Capital Gains Tax in India 2026: Types, Tax Rates, Calculation & Tax Saving
Every time you sell an asset like property, shares, mutual funds, or gold for a profit, that profit may be taxable as capital gains. In simple terms, capital gains tax is the tax payable on taxable gains arising from the transfer of a capital asset.
The amount of tax you pay depends on what you sold, how long you held it, the type of taxpayer you are, and the tax rate applicable to that particular asset.
At Startup Portal Business Services, a trusted platform for online company registration in Pune and complete financial compliance, our tax experts Nikhil Rajarshi and Govind S. Jethani, who bring over 8+ years of experience helping business owners and individual taxpayers navigate India’s tax landscape, have put together this complete, easy-to-understand guide on capital gains taxation in India.
Whether you’re wondering “how much is capital gains tax” on your recent property sale, or trying to understand the difference between long-term capital gains vs short-term capital gains, this blog covers the key rules, tax rates, calculation methods and exemptions.
Here’s a quick snapshot before we dive deep:
What is Capital Gains Tax in India?
Capital gains tax applies to profits arising from the transfer of capital assets such as land, buildings, shares, mutual fund units, gold and certain other investments.
Generally, capital gains are taxable in the tax year in which the transfer takes place. The taxable gain is reported under the head “Capital Gains” while filing the Income Tax Return.
The Income Tax Department also receives information about many financial transactions through reporting systems such as the Annual Information Statement (AIS), making it important to reconcile your capital gains with the information available in your tax records.
Under the Income-tax Act, 2025, income earned from 1 April 2026 is governed by the new Act and is referred to as income of the relevant Tax Year. Income earned during FY 2025-26 continues to be governed by the Income-tax Act, 1961 and is reported for AY 2026-27.
What Qualifies as a Capital Asset?
Before understanding capital gain taxation, it helps to know what actually counts as a “capital asset.” Common examples include:
- Residential and commercial property and land
- Listed and unlisted shares
- Mutual fund units
- Gold, jewellery and other precious metals
- Patents, trademarks and certain other intangible rights
- Leasehold rights
- Certain rights or interests connected with an Indian company
What is NOT a capital asset?
- Stock-in-trade, consumable stores or raw materials held for business
- Personal effects held for personal or family use, subject to statutory exclusions
- Rural agricultural land in India
- Certain specified government gold bonds
- Special Bearer Bonds, 1991
- Certain Gold Deposit Bonds or certificates covered by the law
One important point is that jewellery is generally treated as a capital asset even though ordinary personal-use items may qualify as personal effects.
Rural agricultural land is excluded from the definition of capital asset only when it satisfies the statutory conditions relating to its location and distance from specified municipalities or cantonment boards.
Types of Capital Gains in India: STCG and LTCG
There are two types of capital gains in India, and the classification directly affects your tax liability.
Short-Term Capital Gains (STCG):
When you sell an asset before completing the prescribed holding period, the resulting profit is generally treated as short-term capital gain.
The tax treatment depends on the type of asset. For specified equity shares, equity-oriented mutual funds and units of business trusts satisfying the applicable Securities Transaction Tax conditions, short-term capital gains are taxed at 20% under Section 196 of the Income-tax Act, 2025.
For other assets, STCG is generally taxed at the applicable rates for the taxpayer rather than at the special 20% rate.
Long-Term Capital Gains (LTCG):
If you hold an asset for more than the prescribed holding period before transferring it, the gain generally qualifies as long-term capital gain.
LTCG generally receives a more favourable tax treatment than ordinary STCG and may also qualify for specific reinvestment exemptions, subject to the conditions of the applicable section.
Long-Term Capital Gain vs Short-Term Capital Gain: Holding Period
Certain assets have special statutory treatment. For example, specified mutual funds acquired on or after 1 April 2023, Market Linked Debentures and certain unlisted bonds or debentures are covered by special provisions and may be treated as short-term irrespective of the period for which they are held.
Understanding this long term capital gain vs short term distinction is important for tax planning. A difference of even a few weeks can change the applicable tax treatment.
Capital Gains Tax Rates in India 2026:
Here’s a clear breakdown of the capital gains tax rate structure applicable to common asset classes.
Tax on Equity Shares and Equity Mutual Funds:
- STCG covered by Section 196 is generally taxed at 20%.
- LTCG covered by Section 198 is taxed at 12.5% on gains exceeding ₹1.25 lakh.
- The ₹1.25 lakh limit applies to the aggregate eligible LTCG covered by the provision.
- Applicable STT conditions must be satisfied for the special equity provisions to apply.
Special Note on Debt Mutual Fund Capital Gains:
It is incorrect to say that every debt mutual fund acquired after April 2023 is automatically short-term.
The special rule applies to a Specified Mutual Fund acquired on or after 1 April 2023, Market Linked Debentures, and certain unlisted bonds or debentures transferred, redeemed or maturing on or after 23 July 2024.
These assets are covered by the special computation rules and are treated as short-term capital gains under Section 76 of the Income-tax Act, 2025.
Therefore, investors should check whether their particular mutual fund qualifies as a “Specified Mutual Fund” instead of assuming that every debt fund falls under this rule.
Recent Changes to Capital Gains Tax Rules in India:
Budget 2024 introduced major changes to the capital gains tax structure. These changes continue to apply under the Income-tax Act, 2025, with the relevant provisions renumbered.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. The transition does not mean that earlier years are automatically moved to the new Act. FY 2025-26 remains governed by the 1961 Act, while income from 1 April 2026 is governed by the 2025 Act.
How to Calculate Capital Gains Tax in India?
Before applying the formula for capital gains, you need to understand three key terms:
- Full value of consideration: The amount received or accruing as a result of the transfer
- Cost of acquisition: The amount paid to acquire the asset, along with qualifying acquisition costs where applicable
- Cost of improvement: Qualifying capital expenditure incurred for improvement of the asset
STCG Formula:
Short-Term Capital Gain = Full Value of Consideration – Expenses incurred wholly and exclusively in connection with transfer – Cost of Acquisition – Cost of Improvement
LTCG Formula:
Long-Term Capital Gain = Full Value of Consideration – Transfer Expenses – Cost of Acquisition – Cost of Improvement
For transfers where indexation is legally available, the relevant indexed cost is used instead of the unindexed cost.
For most assets transferred on or after 23 July 2024, indexation is not available. The major grandfathering exception applies to land or building acquired before 23 July 2024 by a resident individual or HUF.
Indexed Cost of Acquisition, where applicable:
Indexed Cost of Acquisition = Cost of Acquisition × CII of Year of Transfer ÷ CII of Year of Acquisition
The indexed cost method should only be used where the law permits indexation for the particular transaction.
Capital Gains Tax on Sale of Property in India: Worked Example
Suppose a resident individual purchased a property before 23 July 2024 and sells it after 23 July 2024 for ₹50 lakh.
Assume the original cost was ₹25 lakh and, for illustration, the indexed cost under the applicable CII calculation is ₹31,22,923.
The taxpayer should compare the tax under the applicable 12.5% computation with the grandfathered 20% indexed computation.
In this illustration, the 12.5% computation results in lower tax before applicable surcharge and cess.
However, the comparison is available only where the statutory grandfathering conditions are satisfied. In particular, the taxpayer must be a resident individual or HUF, and the land or building must have been acquired before 23 July 2024.
For property acquired on or after 23 July 2024, the grandfathering comparison is not available and LTCG is generally computed at 12.5% without indexation.
Long-Term Capital Gains Tax on Stocks: Worked Example
Suppose you sell listed equity shares for ₹50 lakh after holding them for more than 12 months. The shares were purchased for ₹25 lakh and the transaction satisfies the conditions for the special LTCG provision.
- Sale Consideration: ₹50,00,000
- Cost of Acquisition: ₹25,00,000
- Long-Term Capital Gain: ₹25,00,000
- Less: ₹1,25,000 threshold under Section 198
- LTCG subject to 12.5%: ₹23,75,000
- Tax at 12.5%: ₹2,96,875
The ₹1.25 lakh threshold is not a general exemption from all capital gains. It is the threshold under the special LTCG provision for qualifying equity shares, equity-oriented mutual funds and business trusts.
The above tax figure is before applicable surcharge and health and education cess.
Deductible Expenses While Calculating Capital Gains:
A. Sale of Property:
- Brokerage or commission paid for finding a buyer
- Stamp duty or registration-related expenses directly connected with the transfer, where allowable
- Legal expenses directly connected with completing the transfer
- Other expenditure incurred wholly and exclusively in connection with the transfer
Expenses incurred to acquire the asset may instead form part of the cost of acquisition, depending on their nature.
Inheritance-related legal expenses should not automatically be treated as transfer expenses. Their treatment depends on the facts and the nature of the expense.
B. Sale of Shares:
- Broker’s commission or other eligible transfer-related expenses
- Other expenditure incurred wholly and exclusively in connection with the transfer
Important: Securities Transaction Tax (STT) is generally not deductible while computing capital gains.
C. Sale of Jewellery:
- Brokerage or commission directly connected with the sale
- Other qualifying transfer-related expenses
Capital Gains Tax Exemptions in India:
The Income-tax Act allows several capital gains exemptions where the taxpayer reinvests the capital gains or sale proceeds in specified assets within the prescribed time.
Section 82 - Sale of Residential House:
Section 82 applies where an individual or HUF has long-term capital gains from a residential house and purchases or constructs another residential house in India within the prescribed period. The purchase period is one year before or two years after the transfer, while construction must be completed within three years. Where the capital gain does not exceed ₹2 crore, the taxpayer can exercise the option to purchase or construct two residential houses in India. This option can be exercised only once. The law also contains a ₹10 crore limit for the amount considered for the exemption.
Section 83 - Sale of Agricultural Land:
Section 83 applies to an individual or HUF where the agricultural land was used by the assessee, the parent, or the HUF for agricultural purposes during the two years immediately preceding the transfer. The taxpayer must purchase another agricultural land within two years after the transfer to claim the exemption, subject to the other statutory conditions.
Section 84 - Compulsory Acquisition of Industrial Land or Building:
Section 84 is not a general exemption for every compulsory acquisition. It applies where land, building or a right in land or building forming part of an industrial undertaking is compulsorily acquired and was used for the business of that undertaking during the two years immediately preceding the transfer. The taxpayer must purchase another qualifying land/building or construct another building within three years for shifting or re-establishing the undertaking or setting up another industrial undertaking.
Section 85 - Investment in Specified Bonds:
Section 85 provides exemption where long-term capital gains arise from the transfer of land or building and the taxpayer invests the capital gain in specified long-term assets within six months. The investment eligible for this exemption is subject to a statutory limit of ₹50 lakh. The specified bonds must also satisfy the requirements prescribed under the law.
Section 86 - Sale of Other Long-Term Assets:
Section 86 applies to an individual or HUF transferring a long-term capital asset other than a residential house. The taxpayer must purchase or construct one residential house in India within the prescribed period. Unlike Section 82, the exemption is generally proportionate to the amount invested compared with the net consideration. The law also contains a ₹10 crore cap for the amount considered for the exemption.
What about Section 54GB?
Section 54GB should not be included as a current exemption in a blog covering the law applicable from 1 April 2026.
Section 54GB of the Income-tax Act, 1961 has no corresponding provision in the Income-tax Act, 2025 and was repealed with effect from 1 April 2026.
Capital Gains Account Scheme (CGAS) for Capital Gains Tax:
If you are eligible for a capital gains exemption but have not yet utilised the required amount for the specified reinvestment before the applicable return filing deadline, the Capital Gains Account Scheme (CGAS) can allow the unutilised amount to be deposited in a designated account, subject to the applicable exemption and statutory conditions.
- The deposit generally has to be made on or before the applicable due date for filing the return.
- The amount must be used for the purpose and within the period prescribed for the relevant exemption.
- Withdrawal and utilisation are subject to the CGAS rules.
- CGAS can be relevant to exemptions such as those corresponding to Sections 54, 54B, 54D, 54EC and 54F under the earlier Act.
The Income-tax Act, 2025 uses the updated section numbering, so the relevant current provisions are Sections 82 to 86. Section 89 also provides a special extension mechanism for certain compulsory acquisition cases where compensation is not received on the date of transfer.
Set-Off and Carry Forward of Capital Losses in India:
Made a loss instead of a gain? You may still be able to use that loss to reduce future tax liability.
Unused eligible capital losses can generally be carried forward for up to 8 assessment years under the earlier Act, subject to the requirement of filing the loss return within the prescribed due date.
For transactions governed by the Income-tax Act, 2025, the corresponding terminology is based on the new Tax Year system, but the underlying loss set-off framework should be checked under the provisions applicable to that tax year.
Capital Gains Tax on Sale of Agricultural Land:
Land sale tax rules treat agricultural land differently from other property.
- Rural agricultural land: Rural agricultural land in India is generally not treated as a capital asset. However, whether agricultural land is rural depends on statutory conditions relating to its location and distance from specified municipalities or cantonment boards.
- Land held as business stock: If land is purchased and sold as part of a regular business activity and is held as stock-in-trade, the resulting income may be taxable under the head “Profits and Gains of Business or Profession” instead of Capital Gains.
- Compulsory acquisition of urban agricultural land: Certain capital gains arising from compulsory acquisition of qualifying urban agricultural land may be exempt under Section 10(37) of the applicable law, subject to the conditions prescribed.
How to Save Capital Gains Tax in India? Practical Tips
Wondering how much capital gains tax you can legally save? Here are some practical strategies:
- Tax-loss harvesting: Eligible capital losses can be adjusted against capital gains according to the applicable set-off rules. This can reduce the taxable gain.
- Claim eligible Section 54 series exemptions: If you are planning to reinvest your capital gains, check whether you qualify for exemptions relating to residential property, agricultural land, specified bonds or other eligible assets.
- Consider 54EC bonds: Where eligible, investment in specified 54EC bonds within six months can provide exemption on qualifying LTCG from land or building, subject to the ₹50 lakh statutory limit and other conditions.
- Plan the timing of your sale: The holding period can determine whether the gain is classified as STCG or LTCG. In some situations, waiting until the asset qualifies as long-term can materially change the tax treatment.
- Track your holding period carefully: Do not calculate the holding period based only on the calendar year. The exact acquisition and transfer dates can affect whether the asset qualifies as short-term or long-term.
- Check the indexation rule before selling property: For property transactions after 23 July 2024, do not automatically assume that indexation is available. The grandfathering provision is limited to qualifying land/building acquired before 23 July 2024 by resident individuals or HUFs.
Which ITR Form to Use for Capital Gains & How to Report?
Reporting capital gains correctly is important, whether the gain comes from real estate, equity shares, mutual funds, gold or other investments.
For FY 2025-26, the return is filed as AY 2026-27 under the Income-tax Act, 1961. For income earned from 1 April 2026, the Income-tax Act, 2025 applies and the new Tax Year system is used.
For AY 2026-27, ITR-1 is permitted only in specified cases where eligible Section 112A LTCG does not exceed ₹1.25 lakh. ITR-4 has similar restrictions and cannot generally be used where the taxpayer has STCG or exceeds the specified LTCG threshold.
Common Mistakes to Avoid:
- Misclassifying gains because of an incorrect holding period
- Applying the 20% equity STCG rate to an asset that does not qualify for the special provision
- Assuming every debt mutual fund acquired after April 2023 is automatically short-term
- Applying indexation where it is no longer permitted
- Assuming every property seller can choose between 12.5% without indexation and 20% with indexation
- Ignoring the special grandfathering conditions for pre-23 July 2024 land/building
- Claiming expenses that are not directly connected with the transfer or otherwise allowable
- Missing eligible exemptions under Sections 82, 83, 84, 85 or 86
- Including Section 54GB as a current exemption
- Failing to reconcile Schedule CG with AIS and broker or mutual fund statements
- Carrying forward capital losses without satisfying the applicable return filing conditions
- Using the wrong Income-tax Act section number because of the transition from the 1961 Act to the 2025 Act
Conclusion: Understanding Capital Gains Tax in India
Understanding capital gains tax does not have to be complicated.
Start with the asset type, check the holding period, determine whether the gain is short-term or long-term, apply the correct capital gains tax rate, and then check whether any exemption or reinvestment benefit is available.
For property sales, one of the most important changes to understand is the removal of indexation for most assets transferred on or after 23 July 2024, along with the limited grandfathering protection available to resident individuals and HUFs for qualifying land or buildings acquired before that date.
For equity investments, the 20% STCG rate and 12.5% LTCG rate above the ₹1.25 lakh threshold continue to be important rules.
The transition to the Income-tax Act, 2025 also means that taxpayers should check whether a transaction falls under the old Income-tax Act, 1961 or the new Income-tax Act, 2025. Income for FY 2025-26 remains under the old Act, while income from 1 April 2026 falls under the new Tax Year framework.
If you’re still unsure about how much tax applies to your specific transaction, it is always wise to consult a tax professional. The team at Startup Portal Business Services, led by tax experts Nikhil Rajarshi and Govind S. Jethani, can help you calculate your capital gains, review eligible exemptions and assist with your capital gains tax filing. Visit Startup Portal Business Services to explore our complete suite of business compliance and tax advisory solutions.
Ready to secure your tax planning or have specific questions about your filing? Contact us today to get personalized support from our experienced tax consultants.
Frequently Asked Questions About Capital Gains Tax in India:
LTCG means Long-Term Capital Gain, which is the profit from transferring an asset after holding it for more than the prescribed period. STCG means Short-Term Capital Gain, which generally arises when an asset is transferred before completing the prescribed holding period. The holding period depends on the type of asset.
For qualifying listed equity shares covered by the special provisions, STCG is generally taxed at 20%. LTCG on qualifying equity shares is generally taxed at 12.5% on gains exceeding ₹1.25 lakh, subject to the applicable STT and other conditions.
Not automatically. For assets transferred on or after 23 July 2024, indexation is generally not available. However, a grandfathering provision applies where a resident individual or HUF transfers land or building acquired before 23 July 2024. In such cases, the tax under the 12.5% regime is compared with the tax calculated at 20% using indexed cost, and the statutory relief applies where the new-law tax is higher.
Yes. An NRI can be liable to Indian income tax on capital gains arising from the transfer of property situated in India. The applicable tax rate depends on the nature of the property, holding period, date of acquisition and transfer, residential status and other relevant provisions. The buyer may also have TDS obligations on payments to an NRI seller under the applicable tax provisions.
Yes, subject to the applicable conditions. Under the current Income-tax Act, 2025, Section 82 corresponds broadly to the earlier Section 54 for qualifying gains from a residential house. Section 86 corresponds broadly to the earlier Section 54F for qualifying gains from long-term assets other than a residential house. The purchase and construction timelines, ownership conditions, investment limits and other requirements must be satisfied.
Yes, eligible capital losses can generally be carried forward subject to the applicable provisions and filing conditions. STCL can generally be adjusted against both STCG and LTCG, while LTCL can generally be adjusted only against LTCG. Under the earlier framework, eligible losses can generally be carried forward for up to 8 assessment years where the return is filed within the prescribed due date.
Capital gains are generally reported in Schedule CG of the applicable Income Tax Return. The taxpayer should maintain details of the sale consideration, acquisition cost, improvement cost, transfer expenses, holding period, applicable exemptions and other relevant transaction details. For FY 2025-26, the applicable return is filed under the Income-tax Act, 1961 for AY 2026-27. For income from 1 April 2026 onward, the Income-tax Act, 2025 and its Tax Year framework apply.
No. Section 54GB of the Income-tax Act, 1961 has no corresponding provision in the Income-tax Act, 2025 and should not be presented as a current capital gains exemption for transactions governed by the new Act.
No. The special rule applies to a Specified Mutual Fund acquired on or after 1 April 2023, along with Market Linked Debentures and certain unlisted bonds and debentures covered by the statutory provision. Therefore, taxpayers should identify whether the particular mutual fund falls within the definition of Specified Mutual Fund before applying the special short-term treatment.
The general LTCG tax rate is 12.5% for the applicable post-23 July 2024 regime. For qualifying equity LTCG under Section 198, the rate is 12.5% on gains exceeding ₹1.25 lakh. A special grandfathering mechanism applies to qualifying land or building acquired before 23 July 2024 by resident individuals or HUFs.