Capital Gains Tax in India (2026): LTCG vs STCG Rates, Holding Periods and the ₹1.25 Lakh Rule, Explained Simply

Quick Answer: In India, capital gains tax depends on what you sold and how long you held it. Listed shares and equity mutual funds held over 12 months attract 12.5% long-term tax on gains above a ₹1.25 lakh yearly exemption; sold within 12 months, gains are taxed at a flat 20% short-term rate. Property and gold need a 24-month holding period. A 4% health and education cess applies on the tax.

September's brutal market fall — the Nifty's worst month since 2018 — has left many investors rejigging: booking losses, switching funds, moving to safety. Every one of those sell decisions has a tax consequence. Consider this: sell your shares after holding them for 10 months and you pay 20% tax on the gain. Wait just two more months, cross the 12-month line, and the same gain is taxed at 12.5% — and the first ₹1.25 lakh of it isn't taxed at all. On a ₹1.5 lakh gain, that is the difference between a ₹30,000 tax bill and a ₹3,125 one.

The one idea that explains everything

Capital gains tax is the tax you pay on the profit from selling an asset — shares, mutual funds, property, gold — for more than you paid. Two things decide your rate: what you sold and how long you held it. Hold long enough and your gain is "long-term" (LTCG) — taxed lightly. Sell early and it is "short-term" (STCG) — taxed more heavily. Rules below reflect the Budget 2024 changes effective July 23, 2024.

Stocks and equity mutual funds: the 12-month line

For listed shares and equity-oriented mutual funds (over 65% in equity), the dividing line is 12 months. Held 12 months or less → STCG at a flat 20% (Section 111A), no exemption, on the full gain. Held more than 12 months → LTCG at 12.5% (Section 112A), only on gains above ₹1.25 lakh in a financial year — the first ₹1.25 lakh each year is tax-free, no indexation for equity. The concessional rate applies where STT was paid on purchase and sale. The ₹1.25 lakh exemption does NOT apply to short-term gains.

Worked examples: the same ₹1.5 lakh gain, two very different bills

Say you invested ₹5,00,000 in an equity fund and it grew to ₹6,50,000 — a ₹1,50,000 gain, no other capital gains that year. Scenario 1 (sell after 14 months, long-term): ₹1,50,000 − ₹1,25,000 exemption = ₹25,000 taxable; tax at 12.5% = ₹3,125 (plus 4% cess = ₹3,250). Scenario 2 (sell after 10 months, short-term): no exemption; ₹1,50,000 × 20% = ₹30,000 (plus 4% cess = ₹31,200). Same profit — nearly ten times the tax, purely because of timing.

Debt mutual funds: the slab-rate rule

For specified debt mutual funds bought on or after April 1, 2023 (not more than 35% in equity), gains are taxed at your income-tax slab rate regardless of holding period. No concessional rate, no indexation. Compare post-tax returns at your slab when weighing a debt fund against an FD.

Property, gold and unlisted shares: the 24-month line

Held 24 months or less → STCG at your slab rate. Held more than 24 months → LTCG at 12.5%. Indexation benefits were removed for properties bought on or after July 23, 2024; earlier purchases have transitional provisions — ask your CA. Same 24-month logic for physical gold and gold ETFs.

The ₹1.25 lakh exemption, decoded

Annual (resets every April–March); collective (one ₹1.25 lakh across ALL listed equity + equity-fund LTCG combined, not per stock); LTCG-only under Section 112A, never for short-term gains. Some investors do annual "tax harvesting" up to the exemption and rebuy — that describes the mechanism, not a recommendation; a CA should sanity-check it.

What about losses? The set-off rules

Short-term capital losses can be set off against both short-term and long-term gains. Long-term capital losses only against long-term gains. Unadjusted losses carry forward up to 8 years — only if you file your ITR on time and declare them. Keep contract notes and capital-gains statements; confirm treatment with a CA.

Old regime vs new regime: does it matter here?

Mostly no. Capital gains are taxed at the special rates above under BOTH regimes; the regime choice affects salary/deduction math, not the 20% STCG / 12.5% LTCG rates.

Don't forget advance tax

If your total tax liability for the year (after TDS) exceeds ₹10,000, advance-tax instalments apply through the year. A large capital gain in December can trigger this; interest applies on shortfalls.

Disclaimer: This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance, and a Chartered Accountant for tax matters. Investments are subject to market risk.