim exemptions, provided the purchase is made within one year before or two years after the sale, or the construction is completed within three years. This exemption applies to gains up to Rs. 10 crore. Similarly, Section 54F allows exemptions on long-term assets (excluding residential property) if the entire sale proceeds are reinvested in a residential property within the specified time limits.
Recent updates in the Union Budget 2024 have increased the exemption limit for long-term capital gains to Rs. 1.25 lakh and shortened the holding period for real estate to qualify as long-term from 36 to 24 months. Taxpayers must ensure compliance with these conditions to maximise benefits and plan their finances efficiently.
Capital gains tax on different assets
Asset type |
Holding period |
Short-term capital gain tax |
Long-term capital gain tax |
Listed equity shares |
Less than 12 months |
20% |
12.5% on gains exceeding Rs. 1.25 lakh |
Equity-oriented mutual funds |
Less than 12 months |
20% |
12.5% on gains exceeding Rs. 1.25 lakh |
Debt mutual funds |
Less than 36 months |
Taxed as per income slab |
Taxed as per income slab |
Real estate |
Less than 24 months |
Income tax slab rates |
12.5% without indexation benefits |
Bonds and Unlisted Shares |
Less than 24 months |
Income tax slab rates |
12.5% without indexation benefits |
Each asset type has specific rules regarding capital gains tax. While the tax rates may vary, the fundamental principle remains the same: the longer you hold an asset, the lower your tax liability on capital gains.
Capital gains tax on real estate transactions
Real estate transactions often involve significant capital gains, and understanding how tax applies to these transactions is essential. In India, the capital gains tax on real estate depends on whether the asset was held for a short or long period.
If the property is sold within 24 months of purchase, the gain is considered short-term and taxed at the seller’s applicable income tax slab rate, making them more expensive.
If the property is held for more than 24 months, it qualifies for long-term capital gains tax and offers two taxation options: a 12.5% rate without indexation or a 20% rate with indexation, which adjusts the purchase price for inflation using the Cost Inflation Index (CII).
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The 2024 Union Budget increased the LTCG exemption limit from Rs. 1 lakh to Rs. 1.25 lakh, providing additional relief for taxpayers. Exemptions are also available under Section 54, allowing reinvestment of gains into another residential property or agricultural land to reduce tax liability. Alternatively, gains can be reinvested in specified bonds under Section 54EC.
Capital gains tax filing process in India
1. File the Income Tax Return (ITR) online or offline, selecting the appropriate ITR form based on your source of income for the assessment year.
2. Fill in the necessary details, starting with general information in Part A (such as name, PAN, and address).
3. Report the sale of assets and the resulting capital gains in the capital gains section of the form. Specify the details of each asset sold, including the full value consideration, acquisition cost, and transfer expenses.
4. Provide details of the purchase and sale price and any exemptions claimed.
5. Pay the calculated tax through the online portal or through bank challan.
6. Verify your return electronically or by sending a signed hard copy to the CPC (Centralised Processing Centre).
By following these steps, individuals can ensure that they comply with tax laws and avoid penalties. Ensure you submit before the due date, which varies for audited and non-audited entities.
Strategies to Reduce Capital Gains Tax Liability
Hold assets for the long term: This can reduce the tax rate from short-term to long-term.
Reinvest gains in specified assets: Taking advantage of exemptions under sections like 54 can help avoid tax.
Offset gains with losses: Use capital loss to set off capital gains and reduce tax liability.
Use indexation benefit: For long-term assets like real estate, using the cost inflation index can lower taxable gains.
By employing these strategies, individuals can reduce their tax burden and enhance the returns on their investments.
Smart tax planning extends to making informed property purchase decisions as well. Whether you are buying your first home or investing in real estate, a home loan from Bajaj Finserv can help you leverage current market opportunities whilst managing capital gains implications effectively. Check your loan offers with competitive rates and quick approval processes. You may already be eligible, find out by entering your mobile number and OTP.
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ITR filing 2025: Can you claim Section 87A rebate on LTCG, STCG if your total income is below Rs. 7 lakh?
Taxpayers often wonder whether the Section 87A rebate can be claimed when their income includes capital gains. Recent rulings have clarified that in principle, the rebate is applicable even if the income includes LTCG or STCG from equity. However, there is still a practical difficulty in claiming it during ITR filing, as the current utilities do not allow such claims.
The Income Tax Appellate Tribunal (ITAT) in Chennai, supported by a Bombay High Court precedent, has ruled that Section 87A does not exclude any income category. Therefore, if a resident individual’s total taxable income (including capital gains) is below Rs. 7 lakh under the new regime, they should technically be entitled to a rebate of up to Rs. 25,000. Similarly, under the old regime, if income is up to Rs. 5 lakh, a rebate of up to Rs. 12,500 is allowed.
Still, experts caution that until the ITR utility is updated, taxpayers may face challenges in claiming this rebate, which could lead to disputes or delays.
Who can claim the rebate?
Only resident individuals are eligible.
The total income should not exceed Rs. 7 lakh (new regime) or Rs. 5 lakh (old regime).
How much rebate is available?
New regime: Rebate up to Rs. 25,000 if income ≤ Rs. 7 lakh.
Old regime: Rebate up to Rs. 12,500 if income ≤ Rs. 5 lakh.
The rebate cannot exceed the total tax payable before cess.
The rebate applies against:
Regular slab-rate income
LTCG under Section 112 (non-equity capital assets)
STCG under Section 111A (from listed shares/mutual funds at 15%)
In August 2025, ITAT Ahmedabad also allowed a taxpayer to claim rebate on STCG under the new regime, further strengthening this interpretation.
Conclusion
Understanding how capital gains tax works is crucial for making smart investment and tax planning decisions. With changes introduced in Budget 2024, including new rates for LTCG and STCG and the removal of indexation benefits, taxpayers must review their strategies carefully. Being aware of exemptions such as the Rs. 1.25 lakh relief on listed equities, along with provisions like Section 87A rebate, ensures better financial management. Staying informed and proactive helps individuals reduce tax burdens legally while maximising the value of their investments.
As you plan your investment portfolio and tax strategies, consider how property ownership fits into your financial goals. Bajaj Finserv makes homeownership accessible with loans up to Rs. 15 Crore*, competitive interest rates from 7.45%* p.a, and flexible repayment options up to 32 years. Check your home loan eligibility and take the first step towards building wealth through real estate. You may already be eligible, find out by entering your mobile number and OTP.
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