Tax & Finance

Capital Gains Tax in India — Rates, Exemptions & How to Calculate

Complete guide to capital gains tax in India. Learn STCG & LTCG rates, exemptions under Section 54, 54EC, 54F, and how to report in ITR.

CitizenNest Editorial Team10 min read

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Disclaimer: This is an independent informational guide. We are NOT affiliated with any government body. Always verify on official websites.

Official Links

incometaxindia.gov.in incometax.gov.in indiacode.nic.in

What Are Capital Gains?

When you sell a capital asset — such as property, shares, mutual funds, gold, or bonds — for more than what you paid, the profit is called a capital gain. This gain is taxable under the Income Tax Act, 1961.

Capital assets include:

Residential and commercial property
Listed and unlisted shares
Equity and debt mutual funds
Gold (physical, ETFs, sovereign gold bonds)
Bonds and debentures

Not considered capital assets: Personal items like clothing, furniture, and any stock-in-trade used in business.

Short-Term vs Long-Term Capital Gains

The tax treatment depends on how long you held the asset before selling it. The holding period determines whether the gain is short-term (STCG) or long-term (LTCG).

Holding Period Thresholds (Post Budget 2024)

Asset Type	Short-Term (Less Than)	Long-Term (Equal or More)
Listed equity shares	12 months	12 months
Equity mutual funds	12 months	12 months
Debt mutual funds	24 months	24 months
Immovable property (land/house)	24 months	24 months
Gold (physical, ETFs)	24 months	24 months
Unlisted shares	24 months	24 months
Bonds and debentures	12 months	12 months

Note: The Union Budget 2024 revised holding periods. Always check the latest rules on the Income Tax portal.

Capital Gains Tax Rates (FY 2024-25 Onwards)

Short-Term Capital Gains (STCG)

Asset Type	Tax Rate
Listed equity shares / equity mutual funds (STT paid)	20%
Debt mutual funds	As per income tax slab
Property, gold, unlisted shares	As per income tax slab

Long-Term Capital Gains (LTCG)

Asset Type	Tax Rate	Exemption Limit
Listed equity shares / equity mutual funds	12.5%	First ₹1.25 lakh per year exempt
Property	12.5% (without indexation)	No basic exemption
Gold	12.5%	No basic exemption
Debt mutual funds	As per income tax slab	No LTCG benefit
Unlisted shares	12.5%	No basic exemption

Important: From FY 2024-25, the indexation benefit has been removed for property and other assets. LTCG is now taxed at a flat 12.5% without indexation.

How to Calculate Capital Gains — Step by Step

1. Determine the Sale Price

This is the full value of consideration (the amount you received on selling the asset).

2. Calculate Cost of Acquisition

For assets purchased before 01 April 2001, you can use the Fair Market Value (FMV) as on 01 April 2001 as your cost.
For listed equity, the FMV as on 31 January 2018 can be used as the cost of acquisition (grandfathering rule for LTCG).

3. Deduct Transfer Expenses

Subtract brokerage, commission, stamp duty, legal fees, and any other expenses directly related to the sale.

4. Compute Capital Gain

Formula:

Capital Gain = Sale Price − Cost of Acquisition − Transfer Expenses

Note: Indexation benefit has been removed from FY 2024-25 for all assets. The cost of acquisition is used as-is (without inflation adjustment).

5. Apply Exemptions (If Eligible)

Deduct any exemptions under Section 54, 54EC, or 54F (see below).

6. Pay Tax on the Remaining Amount

Apply the applicable STCG or LTCG tax rate on the balance.

Example:

You bought a flat for ₹40 lakh in 2015 and sold it for ₹80 lakh in 2026.
Capital gain = ₹80 lakh − ₹40 lakh = ₹40 lakh (LTCG, held for more than 24 months).
LTCG tax = ₹40 lakh × 12.5% = ₹5 lakh (before exemptions, plus cess and surcharge).

Exemptions on Capital Gains

You can reduce or eliminate your tax liability by reinvesting the gains. Here are the key exemptions:

Section 54 — Sale of Residential Property

Who can claim: Individuals and HUFs.
Condition: Sell a residential house and buy or construct another residential house.
Timeline: Buy within 1 year before or 2 years after the sale. Construct within 3 years.
Exemption amount: Capital gain or cost of new house, whichever is lower.
Lock-in: Do not sell the new house within 3 years, or the exemption is reversed.
Limit: You can purchase up to 2 residential houses if the LTCG does not exceed ₹2 crore (one-time benefit).

Section 54EC — Investment in Specified Bonds

Who can claim: Any taxpayer (individual, company, firm, etc.).
Condition: Invest LTCG from land or building into specified bonds (NHAI, REC, PFC, IRFC).
Timeline: Within 6 months from the date of sale.
Maximum limit: ₹50 lakh per financial year.
Lock-in: 5 years. If redeemed before 5 years, exemption is reversed.

Section 54F — Sale of Any Capital Asset (Other Than House)

Who can claim: Individuals and HUFs.
Condition: Sell any capital asset (shares, gold, etc.) and invest the entire net sale consideration in a new residential house.
Timeline: Buy within 1 year before or 2 years after the sale. Construct within 3 years.
Key rule: You must not own more than one residential house (other than the new one) on the date of sale.
Exemption: Proportional if only part of the sale consideration is invested.

Capital Gains Account Scheme (CGAS)

If you cannot invest the gains before the ITR filing deadline, deposit the amount in a Capital Gains Account at a designated bank. This preserves your exemption claim while you find a new property or bonds.

How to Report Capital Gains in ITR

1. Choose the Right ITR Form

ITR-2: For individuals/HUFs with capital gains (no business income).
ITR-3: For individuals/HUFs with business income and capital gains.

Do NOT use ITR-1 if you have capital gains.

2. Gather Your Documents

Broker statements / contract notes for shares and mutual funds.
Sale deed and purchase deed for property.
Form 26AS / AIS (Annual Information Statement) from the Income Tax portal — cross-check reported transactions.
Bank statements showing sale proceeds and investments.

3. Fill the Capital Gains Schedule

In the ITR form, navigate to Schedule CG (Capital Gains):

Enter details of each asset sold — date of purchase, date of sale, sale price, cost of acquisition.
Classify as STCG or LTCG based on the holding period.
Claim exemptions under Section 54/54EC/54F with supporting details.
The form auto-calculates the taxable capital gain.

4. Pay Advance Tax (If Applicable)

If your total tax liability exceeds ₹10,000 in a financial year, you must pay advance tax. Capital gains should be included in your advance tax computation for the quarter in which the sale occurred.

5. Verify and Submit

E-verify your return using Aadhaar OTP, net banking, or DSC.
Keep all sale documents, broker statements, and exemption proofs for at least 6 years.

Important Points to Remember

TDS on property sale: If you sell property for more than ₹50 lakh, the buyer must deduct 1% TDS under Section 194-IA.
Surcharge and cess: A 4% health and education cess applies on the tax amount. Surcharge applies based on total income slabs.
Set-off rules: STCG can be set off against both STCG and LTCG. LTCG can only be set off against LTCG. Unabsorbed losses can be carried forward for 8 years.
NRI taxation: NRIs are taxed on capital gains from Indian assets. TDS is deducted at applicable rates. They can claim exemptions under Section 54/54EC/54F.
Sovereign Gold Bonds (SGBs): LTCG on maturity of SGBs is fully exempt from tax.

Documents Required

PAN card
Sale deed / purchase deed (for property)
Broker contract notes / DEMAT statements (for shares and mutual funds)
Form 26AS and AIS from income tax portal
Proof of investment for exemption claims (bond certificates, new property registration)
Capital Gains Account passbook (if using CGAS)
Bank statements showing transaction details

Frequently Asked Questions (FAQ)

1. Is there any tax on capital gains below ₹1.25 lakh?

For listed equity shares and equity mutual funds, LTCG up to ₹1.25 lakh per financial year is exempt. For all other assets, there is no such basic exemption.

2. Can I claim both Section 54 and Section 54EC on the same property sale?

Yes, you can claim both exemptions simultaneously on the same LTCG from a residential property, provided you meet the conditions of both sections.

3. What happens if I sell the new house bought under Section 54 within 3 years?

The exemption amount is reversed and added back to your income in the year of sale. You will need to pay tax on the originally exempted capital gains.

4. Do I need to pay capital gains tax on inherited property?

No tax is payable at the time of inheritance. However, when you sell the inherited property, capital gains tax applies. The cost of acquisition is the cost to the previous owner, and the holding period includes the previous owner's holding period.

5. How is capital gains tax calculated on mutual funds after the 2024 budget changes?

For equity mutual funds, LTCG above ₹1.25 lakh is taxed at 12.5%. STCG is taxed at 20%. For debt mutual funds, gains are taxed as per your income tax slab regardless of the holding period.

6. Can I adjust capital losses against other income like salary?

No. Capital losses can only be set off against capital gains — STCL against STCG or LTCG, and LTCL only against LTCG. They cannot be set off against salary, business, or other income.

7. Is there a penalty for not reporting capital gains in ITR?

Yes. Non-reporting can lead to a notice under Section 148, penalties up to 50-200% of the tax evaded, and interest under Sections 234A/234B/234C.

Disclaimer: This guide is for informational purposes only and does not constitute legal or financial advice. Tax laws change frequently — always verify current rates and rules on the official Income Tax portal or consult a qualified Chartered Accountant before making financial decisions.