Long Term Capital Gain Tax - LTCG Definition and Tax Rates After Budget 2026

In India, Long-Term Capital Gains (LTCG) tax applies when you sell certain assets after holding them for a specified minimum period. For instance, listed shares and equity mutual funds are treated as long-term assets if kept for more than one year, whereas property and most debt investments require a holding period exceeding 24 months. Following changes introduced in Union Budget 2024 and carried forward in Budget 2026, LTCG is taxed at a flat rate of 12.5% on gains above Rs. 1.25 lakh in a financial year, along with cess and surcharge where applicable. The earlier dual tax structure of 10% and 20% has been replaced, and indexation benefits have largely been withdrawn for most asset classes. Budget 2026 chose continuity over major reforms, keeping rules broadly stable while still influencing investor behaviour across equities, gold, and derivatives.

This article will explain LTCG, tax rates, calculations, exemptions, and examples, helping you manage your investments wisely.

What is long-term capital gain (LTCG)?

Long-Term Capital Gain (LTCG) refers to profits earned from selling certain assets held over a defined minimum period. The rules vary depending on the type of asset:

• Definition – LTCG is the profit arising from the transfer or sale of a long-term capital asset.
• Holding period for most assets – If an asset is held for more than 24 months, it qualifies as a long-term capital asset.
• Holding period for listed equity and similar instruments – Listed equity shares, units of equity-oriented mutual funds, and units of business trusts are treated as long-term capital assets if held for more than 12 months.
• Applicable sections – LTCG taxation is governed under two provisions:
  • Section 112A – Covers listed equity shares, equity-oriented funds, and units of business trusts.
  • Section 112 – Applies to all other long-term capital gains not covered under Section 112A.

LTCG rules for FY 2025-26 (AY 2026-27)

Below is a quick overview of the LTCG rules that apply for FY 2025-26 (AY 2026-27).

Asset Type	Holding Period for LTCG	LTCG Exemption	LTCG Tax Rate	Notes
Equity Shares & Equity Mutual Funds (greater than/equal to 65% equity)	More than 12 months	Rs 1.25 lakh per FY	12.5% (without indexation)	Section 112A applies. STT conditions must be satisfied.
Hybrid Funds (greater than/equal to 65% equity)	More than 12 months	Rs 1.25 lakh per FY	12.50%	Treated same as equity funds.
Equity-like Fund of Funds / Equity ETFs	More than 12 months	Rs 1.25 lakh per FY	12.50%	Must qualify as equity-oriented.
Debt Mutual Funds (bought on or after 1 Apr 2023)	Not applicable	None	-	Always treated like short-term, no LTCG benefit.
Debt Mutual Funds (bought on or before 31 Mar 2023)	More than 24 months	None	12.5% (without indexation)
Hybrid Funds (<65% equity)	More than 24 months	None	12.5% (without indexation)	Treated as non-equity funds.
Gold Funds / International Funds / Non-equity FoFs	More than 24 months	None	12.5% (without indexation), if purchased before April 1, 2023	If classified as a Specified Mutual Fund (less than/ equal to 35% Indian equity) and purchased on/after 1 Apr 2023 → gains taxed at slab rates regardless of holding period.
Non-equity ETFs	More than 24 months	None	12.5% (without indexation)	Commodity, gold, debt ETFs etc.
Land & Buildings	More than 24 months	None	12.5% (without indexation)	Grandfathering applies: If property was acquired before 23 Jul 2024, resident individuals/HUFs can choose old method (20% with indexation) if it results in lower tax.
Unlisted Shares	More than 24 months	None	12.5% (without indexation)	General LTCG rule applies.
Other Capital Assets	More than 24 months	None	12.5% (without indexation)	Default rule for long-term assets.

Why LTCG tax is back in the spotlight after Budget 2026 for FY 2026–27

Long-term capital gains tax has once again become a major topic of discussion among investors, analysts, and traders after Union Budget 2026. Even though the government did not introduce dramatic changes, the Budget sent clear signals about its long-term approach to taxation, making LTCG relevant to a wider group of taxpayers than before.

1. What Budget 2026 said on capital gains?

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 an annual tax-free threshold of Rs. 1.25 lakh. 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 did not happen, LTCG quickly became a trending subject in financial discussions.

2. Equity investors react to status quo

Retail and institutional equity investors were directly affected by the unchanged tax regime. With no relief provided, many are reconsidering when to book profits. Crossing the Rs. 1.25 lakh exemption still triggers tax, making investors more cautious about selling. Additionally, the Budget proposed changes to share buyback taxation by shifting the burden from companies to shareholders through capital gains tax, which has further drawn attention to LTCG rules.

3. Gold tax rules add to the buzz

Gold has also contributed to renewed interest in LTCG. Whether in physical form, digital gold, or gold ETFs, long-term gains are taxed at 12.5% without indexation. As gold prices have risen sharply, many investors are realising that their tax liability on profits could be higher than expected, bringing LTCG into everyday financial planning.

4. Sovereign gold bonds lose some shine

Changes related to Sovereign Gold Bonds (SGBs) have kept LTCG in the news. While original investors still enjoy tax-free returns at maturity, those purchasing SGBs from the secondary market after April 2026 will no longer receive this benefit. Their gains will now be taxed like other capital assets, reducing the product’s earlier tax appeal.

5. Higher costs in derivatives trading

Budget 2026 increased the securities transaction tax on futures and options. Although this does not directly alter LTCG rules, it raises trading costs. As a result, many market participants are now comparing short-term trading profits with long-term investment returns, once again placing LTCG at the centre of financial conversations.

Overall, the government appears to be steering taxpayers towards simpler rules, fewer loopholes, and more genuine long-term investing rather than tax-driven strategies.

What Budget 2026 said on LTCG tax?

Budget 2026 kept the existing long-term capital gains tax structure largely unchanged, signalling policy stability rather than reform. The key features remain the same: equity LTCG continues to be taxed at 12.5% after a one-year holding period, while the annual exemption limit stays at Rs. 1.25 lakh. Short-term capital gains on listed shares are still charged at 20%. Despite growing retail participation in stock markets, the government chose not to increase exemptions or reduce rates. This decision ensured continuity but also triggered fresh debate among investors about the impact of LTCG on returns.

Why LTCG tax matters more after Budget 2026?

Budget 2026 reinforced the government’s intention to create a fairer and more consistent tax system. There is a clear focus on reducing tax loopholes, limiting arbitrage opportunities, and simplifying rules across asset classes. As capital gains taxation becomes more uniform, investors must now prioritise real returns rather than complex tax planning. Long-term investment discipline is being encouraged over short-term speculation. Even without major policy shifts, LTCG has become increasingly significant because it directly shapes how people think about saving, investing, and building wealth in the years ahead.

Budget 2026: Can LTCG rules be made simpler for ordinary taxpayers? What experts have to say

Over the past few years, more ordinary Indians have started investing in shares, mutual funds, and property, making long-term capital gains (LTCG) tax relevant to far more people than before. What was once seen as a matter only for wealthy investors or big property owners has now become a common tax issue for salaried individuals, small investors, and middle-class households. Whether someone is selling a flat, redeeming mutual fund units, or booking profits in the stock market, understanding how LTCG works has become increasingly important. However, many taxpayers still find the rules confusing due to different holding periods, tax rates, and conditions for exemptions. With Budget 2026 approaching and a new Income-tax Act set to take effect, tax experts believe this is the right time for the government to simplify the LTCG framework so that compliance becomes easier and disputes are reduced.

1. When LTCG is applicable as per Income tax

Long-term capital gain applies when a person sells an asset after holding it for a specified minimum period. These assets can include listed shares, equity mutual funds, bonds, land, houses, and commercial property. If the asset is held beyond the required time limit, any profit made from its sale is treated as long-term and taxed under LTCG provisions. The taxable amount is calculated as the difference between the selling price and the original purchase cost, after adjusting for permitted expenses. Recent changes introduced in 2024 have standardised the LTCG tax rate at 12.5 per cent for many assets, but the application of this rate varies depending on the type of asset. For listed shares and equity mutual funds, gains above Rs. 1.25 lakh in a financial year are taxable, provided Securities Transaction Tax has been paid. For land and buildings, indexation benefits have largely been removed, though certain grandfathering provisions protect taxpayers who bought property before 23 July 2024. Holding periods have also been revised, with most assets now requiring more than 24 months to qualify as long-term, while listed securities need only 12 months.

2. Focus on transition and clarity

Tax professionals believe that the priority for Budget 2026 should be a smooth transition to the new Income-tax Act rather than major structural changes. They suggest that clear guidelines, detailed FAQs, and practical examples would help taxpayers better understand the updated LTCG rules. Simplified valuation methods, standardised reporting formats, and pre-filled tax details could also reduce errors and disputes. Experts emphasise that even small improvements in clarity can significantly ease compliance for ordinary taxpayers who may not have access to professional tax advice. A well-structured transition plan could make the new system more predictable and user-friendly.

3. Too many categories, too many conditions

One of the biggest criticisms of the current LTCG system is the large number of asset categories, each with different rules. Whether an investment is treated as long-term or short-term depends on multiple factors, including whether it is listed or unlisted, equity or debt, and whether STT has been paid. This complexity often confuses retail investors and leads to unintentional non-compliance. Experts hope that Budget 2026 will further simplify asset classifications and create more uniform rules. They also suggest simplifying loss set-off provisions, which currently differ based on whether gains are short-term or long-term. Another expectation is expanding tax rebates under Section 87A to cover a wider range of capital gains, rather than limiting them to specific asset types.

4. Multiple rulebooks within one regime

Different rules currently apply depending on the taxpayer’s residential status and the type of asset sold. NRIs, resident individuals, and HUFs often face different computation methods, reinvestment benefits, and tax rates. This creates confusion and increases the risk of mistakes while filing returns. Experts believe that a single, standardised framework for reinvestment relief and loss adjustment would make the system much easier to follow. They also recommend better integration of tax data in Form 26AS and AIS, along with more accurate pre-filled returns, to help taxpayers report LTCG correctly without professional assistance.

5. Expectations of limited big-bang changes

Some experts feel that the government may avoid major changes in Budget 2026, as significant reforms were already introduced in 2024. They believe that the current structure has largely streamlined holding periods and tax rates across asset classes. However, minor taxpayer-friendly adjustments may still be introduced. One widely discussed suggestion is increasing the tax-free LTCG threshold from Rs. 1.25 lakh to around Rs. 1.5 lakh or Rs. 1.75 lakh for listed shares and equity mutual funds. This would provide relief to small investors without complicating the system further.

6. NRI concerns also in focus

Non-resident Indians face unique challenges when dealing with LTCG, particularly in property transactions. While resident sellers are subject to 1 per cent TDS on property sales above Rs. 50 lakh, NRIs often struggle with obtaining lower withholding certificates in time. This leads to delays and cash flow issues. Experts suggest extending similar TDS provisions to NRIs or simplifying the process for obtaining tax clearances. Addressing these concerns could make property transactions smoother for NRIs and reduce unnecessary compliance hurdles.

7. The common thread

Across all expert opinions, the main message is clear: simplification matters more than tax rate reductions. Reducing asset-based distinctions, making loss set-off rules easier, and expanding rebates for small taxpayers could make LTCG far less intimidating. Better pre-filled returns, clearer definitions, and consistent interpretations by tax authorities would also reduce disputes. Ultimately, the goal should be to make capital gains taxation straightforward, predictable, and easy to comply with for ordinary investors.

Budget 2025 long term capital gain tax updates

According to the Union Budget 2025, the government has retained the long-term capital gain tax structure. The tax rate for equities, mutual funds, and stocks remains at 12.5% for profits exceeding Rs. 1.25 lakh per financial year. The policy aims to maintain consistency and encourage long-term investments.

Notable updates:

• A uniform 12.5% tax rate applies across asset classes.
• No changes to existing exemption limits.
• The government continues to monitor capital market trends to make future adjustments if necessary.

Long-term capital gain (LTCG) tax rate for FY 2024-25 (AY 2025-26)

From 23 July 2024, the tax rates for long-term capital gains have been revised under the Finance (No. 2) Bill, 2024. The applicable rate depends on the nature of the asset and the date of sale. For transactions before 23 July 2024, the earlier structure applies, which includes a higher rate for some assets but with the benefit of indexation. For sales made on or after 23 July 2024, the rate is generally 12.5% without indexation, though there are exceptions for certain property transactions.

Assets sold	Long-term capital gains (LTCG) tax rate
	Sold before 23 July 2024	Sold on or after 23 July 2024
Listed equity shares, equity-oriented mutual funds, units of business trust	10% without indexation	12.5% without indexation
Land and building	20% with indexation	12.5% without indexation (Option for Individuals/HUF: 20% with indexation or 12.5% without indexation)
Other capital assets	20% with indexation	12.5% without indexation

Key aspects of LTCG tax

I. Definition of long-term capital gains

For listed financial assets such as equity shares, equity-oriented mutual funds, and units of business trusts, the asset must be held for more than one year to qualify as a long-term capital asset. For unlisted financial assets and all non-financial assets—such as property, jewellery, or art—the required holding period is more than two years.

II. Exemption limit on certain financial assets

For specified listed financial assets, an exemption of up to Rs. 1.25 lakh is available on long-term capital gains in a financial year.

III. Tax rate on debt-based investments

Debt mutual funds, unlisted bonds and debentures, and market-linked debentures attract capital gains tax at the applicable income tax slab rates, regardless of the holding period.

IV. Short-term capital gains treatment

Short-term gains on specified financial assets are taxed at 20%. For all other financial and non-financial assets, the gains are taxed as per the applicable slab rate.

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V. Effective date of new provisions

The revised capital gains rules took effect from 23 July 2024. Before this date, there were three separate holding period categories. Post-revision, only two holding periods apply—one year for listed securities and two years for all other assets.

VI. Exemption through reinvestment

Gains can be exempt from tax if fully reinvested in a residential property, subject to a cap of Rs. 10 crore. An alternative is to invest up to Rs. 50 lakh in bonds under Section 54EC. If reinvestment is not completed within the financial year, funds must be deposited into a Capital Gains Account Scheme before the ITR filing deadline. For securities-related gains, the exemption is available only if the entire sale proceeds are reinvested.