If you sold shares, mutual funds, property or gold sometime this year and are now staring at a tax bill that looks different from what you remember paying a few years ago, you are not misremembering anything. Capital gains taxation in India went through its biggest overhaul in over a decade back in July 2024, and those changes are now fully in force for the returns you are filing this year. Budget 2026 left the rates untouched, which at least means the rules have finally settled into something stable enough to plan around.
Here is exactly how capital gains are taxed right now, what actually changed, and where genuine opportunities still exist to reduce what you owe.
What Actually Counts as a Capital Gain
A capital gain is simply the profit you make when you sell, or “transfer” in tax terminology, a capital asset for more than you paid for it. This covers a wide range of things people own, listed shares, equity and debt mutual funds, gold, bonds, land and buildings, and even cryptocurrency, though crypto is taxed under its own separate, flat 30 percent regime rather than the rules discussed here.
Short-Term vs Long-Term: How the Holding Period Actually Works
Whether a gain is taxed as short-term or long-term depends entirely on how long you held the asset before selling it, and this threshold is not the same across every asset class.
| Asset Type | Long-Term Holding Period |
|---|---|
| Listed equity shares and equity mutual funds | More than 12 months |
| Gold ETFs and listed bonds | More than 12 months |
| Immovable property and unlisted shares | More than 24 months |
| Debt mutual funds bought before April 1, 2023 | More than 24 months |
| Debt mutual funds bought on or after April 1, 2023 | Taxed at slab rate regardless of holding period |
That last row trips up a lot of investors. Debt mutual fund units purchased after April 1, 2023 lost their long-term tax advantage entirely, meaning gains are added to your regular income and taxed at your applicable slab rate no matter how many years you hold them.
STCG Tax Rates in 2026
Short-term capital gains on listed equity shares and equity mutual funds, where securities transaction tax has been paid, are taxed at 20 percent under Section 111A, a rate that moved up from 15 percent for any sale made on or after July 23, 2024. For every other asset class, including property, gold and debt funds, short-term gains simply get added to your total income and taxed at your regular slab rate, which can range anywhere from 0 to 30 percent depending on your overall income for the year.
A Quick Equity Example
If you bought equity mutual fund units and sold them eight months later for a ₹2 lakh profit, that entire gain is short-term. At 20 percent, your tax works out to ₹40,000, plus a 4 percent health and education cess on top, bringing your effective liability to ₹41,600.
LTCG Tax Rates in 2026
Long-term capital gains on listed equity and equity mutual funds are taxed at 12.5 percent under Section 112A, but only on gains above ₹1.25 lakh in a financial year, which is exempt. This exemption limit rose from ₹1 lakh, and the rate itself moved up from 10 percent, both effective from the same July 23, 2024 cutoff. For most other assets, including property, gold and debt funds bought before April 2023, the long-term rate is also 12.5 percent, though property carries a notable exception covered below.
A Quick Equity Example
Say you sold equity mutual fund units held for three years, realising a total gain of ₹5 lakh. The first ₹1.25 lakh is exempt, leaving ₹3.75 lakh taxable at 12.5 percent, which comes to ₹46,875, plus 4 percent cess, bringing your total to roughly ₹48,750.
The Indexation Story: What Changed and the Property Exception
Indexation used to let you adjust an asset’s purchase price for inflation using the Cost Inflation Index before calculating your taxable gain, which meaningfully reduced tax on assets held for many years. This benefit was removed for nearly all assets transferred on or after July 23, 2024, replaced by a uniform 12.5 percent rate applied to your actual, un-indexed gain.
Property gets a specific carve-out here. For real estate acquired before July 23, 2024, sellers can choose between two computation methods, paying 12.5 percent with no indexation, or 20 percent with indexation applied, and simply going with whichever produces a lower tax bill. This choice matters most for older properties bought many years ago in a lower-price, higher-inflation environment, where indexation can shrink the taxable gain substantially even at the higher headline rate.
A Worked Property Example
Consider a property bought in April 2015 for ₹30 lakh and sold in April 2025 for ₹80 lakh, with ₹5 lakh spent on improvements and ₹2 lakh in transfer costs like brokerage and stamp duty. Using the Cost Inflation Index, roughly 254 for 2015-16 and 363 for 2024-25, the indexed cost of acquisition works out to approximately ₹42.8 lakh. After accounting for indexed improvement costs and transfer expenses, the taxable gain under the indexation method comes out meaningfully lower than the flat ₹43 lakh gain you would calculate without any indexation at all, which is exactly why running both calculations before filing is worth the extra effort for any pre-July 2024 property sale.
The Detail Most People Miss: Section 87A Doesn’t Apply Here
The Section 87A rebate, which effectively zeroes out tax for new-regime taxpayers with income up to around ₹12 lakh, does not extend to capital gains taxed at these special rates. This means even if your overall income would ordinarily fall entirely within the rebate threshold, your STCG or LTCG on equity is still taxed at the full 20 percent or 12.5 percent rate, a distinction that catches a surprising number of retail investors off guard at filing time.
Exemptions That Can Bring Your Tax Down to Zero
Several reinvestment-linked exemptions remain available and can substantially reduce, or in some cases fully eliminate, your capital gains tax liability. Section 54 exempts long-term gains on a residential property if the proceeds are reinvested in another residential property within specified timelines. Section 54F offers a similar exemption when the sold asset is not a residential property but the proceeds are invested in one. Section 54EC allows you to invest capital gains from land or buildings into specified capital gains bonds within six months, capped at ₹50 lakh, to claim exemption without needing to buy another property at all. If you cannot complete the reinvestment before your filing deadline, the Capital Gains Account Scheme lets you park the funds and still claim the exemption, provided the actual investment happens within the prescribed period. Our capital gains tax guide and capital gains calculator can help you work out your exact liability and see how much a specific exemption route would actually save you.
Carrying Forward Capital Losses
If you booked a long-term capital loss, it can only be set off against long-term capital gains, not short-term ones, while a short-term loss can be set off against gains of either type. Unused losses can be carried forward for up to eight assessment years, provided your return is filed on or before the original due date, since a belated return forfeits this carry-forward right entirely for most losses.
Does the New Income Tax Act 2025 Change Any of This
No, at least not in substance. The Income Tax Act, 2025, effective from April 1, 2026, consolidates and renumbers provisions across the law, but it does not alter capital gains tax rates, holding periods, or exemption rules in any way. Our guide to the new Income Tax Act covers what genuinely changed under the new framework and what stayed exactly the same, which is a useful companion read if you are wondering whether this restructuring affects how you compute or report your gains.
How to Report Capital Gains in Your ITR
Capital gains must be reported in Schedule CG of your income tax return, using ITR-2 if you have no business income, or ITR-3 if you do. Each transaction generally needs to be reported with its specific holding period, acquisition cost, and any indexation applied, rather than as a single consolidated figure, since the tax department cross-verifies this against data reported by brokers, mutual fund houses and registrars.
Frequently Asked Questions
What is the current LTCG tax rate in India for 2026?
Long-term capital gains on listed equity and equity mutual funds are taxed at 12.5 percent on gains above ₹1.25 lakh in a financial year. Most other long-term assets, including property and gold, are also taxed at 12.5 percent, though property acquired before July 23, 2024 can alternatively opt for 20 percent with indexation if that produces a lower tax bill.
What is the STCG tax rate on shares in 2026?
Short-term capital gains on listed equity shares and equity mutual funds are taxed at 20 percent under Section 111A, provided securities transaction tax was paid on the sale. This rate applies to any transaction made on or after July 23, 2024.
Is indexation still available for property sales in 2026?
Only for property acquired before July 23, 2024, where sellers can choose between 12.5 percent tax without indexation or 20 percent with indexation, whichever results in lower tax. Indexation has been removed entirely for property acquired on or after that date and for most other asset classes.
Does the Section 87A rebate reduce my capital gains tax?
No. The Section 87A rebate, which can zero out regular income tax for new-regime taxpayers up to roughly ₹12 lakh, does not apply to capital gains taxed at the special 12.5 percent or 20 percent rates, regardless of your overall income level.
Can I avoid capital gains tax entirely by reinvesting the proceeds?
In many cases, yes. Sections 54, 54F and 54EC allow exemption on long-term capital gains if proceeds are reinvested in another residential property or in specified capital gains bonds within prescribed timelines, subject to conditions and limits under each specific section.
