Understanding Capital Gains Tax: Rates, Types, and Exemptions Explained

Capital Gains Tax in FY 2025–26: What Has Changed and What You Need to Know

If you’ve recently sold shares, property, mutual funds, or even gold, you may be liable to pay capital gains tax. The rules around how much you owe — and when — have undergone some important updates following the government’s July 2024 reforms.

What Is Capital Gains Tax?

Capital gains tax is charged when you sell a capital asset — such as equity shares, real estate, mutual funds, or bullion — for more than what you paid to acquire it. Your profit (or “gain”) is taxed in the year you sell or transfer the asset.

How it's calculated:

Capital Gain = Sale Value – (Purchase Cost + Allowable Expenses)

So if you bought a house for ₹50 lakh, spent ₹2 lakh on improvements, and sold it for ₹75 lakh, your gain is ₹23 lakh — and that’s what may be taxed.

Holding Periods: New Rules From July 2024

The Finance Ministry has simplified the classification of capital assets based on how long you've held them:

Asset Type	Short-Term (STCG)	Long-Term (LTCG)
Equity shares, equity mutual funds	Held up to 12 months	Held for more than 12 months
Real estate, gold, debt MFs, etc.	Held up to 24 months	Held for more than 24 months

This change means quicker transitions into long-term classification for certain financial assets, but longer wait times for others like property or gold.

Capital Gains Tax Rates in FY 2025–26

1. Short-Term Capital Gains (STCG)

• Equity Shares & Equity Mutual Funds: Now taxed at 20% flat, effective for sales from July 23, 2024 onward. (Previously, this was 15%.)

• Other Assets (real estate, debt funds, gold): Taxed as per your income tax slab.

2. Long-Term Capital Gains (LTCG)

For all asset classes sold on or after July 23, 2024:

• Taxed at a uniform 12.5% rate, regardless of asset type.
• No indexation benefit — which means you cannot adjust your cost price for inflation.
• The first ₹1.25 lakh of LTCG in a financial year is exempt (up from the earlier ₹1 lakh limit).

Transitional Relief for Older Assets

• Sold Before July 23, 2024: The old regime continues — 10% for listed equities, 20% for property and gold (with indexation allowed for some).

• Purchased Before but Sold After July 22, 2024: Taxpayers can choose between the old and new regime — whichever offers a lower tax burden, depending on asset class and dates.

Exemptions and Deductions You Can Use

To lower your tax bill, consider these well-established exemptions:

• Section 54 – Residential Property Exemption You can claim exemption on LTCG from a residential property sale if you reinvest in another residential home.

  • The new cap is ₹10 crore for exemption.

• Section 54EC & 54F – Bonds and Property

  • Invest in government-specified bonds (e.g. NHAI, REC) within 6 months.
  • Or reinvest sale proceeds in a new house (subject to conditions under 54F).

• Set-Off and Carry Forward of Losses

  • Capital losses (short- or long-term) can be adjusted against gains of the same type.
  • Unadjusted losses can be carried forward up to 8 years.

Reporting Capital Gains in Your ITR

All gains must be reported under Schedule CG of your income tax return. You’ll need to enter:

• Purchase & sale dates
• Acquisition & sale amounts
• Brokerage, transfer expenses, etc.
• Exact gain/loss computed

Retain proof — like sale deeds, contract notes, receipts, and renovation bills — in case the IT department seeks verification.

Key Planning Takeaways

• STCG on stocks/MFs is now 20%; long-term gains are taxed at a flat 12.5% if sold after July 23, 2024.
• Indexation benefit has been removed, except for older assets under the old regime.
• Keep an eye on cut-off dates to pick the more favourable tax system.
• Maintain a paper trail — documentation will matter more under the new scrutiny norms.
• For high-value or complicated asset sales, speak to a CA to optimise your tax treatment.

Capital Gains Quick Reference Table (FY 2025–26)

Asset Type	LTCG Rate	STCG Rate	Exemption	Indexation
Listed Equity & Equity MFs	12.5% (post-July)	20%	₹1.25L/year	(no indexation)
Property, Gold, Debt MFs	12.5%	Slab rate	None	(new rule)
Pre-July '24 Property/Gold	20% (old regime)	Slab rate	None	(if choosing old rule)

Final Word

The 2024 reforms aimed to simplify India’s capital gains tax structure — and they’ve mostly succeeded. But the transitional overlap between old and new systems makes it critical to evaluate each transaction’s tax impact carefully.

If your gains involve large sums or assets straddling both regimes, don't leave it to guesswork — a chartered accountant can help you pick the right path and ensure you’re tax-compliant, while saving where legally possible.