Capital Gains Tax Strategies in India (2025)

Rules, Calculations, and Smart Tax Saving

Introduction

Overview of Capital Gains Tax in India

Capital gains tax (CGT) is the levy on profits arising from the sale of a "capital asset". Such assets broadly include real estate (land/building), stocks and mutual funds, gold and other precious metals/jewellery, certain bonds, and even financial instruments like Employee Stock Options (ESOPs). Understanding how Indian law classifies capital assets, determines the nature and period of holding, and applies tax rates is the first step to robust capital gains tax planning.

Classification: Short-Term vs. Long-Term Capital Gains

The tax treatment for capital gains depends crucially on the holding period—how long you retained the asset before selling.

Short-Term Capital Gains (STCG): When you sell an asset within a 'short' period (applies differently for different assets):

• Listed equity shares & equity mutual funds: holding ≤ 12 months
• Property and unlisted shares: holding ≤ 24 months
• Gold, jewellery, certain other assets: holding ≤ 24 months

Long-Term Capital Gains (LTCG): If the holding period exceeds these thresholds:

• Listed shares & equity MFs: > 12 months
• Property/unlisted shares/gold/other assets: > 24 months

Short-Term Capital Gains (STCG): Taxation and Calculation

STCG Tax Rates (Post-July 2024 Reforms)

Asset Type	Holding Period	Tax Rate
Listed equity shares / Equity-oriented mutual funds	≤ 12 months	20% (flat)
Other assets (property, unlisted shares, gold, debt funds)	≤ 24 months	As per income tax slab

Calculation of STCG

For listed shares/equity MFs:

STCG = Sale Price – (Cost of Acquisition + Transfer Expenses)

Transfer expenses include brokerage, commission, STT (not deductible), etc.

Relatable Insights

• No indexation benefit is available for STCG—tax is calculated on actual (non-inflation adjusted) profit.
• No separate exemptions, except in some rare agricultural/industrial transfer cases (Sections 54B, 54D).
• STCG from shares/MFs cannot be offset against "other income" (like salary/rent)—but can be set off against capital losses as per set-off rules.

Long-Term Capital Gains (LTCG): Taxation and Calculation

LTCG Tax Rates and Key Changes

India's capital gains structure has shifted towards uniformity and simplification since July 2024.

Asset Type	Holding Period	Tax Rate	Exemption/Indexation
Listed equity / Equity MFs	> 12 months	12.5%	₹1.25 lakh per year exempt; no indexation
Property (acquired before July 2024)	> 24 months	Choose: 12.5% (no indexation) OR 20% (with indexation)	Sections 54/54F/54EC apply
Property (acquired after July 2024)	> 24 months	12.5%	No indexation; exemptions apply
Gold, Unlisted shares, Other assets	> 24 months	12.5%	No indexation (post-July 2024)
Debt MFs (bought before April 1, 2023)	> 36 months	20% with indexation (if sold before July 2024), else 12.5%	Indexation available for old units

Calculation Methodology for LTCG

Step 1: Calculate 'Net Sale Consideration' = Sale price minus transfer charges (brokerage, legal fees, registry, etc.)

Step 2: Deduct Acquisition Cost

• For assets where indexation applies: Indexed Cost = Purchase Price × (CII of Sale Year / CII of Purchase Year)
• For others: Actual purchase cost only

Step 3: Deduct Cost of Improvements (if any) - Major renovations, additions, etc. (indexed if eligible)

Step 4: Account for Exemptions (Section 54/54EC/54F, etc.) - Amounts invested as per prescribed rules

Step 5: Arrive at LTCG = [Net sale consideration – Indexed acquisition cost – Indexed improvements – Exemptions]

Capital Gains on Key Asset Classes

1. Stocks and Mutual Funds

Listed Shares / Equity-Oriented Mutual Funds

• STCG: 20% for holdings ≤ 12 months
• LTCG: 12.5% (post-July 2024) on amount exceeding ₹1.25 lakh per year
• Calculation quirks: For long-held stocks bought before Feb 2018, the "grandfathering clause" ensures that only post-Jan 31, 2018 gains are taxed. The purchase price for tax is taken as the highest of:
  • Actual purchase cost
  • Fair market value (FMV) as on Jan 31, 2018
  • Actual sale price (if lower than FMV)
• Indexation: Not available

Debt Mutual Funds

• For units bought after April 1, 2023: No LTCG benefit—all gains taxed as STCG at investor's slab rate
• For units bought before April 1, 2023: Holding >36 months = LTCG at 20% indexation (if sold before 23rd July 2024), else 12.5% with no indexation from Jul 2024

2. Real Estate (Land, Building, Apartments, Commercial Property)

• STCG: Sale within 24 months → gain added to regular income and taxed at slab rate
• LTCG: Post-July 2024, property sales are taxed at 12.5% (w/o indexation); for property acquired before that date, HUFs and individuals can choose the more beneficial tax:
  • 12.5% without indexation
  • 20% with indexation
• Exemptions: Sections 54 (sale of residential property), 54F (any asset sold, proceeds invested in a house), 54EC (proceeds in government bonds) can reduce/waive tax payment

3. Gold and Jewellery

• STCG: ≤ 24 months, taxed at income tax slab
• LTCG: > 24 months, taxed at flat 12.5% without indexation (post-July 2024)

4. Inherited Properties

• No tax on inheritance
• On Sale: Holding period is counted from original owner's acquisition date
• Tax computed as above, often as LTCG with indexation for older properties (if acquired before July 2024), otherwise at 12.5%
• Cost of acquisition: The acquisition cost for the inheritor = original cost for the previous owner, indexed as required

Indexation and the Cost Inflation Index (CII)

What is Indexation?

Indexation adjusts your purchase cost for inflation using the government's Cost Inflation Index (CII), thus reducing your capital gains tax. It is especially relevant for long-held real estate and older debt mutual funds.

Indexed Cost = Cost of Acquisition × (CII of year of sale / CII of year of purchase)

CII Table (Selected Years)

Financial Year	Assessment Year	CII
2001-02	2002-03	100
2004-05	2005-06	113
2010-11	2011-12	167
2015-16	2016-17	254
2020-21	2021-22	301
2024-25	2025-26	363
2025-26	2026-27	376 (estimated)

Exemptions and Tax Reduction Strategies

Key Sections for LTCG Exemptions

1. Section 54: Reinvestment in Residential Property

• Applies on sale of long-term residential property
• Must buy/construct another residential property within:
  • 1 year before or 2 years after sale (for purchase)
  • 3 years after sale (for construction)
• Proceeds not used by due date can be deposited in the Capital Gains Account Scheme (CGAS)
• Max exemption capped at ₹10 crore from FY 2023–24 onward
• If the new house is sold within 3 years, exemption is revoked

2. Section 54F: Any Asset Redeemed, House Bought

• If you sell a long-term asset (other than house property) and reinvest the sale proceeds in purchasing/constructing a house
• Exemption is in proportion to the investment

3. Section 54EC: Investment in Specified Bonds

• LTCG from sale of land/building can be sheltered if reinvested in specified bonds (NHAI, REC, PFC, IRFC) within 6 months
• Max ₹50 lakh per financial year
• Bonds have a lock-in period of 5 years; interest from these bonds is taxable

Capital Gains Account Scheme (CGAS)

When you can't immediately reinvest the gains, deposit the amount in a CGAS account (at notified banks). It's treated as if you invested the funds, maintaining your eligibility for Section 54/54F/54B exemptions. Unused money after the specified period becomes taxable in the year that period lapses.

Smart Strategies to Reduce Capital Gains Tax Liability

1. Claim Available Exemptions

• Invest in a new house or specified bonds (Section 54/54EC)
• Stagger asset sales across financial years to maximize multiple ₹1.25 lakh exemptions for listed equity LTCG
• If you have multiple family members, allocate investments to fully utilize each person's exemption threshold

2. Tax Harvesting

Utilizing annual LTCG exemption for equity shares/EFs:

• Tax gain harvesting: Each year, redeem enough investments to "realize" up to ₹1.25 lakh LTCG tax-free, then reinvest—this resets purchase price, locking in the exemption annually
• Tax loss harvesting: Sell investments at a loss to offset capital gains elsewhere (STCL can be offset against STCG or LTCG; LTCL only against LTCG)

3. Timing Asset Sales

• Property: If eligible for indexation, delay sale until after July to choose the more beneficial tax computation
• Shares/MFs: Hold beyond 12 months for LTCG rates
• For debt funds/other non-equity, check buy date: for units purchased before April 2023, you may benefit from indexation if sold before the July 2024 cutoff

4. Utilize Set-off/Carry-forward Provisions

• STCL (short-term capital loss) can offset both STCG and LTCG
• LTCL (long-term capital loss) can offset only LTCG
• Unutilized loss can be carried forward for 8 assessment years if the tax return is filed on time

5. CGAS for Delayed Investment

If you can't finalize a new property/bond investment before the income tax due date, deposit gains in a CGAS to protect exemption eligibility.

6. Joint Ownership and Family Planning

Buy/sell in joint names where possible to maximize exemption utilization under Section 54 and higher basic exemption.

7. Advance Planning with ESOPs and RSUs

ESOPs are taxed twice: as salary (on exercise; difference between FMV & price) and as capital gains (on sale; holding period from exercise date). Consider staggering ESOP exercises and sales, and remember the different tax rules for Indian/foreign listed/unlisted shares.

Common Mistakes to Avoid

Comparative Table: Capital Gains Tax Rates & Exemptions (FY 2025-26)

Asset Class	Holding Period	Classification	Tax Rate	Key Exemptions
Listed Equity Shares / Equity MFs	≤ 12 months	STCG	20%	None
Listed Equity Shares / Equity MFs	> 12 months	LTCG	12.5%	₹1.25 lakh/year exempt
Property (Old: pre-July 2024)	≤ 24 months	STCG	Slab rate	None
Property (Old: pre-July 2024)	> 24 months	LTCG	Choose: 12.5% or 20% with indexation	54, 54F, 54EC
Property (New: post-July 2024)	> 24 months	LTCG	12.5%	54, 54F, 54EC
Unlisted Shares	≤ 24 months	STCG	Slab rate	None
Unlisted Shares	> 24 months	LTCG	12.5%	Limited
Gold / Jewellery	≤ 24 months	STCG	Slab rate	None
Gold / Jewellery	> 24 months	LTCG	12.5%	None (54F may apply in special cases)
Debt MFs (bought post-April 2023)	Any	STCG	Slab rate	None
Debt MFs (bought pre-April 2023)	> 36 months	LTCG	12.5% (post-July 2024)	Limited

Illustration: Tax Planning – Salaried Employee Sells Shares

Illustration: Family Sells Inherited Property

Frequently Asked Questions

Conclusion

India's capital gains tax regime, post the 2024 and 2025 reforms, aims for simplicity, investor-friendliness, and a gentle nudge towards long-term wealth creation. Understanding the holding periods, recent rate changes, and nuances of indexation is critical for smart financial planning. By strategically timing sales, meticulously claiming exemptions, harvesting gains and losses, and maintaining documentary discipline, taxpayers can vastly improve their post-tax returns.

Whether you're a salaried employee selling your equity investments, a family monetizing inherited property, or an investor exploring gold and mutual funds, the right application of capital gains tax law can make a remarkable difference in your wealth journey. Always review your unique situation, consider consulting a qualified tax advisor for large or complex transactions, and remember—good records and timely action are your best friends when it comes to capital gains tax in India.

Disclaimer: This guide is for informational purposes only. Tax laws are subject to change. Please consult a qualified Chartered Accountant or tax professional for advice specific to your situation.