What is Capital Gains Tax in India?
Capital gains tax is the tax levied on the profit you earn when you sell a capital asset for more than its purchase price. Capital assets include equity shares, mutual funds, real estate, gold, bonds, and other investments. In India, capital gains are classified into two categories based on how long you held the asset before selling it.
Short-Term Capital Gains (STCG) apply when you sell an asset before completing the specified holding period. Long-Term Capital Gains (LTCG) apply when you hold the asset beyond that period. The holding period varies by asset type, and the tax rates differ significantly between STCG and LTCG.
Capital gains tax is governed by Sections 45, 48, 54, 111A, 112, and 112A of the Income Tax Act, 1961. The Income Tax Department requires you to report all capital gains in your annual income tax return, even if you have paid TDS on them.
- Capital gains tax applies only when you sell an asset at a profit. If you sell at a loss, you can set off the loss against other gains
- LTCG on equity is taxed at 12.5% (above the exemption limit), while STCG on equity is taxed at 20%
- Property and gold LTCG are taxed at 12.5% without indexation (post July 23, 2024)
- 4% health and education cess is added on top of the capital gains tax amount
How is Capital Gains Tax Calculated?
Capital gains tax calculation involves determining the gain, classifying it as LTCG or STCG based on the holding period, and applying the appropriate tax rate. The formula is straightforward.
Capital Gain = Sale Price - Purchase Price - Improvement Cost
Here is the step-by-step process for computing capital gains tax:
Step 1: Determine the type of asset (equity, property, gold, debt, or other)
Step 2: Calculate the holding period from purchase date to sale date
Step 3: Classify the gain as LTCG or STCG based on the asset type and holding period
Step 4: Compute the capital gain (sale price minus purchase price minus improvement costs)
Step 5: Subtract any applicable exemption (such as the Rs 1.25 lakh exemption for equity LTCG)
Step 6: Apply the relevant tax rate to the taxable gain
Step 7: Add 4% health and education cess to arrive at the total tax payable
For property purchased before July 23, 2024, you can also compute LTCG with indexation (using the Cost Inflation Index) at 20% and compare it with the 12.5% rate without indexation. You pay whichever is lower. Use the old vs new tax regime calculator to compare your overall tax liability across regimes.
Capital Gains Tax Calculation with Example
Let us walk through two examples to understand how capital gains tax works in practice.
Example 1: Equity Shares (LTCG)
Purchase Price: Rs 5,00,000 (bought in January 2024)
Sale Price: Rs 8,50,000 (sold in March 2026)
Holding Period: 26 months (LTCG, since more than 12 months)
Capital Gain: Rs 8,50,000 - Rs 5,00,000 = Rs 3,50,000
Exemption (Section 112A): Rs 1,25,000
Taxable Gain: Rs 3,50,000 - Rs 1,25,000 = Rs 2,25,000
Tax at 12.5%: Rs 28,125
Cess (4%): Rs 1,125
Total Tax: Rs 29,250
Example 2: Property (LTCG with Indexation Option)
Purchase Price: Rs 40,00,000 (bought in April 2015, CII = 254)
Sale Price: Rs 75,00,000 (sold in January 2026, CII = 363)
Holding Period: 10+ years (LTCG, since more than 24 months)
Option A (12.5% without indexation): Gain = Rs 35,00,000, Tax = Rs 4,37,500
Option B (20% with indexation): Indexed Cost = Rs 40,00,000 x 363/254 = Rs 57,16,535, Gain = Rs 17,83,465, Tax = Rs 3,56,693
Lower tax: Option B saves Rs 80,807. The calculator picks the lower amount automatically
LTCG vs STCG: Key Differences
The distinction between long-term and short-term capital gains determines your tax rate. Here is a comparison of the two.
| Parameter | STCG | LTCG |
|---|
| Equity holding period | Up to 12 months | More than 12 months |
| Property/Gold holding period | Up to 24 months | More than 24 months |
| Other assets holding period | Up to 36 months | More than 36 months |
| Equity tax rate | 20% (Section 111A) | 12.5% above Rs 1.25L (Section 112A) |
| Property/Gold tax rate | Slab rate | 12.5% (Section 112) |
| Indexation benefit | Not available | Available for property (pre-July 2024) |
| Exemptions (54, 54F, 54EC) | Not available | Available for property |
The key takeaway is that holding your investments for the long term generally results in lower tax rates. STCG on non-equity assets (property, gold, other) is added to your total income and taxed at your applicable slab rate, which can be as high as 30% plus cess.
Capital Gains Tax Rates for FY 2025-26
The Union Budget 2024 made significant changes to capital gains tax rates. Here is the complete rate chart for FY 2025-26.
| Asset Type | STCG Rate | LTCG Rate | Holding Period for LTCG |
|---|
| Equity Shares (listed) | 20% | 12.5% (above Rs 1.25L) | More than 12 months |
| Equity Mutual Funds | 20% | 12.5% (above Rs 1.25L) | More than 12 months |
| Property / Real Estate | Slab rate | 12.5% (or 20% with indexation*) | More than 24 months |
| Gold / Jewelry | Slab rate | 12.5% | More than 24 months |
| Debt Mutual Funds** | Slab rate | 12.5% | More than 24 months |
| Other Assets | Slab rate | 12.5% | More than 36 months |
* Indexation benefit at 20% is available only for property purchased before July 23, 2024. You can choose whichever option (12.5% without indexation or 20% with indexation) results in lower tax.
** Debt mutual funds purchased after April 1, 2023 are taxed at slab rate regardless of holding period. The LTCG benefit does not apply to them.
All capital gains tax amounts attract 4% health and education cess. If your total income including capital gains exceeds Rs 50 lakh, surcharge may also apply. Use the advance tax calculator to estimate your quarterly tax payments.
How to Use This Capital Gains Tax Calculator
This free calculator estimates your capital gains tax for FY 2025-26 based on post-Budget 2024 rules. Here is how to use it:
- Step 1: Select your asset type from the dropdown. The holding period thresholds and tax rates adjust automatically based on your selection
- Step 2: Enter the purchase date and sale date. The calculator determines the holding period and classifies the gain as LTCG or STCG
- Step 3: Enter the purchase price and sale price. For property, you can also add improvement costs (renovation, additions)
- Step 4: Click "Calculate Tax" to see your total tax payable, gain type, holding period, tax rate, and breakdown
- Step 5: Download the PDF for a detailed computation with section references, indexation details, and applicable exemptions
For business owners managing multiple investments, Petpooja Invoice helps track business income and expenses alongside your tax obligations, keeping your finances organized.
Exemptions Under Capital Gains Tax
The Income Tax Act provides several exemptions that can reduce or eliminate your LTCG tax liability, particularly on property sales. Here are the key exemptions available.
- Section 54: If you sell a residential property and reinvest the capital gain in purchasing or constructing another residential property within 2 years (purchase) or 3 years (construction), the gain is exempt. The new property must be in India
- Section 54F: If you sell any capital asset (other than a house property) and invest the net sale proceeds in a new residential property, the gain is exempt proportionally. You should not own more than one other residential property at the time of sale
- Section 54EC: If you invest up to Rs 50 lakh of the LTCG amount in specified bonds (such as NHAI or REC bonds) within 6 months of the sale, that portion of the gain is exempt. These bonds have a lock-in period of 5 years
- Section 112A (Equity LTCG Exemption): The first Rs 1,25,000 of LTCG from equity shares and equity mutual funds is exempt from tax every financial year. This exemption was increased from Rs 1 lakh to Rs 1.25 lakh in Budget 2024
These exemptions apply only to long-term capital gains. Short-term capital gains do not qualify for any of these exemptions. To claim Section 54 or 54F, you must file your income tax return before the due date and deposit the unutilized amount in a Capital Gains Account Scheme (CGAS) if the reinvestment is not completed before the return filing date.
Cost Inflation Index (CII) for Indexation
The Cost Inflation Index is published by the Central Board of Direct Taxes (CBDT) every year. It is used to adjust the purchase price of an asset for inflation, which reduces the taxable LTCG. Indexation benefit is now available only for property purchased before July 23, 2024.
Indexed Cost = Purchase Price x (CII of Sale Year / CII of Purchase Year)
| Financial Year | CII Value | Financial Year | CII Value |
|---|
| 2001-02 (Base Year) | 100 | 2014-15 | 240 |
| 2002-03 | 105 | 2015-16 | 254 |
| 2003-04 | 109 | 2016-17 | 264 |
| 2004-05 | 113 | 2017-18 | 272 |
| 2005-06 | 117 | 2018-19 | 280 |
| 2006-07 | 122 | 2019-20 | 289 |
| 2007-08 | 129 | 2020-21 | 301 |
| 2008-09 | 137 | 2021-22 | 317 |
| 2009-10 | 148 | 2022-23 | 331 |
| 2010-11 | 167 | 2023-24 | 348 |
| 2011-12 | 184 | 2024-25 | 363 |
| 2012-13 | 200 | 2025-26 | 363 |
| 2013-14 | 220 | | |
The base year is FY 2001-02 with a CII value of 100. If you purchased an asset before April 1, 2001, you can use the fair market value as on April 1, 2001 as your cost of acquisition for indexation purposes. The CII for FY 2025-26 is estimated at 363 (same as FY 2024-25 until the official notification is released). Understanding your gross salary and total income is important when computing slab-rate STCG on non-equity assets.
