Capital gains tax is one of the most complex areas of Indian income tax law — and Budget 2024 made it even more so by revising rates and removing indexation benefits. This guide demystifies every asset class.
Budget 2024 Impact: Major changes effective from 23 July 2024 — LTCG on equity raised from 10% to 12.5%, STCG from 15% to 20%, and indexation removed for most assets.
Step 1: Understand Capital Gains Basics#
A capital gain arises when you sell a "capital asset" for more than its cost. Capital assets include:
- Shares and mutual funds
- Real estate (land, buildings)
- Gold and jewellery
- Bonds and debentures
- Cryptocurrency / Virtual Digital Assets
Not capital assets:
- Stock-in-trade (business inventory)
- Personal movable property (except jewellery, paintings, etc.)
- Agricultural land in rural areas
Short-Term vs Long-Term — Holding Periods#
| Asset Type | Short-Term (STCG) | Long-Term (LTCG) |
|---|---|---|
| Listed equity shares | ≤ 12 months | > 12 months |
| Equity mutual funds | ≤ 12 months | > 12 months |
| Debt mutual funds (post Apr 2023) | All periods | Not applicable (slab rate) |
| Unlisted shares | ≤ 24 months | > 24 months |
| Property (land/building) | ≤ 24 months | > 24 months |
| Gold, jewellery, other assets | ≤ 24 months | > 24 months |
| Bonds and debentures (listed) | ≤ 12 months | > 12 months |
Step 2: Tax Rates After Budget 2024#
Equity Shares and Equity Mutual Funds (STT Paid)#
| Gain Type | Tax Rate | Key Notes |
|---|---|---|
| STCG | 20% | (was 15% before 23 Jul 2024) |
| LTCG | 12.5% | (was 10% before 23 Jul 2024); ₹1.25L exempt per year |
Debt Mutual Funds#
| Purchase Date | Treatment |
|---|---|
| On or after 1 April 2023 | Taxed at slab rate (no distinction of holding period) |
| Before 1 April 2023, held ≥ 36 months | LTCG @ 12.5% (no indexation — Budget 2024 change) |
| Before 1 April 2023, held < 36 months | STCG at slab rate |
Real Estate / Land / Buildings#
| Gain Type | Tax Rate | Indexation |
|---|---|---|
| STCG | Slab rate | Not applicable |
| LTCG (property sold post 23 Jul 2024) | 12.5% | Removed by Budget 2024 |
| LTCG (property acquired pre-2001) | 20% with indexation (optional) | Indexation from 2001 FMV |
Indexation Confusion: For property sold after 23 July 2024, sellers can choose between:
- 12.5% LTCG without indexation, OR
- 20% LTCG with indexation (for property purchased before 23 July 2024 — a special transitional rule) This choice applies only to real estate, not to equity or debt funds.
Gold and Precious Metals#
| Gain Type | Tax Rate |
|---|---|
| STCG | Slab rate |
| LTCG (post 23 Jul 2024) | 12.5% (no indexation) |
Bonds and Debentures#
| Instrument | Tax |
|---|---|
| Listed bonds (STT paid) | STCG/LTCG at equity rates |
| Tax-free bonds | LTCG @12.5% after 12 months |
| Sovereign Gold Bonds (SGB) on maturity | Exempt from capital gains |
| SGB sold on secondary market before maturity | LTCG after 3 years @12.5% |
Step 3: Calculate Your Capital Gains#
Equity Shares — LTCG with Grandfathering#
For shares purchased before 31 January 2018, the cost of acquisition is: Higher of:
- Actual purchase price
- Fair market value (FMV) as on 31 January 2018
This grandfathering provision (Section 112A proviso) ensures gains accrued before 1 Feb 2018 are not taxed.
Example:
- Bought 200 shares of XYZ on 1 Oct 2016 at ₹150/share → Cost: ₹30,000
- FMV on 31 Jan 2018: ₹500/share → Grandfathered cost: ₹1,00,000
- Sold on 15 Sep 2026 at ₹800/share → Proceeds: ₹1,60,000
- LTCG: ₹1,60,000 − ₹1,00,000 = ₹60,000
- After ₹1.25L annual exemption (if not used): Exempt
Property Capital Gains#
Cost of Acquisition Calculation (with indexation choice):
| Step | Amount |
|---|---|
| Sale proceeds | ₹1,00,00,000 |
| Purchase cost (2018) | ₹50,00,000 |
| Cost Inflation Index: 2018-19 = 280, 2026-27 = (hypothetical) 380 | |
| Indexed cost = ₹50L × 380/280 | ₹67,85,714 |
Option 1: LTCG without indexation = (₹1Cr − ₹50L) × 12.5% = ₹6,25,000 Option 2: LTCG with indexation = (₹1Cr − ₹67.86L) × 20% = ₹6,42,857
In this case, without indexation is better!
The choice is asset-specific; always calculate both.
Calculate your capital gains tax instantly →
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Step 4: Know the Exemptions Available#
Section 54 — Reinvestment in Residential House#
If you sell a residential house property (LTCG), you can exempt the gain by:
- Buying a new residential house within 2 years of sale, or
- Constructing a house within 3 years of sale
Conditions:
- You should not own more than 2 residential houses at the time of sale (post Budget 2024: 2 houses allowed for reinvestment, previously 1)
- Maximum LTCG exemption = Cost of new house (up to LTCG amount)
- If new house is sold within 3 years, the exemption is reversed
Section 54F — Sale of Any Capital Asset#
Similar to 54 but for any asset (not just property):
- Invest full net consideration (not just LTCG) in new residential house
- Conditions similar to 54
Section 54EC — Investment in Specified Bonds#
Invest LTCG in:
- NHAI bonds or REC bonds
- Maximum ₹50 lakh per financial year
- Lock-in: 5 years
- Must invest within 6 months of sale
No exemption available for equity-related capital gains (54EC applies only to land/building LTCG).
Section 54B — Agricultural Land#
Exemption if LTCG from sale of agricultural land is reinvested in another agricultural land within 2 years.
Step 5: Set-Off and Carry-Forward of Capital Losses#
Set-Off Rules#
| Loss Type | Can Set Off Against |
|---|---|
| STCL (Short-Term Capital Loss) | STCG + LTCG both |
| LTCL (Long-Term Capital Loss) | Only LTCG |
You cannot set off capital losses against salary or business income.
Carry-Forward#
Unused capital losses can be carried forward for 8 assessment years.
Critical: To carry forward losses, you must file ITR by 31 July of the relevant year. Late filers lose this benefit permanently.
Tax Harvesting Strategy: If you have unrealized LTCG approaching ₹1.25 lakh in equity, consider booking profits before March 31 to use the annual exemption, then rebuying the same shares. Repeat each year.
Step 6: Reporting Capital Gains in ITR#
Which ITR Form?#
| Situation | Use Form |
|---|---|
| Salary + equity capital gains | ITR-2 |
| Business income + any capital gains | ITR-3 |
| Only capital gains (no salary, no business) | ITR-2 |
| Salary only, no capital gains | ITR-1 |
Cannot use ITR-1 if you have any capital gains.
Schedule 112A — Equity LTCG#
For LTCG from listed equity shares and equity MFs:
- Go to Schedule CG → Section 112A
- Enter each scrip/fund with: ISIN, name, quantity, purchase date, sale date, FMV on 31 Jan 2018 (if applicable), sale price
- The portal auto-calculates grandfathering
Use broker's capital gains report — most brokers (Zerodha, Groww, Kite) provide pre-formatted data.
STCG from Equity#
Reported in Schedule BFLA or the relevant STCG schedule.
Advance Tax on Capital Gains#
Capital gains earned in Q1 (April–June) should be factored into the June advance tax installment. Capital gains earned in Q2/Q3/Q4 should be included in the subsequent installments.
Frequently Asked Questions#
Do I pay LTCG tax if my total gains are below ₹1.25 lakh? No. The first ₹1.25 lakh of LTCG from equity shares and equity mutual funds per year is fully exempt under Section 112A.
I booked losses intentionally (tax harvesting) — can I rebuy the same shares? Yes, there's no "wash sale" rule in India. You can sell and immediately rebuy the same shares. The loss is allowed, and the new shares have a fresh cost basis.
Are gains on Bitcoin/crypto taxed as capital gains? No. Gains from Virtual Digital Assets (VDA) including Bitcoin, NFTs, and other crypto are taxed at a flat 30% regardless of holding period, under Section 115BBH. No deductions except cost of acquisition are allowed.
My mutual fund showed "dividend reinvestment" — is that a capital gain? No. Dividend reinvestment is treated as dividend income (taxable at slab rates). The reinvested units acquire a new cost basis at the NAV on the reinvestment date.