Introduction to Capital Gains Taxation in India
Capital gains arise from asset transfer profits, taxed under Income Tax Act Sections 45-55A. Holding period determines Short-Term (STCG) or Long-Term (LTCG). FY 2025-26 sees stable rates post-Finance Act 2024 reforms: LTCG 12.5% flat (no indexation post-Jul 23, 2024), STCG 20% unified.
Budget 2026 confirmed no changes, with CII 376 for pre-Jul24 assets (resident individuals/HUFs choice). Exemption Rs 1.25 lakh LTCG equity u/s 112A aggregate. Key: Plan sales for exemptions.
Types of Capital Gains: STCG vs LTCG
Short-Term Capital Gains (STCG): Assets held <12 months (debt/unlisted) or <24 months (property). Taxed at slab rates (new regime up to 30%).
Long-Term Capital Gains (LTCG): >12/24 months. Flat 12.5% (no indexation except grandfathered property). Equity STCG 20% u/s 111A.
| Asset | STCG Period | LTCG Period | STCG Rate | LTCG Rate |
|---|---|---|---|---|
| Listed Equity / Mutual Funds | < 12 months | > 12 months | 20% (Section 111A) | 12.5% (Gains above ₹1.25L taxable) |
| Property / Unlisted Shares | < 24 months | > 24 months | As per slab rate | 12.5% (Option of 20% with indexation for assets acquired before Jul 2024) |
| Debt Mutual Funds (Post April 2023) | < 36 months | > 36 months | As per slab rate | As per slab rate (No LTCG benefit) |
Recent Amendments: Finance Act 2024 & Budget 2026
- Jul 23, 2024 Onwards: No indexation all assets; LTCG 12.5% flat. Pre-date property: Choice 20% indexed or 12.5% flat (residents/HUFs). CII 376 FY26.
- LTCG Exemption Hike: Rs 1 lakh → 1.25 lakh u/s 112A (listed equity/units). Aggregate annual.
- STCG Rationalized: 15% equity → 20% all.
- Budget 2026: Rates stable; SGB redemption tax-free sustained. No debt MF LTCG relief.
- Rs 10Cr Cap: Sections 54/54F max exemption Rs 10Cr new asset cost.
LTCG Tax Calculation & Rates
Formula: Sale – Indexed Cost (pre-Jul24) / Fair Value = Gain – Exemption = Tax @12.5% + cess.
Equity Example (Shares sold Rs 5L gain, >1yr):
Exempt 1.25L; Taxable 3.75L × 12.5% = Rs 46,875 +4% cess.
Property Pre-Jul24 (Rs 2Cr gain, indexed cost Rs 50L):
Choice: 12.5% Rs 1.5Cr taxable OR 20% indexed gain.
STCG Tax Treatment
Slab rates apply. Equity 20% flat u/s 111A (STT paid). Reported in ITR-2/3 Schedule CG.
Key Exemptions: Sections 54, 54F, 54EC
Section 54: Residential House
LTCG from house sale → New house (1/2yr before/after; 2yr construct). Unused → CGAS deposit. Cap: Rs 10Cr new cost.
Conditions:
- Only LTCG house → house.
- Multiple houses: Proportional exemption.
Section 54F: Any LTCG → House
Net sale consideration invested (not sale proceeds). No other house ownership. Rs 10Cr cap.
Proportional: Investment / Net Consideration × Gain.
Section 54EC: Bonds
LTCG any → NHAI/REC/PFC/IRFC bonds (6 months). Max Rs 50 lakh/yr. No lock-in issues post-2023.
Others
- 54B: Agriculture land → land (2yrs).
- 54GB: Resident property → Startup equity (equity 50%).
- 112A: Rs 1.25L equity LTCG.
| Exemption Section | Asset Sold | Invest In | Time Limit | Maximum Limit |
|---|---|---|---|---|
| Section 54 | Residential House Property | Another Residential House | Purchase: 1 year before or 2 years after Construction: 3 years |
₹10 Crore |
| Section 54F | Any Long-Term Capital Asset | Residential House | Purchase: 1 year before or 2 years after Construction: 3 years |
₹10 Crore |
| Section 54EC | Any Long-Term Capital Asset | Specified Bonds (NHAI / REC) | Within 6 months from date of transfer | ₹50 Lakh |
Special Assets: REITs, InvITs, SGBs
- REITs/InvITs: Pass-through; SPV gains exempt, distributions taxed (LTCG if units).
- SGBs: Maturity redemption tax-free (3% interest taxed). Premature LTCG 12.5%.
- Debt MF: Slab rates (no LTCG benefit post-Apr23).
Reporting and Compliance
- ITR: Schedule CG (ITR-2/3).
- Set-Off: LTCG losses vs LTCG only (4 assessments); STCG slab.
- Advance Tax: Applies to gains.
Planning Strategies Amid 2026 Rules
- Pre-Jul24 Assets: Evaluate indexation benefit.
- Exemptions: Time sales for reinvestment.
- Equity: Harvest Rs 1.25L annually.
- Bonds: 54EC for quick liquidity.
- SGB Hold: To maturity tax-free.
Common Pitfalls and Judicial Insights
- Proportionality Miss: 54F full if no house.
- Time Overrun: Strict 2/3 yrs.
- HC Rulings: Extension COVID-like force majeure rare.
Impact of Amendments on Taxpayers
Middle-class investors gain from 1.25L equity exempt; property sellers face no-index hit (offset grandfathering). Stable Budget 2026 aids planning.
Monitor CBDT for CII/FMV clarifications. Accurate computation minimizes notices.
Contact +919034263307.
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