Scope and date. Written for FY 2025-26 (AY 2026-27) and FY 2026-27, current as at July 2026. Capital gains is one of the most fact-sensitive areas of Indian tax law — the same sale can be taxed very differently depending on dates, residential status and documentation. Treat this as a thorough map, not as advice on your transaction. For anything material, confirm the position with your CA and against the bare Act.
- 1. Capital Gains Basics
- 2. Calculating the Gain
- 3. Rates & Special Regimes — you are here
- 4. Exemptions 54 to 54GB
- 5. Property Sales
- 6. Losses, Advance Tax & ITR
Listed Equity — 20% and 12.5%
Where Securities Transaction Tax has been paid on listed equity shares, equity-oriented mutual funds and units of business trusts:
| Holding | Section (1961 / 2025) | Rate |
|---|---|---|
| Up to 12 months — short-term | 111A / 196 | 20% |
| More than 12 months — long-term | 112A / 198 | 12.5% on the gain above ₹1.25 lakh |
Both rates were raised by the Finance (No. 2) Act 2024 with effect from 23 July 2024 — short-term from 15% to 20%, long-term from 10% to 12.5% — while the annual exemption was raised from ₹1 lakh to ₹1.25 lakh.
The ₹1.25 Lakh Threshold
It is a single annual threshold across all your Section 112A gains — not per scrip, not per folio, not per demat account. It resets every financial year and does not carry forward.
Investors sitting on large unrealised long-term equity gains often book roughly ₹1.25 lakh of gain each year and reinvest immediately — resetting the cost base at no tax cost, so that less gain accumulates for the year they actually need the money. Do it on real market transactions and keep the contract notes; the exemption is a threshold, not a licence for circular trades.
Everything Else
- Short-term — added to your total income and taxed at your slab rate. In the 30% bracket that is 30% plus surcharge and cess.
- Long-term — Section 112 (Section 197): 12.5% without indexation, subject to the property grandfathering option covered in Part 2.
This is why the 12 or 24 month boundary matters so much on non-equity assets: crossing it moves you from up to 30% down to 12.5%.
Surcharge, Cess and the 87A Rebate
- Health and education cess of 4% applies on tax plus surcharge, in every category without exception.
- Surcharge applies once total income crosses the notified thresholds. Surcharge on gains taxed under Sections 111A and 112A (196 and 198) is capped at 15%, even where your other income attracts a higher rate.
- The Section 87A rebate does not apply to special-rate capital gains. This catches many small taxpayers: total income within the rebate limit, yet tax on the capital gain component still payable.
Depreciable Business Assets — Section 50 (Section 74)
Assets inside a depreciation block never produce a long-term gain, however long they were held. Where sale proceeds exceed the written-down value of the block, or the block empties, the excess is a short-term capital gain taxed at slab rates.
This is why a factory shed held for twenty years and depreciated throughout can still throw up a short-term gain — and why no indexation and no Section 54EC-style relief is available on it. See Depreciation Under Income Tax.
Debt Funds and Market-Linked Debentures — Section 50AA (Section 76)
Debt mutual funds purchased on or after 1 April 2023 have no long-term category. Every gain is deemed short-term and taxed at your slab rate, regardless of holding period. Market-linked debentures are treated the same way.
Units bought before 1 April 2023 continue under the earlier regime. So the purchase date, not the sale date, decides the treatment — which makes an accurate purchase-date record essential. A single folio can contain units on both sides of the line.
Worked example
₹10,00,000 invested in a debt fund in July 2023, redeemed August 2026 for ₹13,00,000. Held over three years, but bought after 1 April 2023. The whole ₹3,00,000 is a short-term gain at slab rate — ₹90,000 plus cess in the 30% bracket. The identical investment made in March 2023 would have followed the earlier regime.
Slump Sale — Section 50B (Section 77)
Transfer of an entire undertaking for a lump sum, without values assigned to individual assets. The gain is the consideration less the net worth of the undertaking, and it is long-term if the undertaking was held for more than 36 months. A chartered accountant's report in the prescribed form must accompany the return.
Conversion of a Capital Asset into Stock-in-Trade
The conversion itself is a transfer, but the gain is charged only in the year the stock is actually sold. The fair market value on the date of conversion is the sale consideration for the capital gains part, and simultaneously becomes the cost for the business income part. One transaction, two heads of income, two different years.
Crypto and Virtual Digital Assets — Section 115BBH
VDAs sit outside the normal capital gains scheme:
- Flat 30% regardless of holding period. No long-term concession exists.
- No deduction for any expenditure other than cost of acquisition — not exchange fees, not gas fees, not interest.
- No set-off of losses against any income, including against gains on other virtual digital assets. A profitable trade and a loss-making trade in the same year do not net off.
- No carry forward of VDA losses.
- 1% TDS under Section 194S on the transfer.
Buyback, Sovereign Gold Bonds and Non-Residents
- Share buyback: the treatment shifted with the October 2024 amendments — the buyback consideration is now taxed in the shareholder's hands as a deemed dividend, with the cost of those shares available as a capital loss. Confirm the position applicable to your year before computing.
- Sovereign Gold Bonds: gain on redemption at maturity by an individual is exempt. Sold in the secondary market before maturity, normal capital gains rules apply — 12 months for long-term, 12.5% thereafter.
- Non-residents are taxed on Indian capital assets at broadly the same rates, but do not get the property indexation choice, and face TDS under Section 195 on the whole consideration unless a lower-deduction certificate is obtained. See Part 5.
What's Next?
- Part 4 — Exemptions: Sections 54 to 54GB and how to reinvest the gain away
- Part 6 — Losses, Advance Tax & ITR: paying it and reporting it
- Depreciation Under Income Tax
- Part 2 — Calculating the Gain