Capital Gains Tax in India: Complete Guide for 2026 (Post Finance Act 2024)
Finance Act 2024 overhauled capital gains tax in India. LTCG on equity is now 12.5% without indexation, STCG is 20%. This comprehensive guide explains every rate, exemption, and grandfathering rule with specific section citations.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Capital Gains Tax in India: Complete Guide After Finance Act 2024
The Finance Act 2024 made the most significant changes to capital gains taxation in India in decades, effective from 23 July 2024. This guide explains every revised rate and exemption with section-by-section citations.
What Are Capital Gains? (Section 45 of Income Tax Act 1961)
Under Section 45 of the Income Tax Act 1961, any profit or gain arising from the transfer of a capital asset is chargeable to tax under the head "Capital Gains" in the year of transfer. Capital assets include property, equity shares, mutual funds, gold, and bonds — but exclude personal movable property (jewellery is an exception and IS taxable).
Short-Term vs Long-Term: Holding Period Rules
Section 2(42A) defines a short-term capital asset as one held for 36 months or less (24 months for immovable property; 12 months for listed equity, equity mutual funds, and units of business trusts).
Post-Finance Act 2024 Tax Rates
For transfers on or after 23 July 2024:
Short-Term Capital Gains (STCG)
- Listed equity shares and equity-oriented mutual funds (covered under Section 111A): 20% (was 15%)
- Other short-term capital gains: added to income and taxed at slab rates
Long-Term Capital Gains (LTCG)
- Listed equity shares and equity-oriented MFs (Section 112A): 12.5% without indexation, with a threshold of Rs 1.25 lakh per year (raised from Rs 1 lakh). LTCG up to Rs 1.25 lakh is tax-free.
- Immovable property, unlisted shares, gold, debt MFs (Section 112): 12.5% without indexation (indexation benefit removed for transfers after 23 July 2024)
- Bonds and debentures: 12.5% without indexation (market-linked debentures treated as STCG regardless of holding)
Grandfathering for Immovable Property (Finance Act 2024 Relief)
For immovable property acquired before 23 July 2024, taxpayers can choose the more beneficial of:
- 12.5% without indexation on gains computed without indexation, OR
- 20% with indexation (using Cost Inflation Index under Section 48)
This election is property-by-property and is available only for property acquired before 23 July 2024. For property acquired on or after 23 July 2024, only 12.5% without indexation applies.
Cost Inflation Index (CII): Published by CBDT under Section 48. The base year is 2001-02 (CII = 100). For FY 2025-26, the CII is 376.
Grandfathering for Equity (Pre-2018 Rules — Section 112A)
For equity shares/units acquired before 1 February 2018, the cost of acquisition is deemed to be the higher of:
- Actual cost, OR
- Fair market value (lower of NAV/highest price on NSE/BSE) as on 31 January 2018
Gains accrued up to 31 January 2018 are effectively exempt. Only gains after that date attract the 12.5% LTCG tax.
Capital Gains Exemptions — Section 54 Series
Section 54 — Sale of Residential Property:
Invest LTCG in ONE new residential house in India within 2 years (purchase) or 3 years (construction) before the sale. Maximum exemption: Rs 10 crore (introduced by Finance Act 2023). The new property must not be sold within 3 years.
Section 54EC — Investment in Specified Bonds:
Invest LTCG (from immovable property only) in bonds issued by NHAI or REC within 6 months of sale. Maximum investment: Rs 50 lakh. Lock-in: 5 years. Bonds are non-transferable.
Section 54F — Sale of Any Long-Term Capital Asset (Not House):
Invest the ENTIRE net sale consideration (not just gains) in one new residential house. You must not own more than one house on the date of transfer. Exemption is proportionate to the amount invested.
Section 54B — Sale of Agricultural Land:
LTCG from sale of agricultural land if proceeds reinvested in agricultural land within 2 years.
Capital Gains Account Scheme (CGAS): If you cannot invest before the ITR due date, deposit the capital gains amount in a CGAS account with a scheduled bank. This preserves the exemption if the investment is made within the stipulated period.
Set-Off and Carry Forward (Sections 70-74)
- STCL can be set off against STCG or LTCG
- LTCL can be set off only against LTCG (not STCG)
- Unabsorbed capital losses can be carried forward for 8 assessment years if return is filed on time under Section 139(1)
- Capital losses cannot be set off against any other head of income
Reporting Capital Gains in ITR
Capital gains must be reported in ITR-2 (individuals without business income) or ITR-3 (individuals with business income). ITR-1 (Sahaj) cannot be used if you have capital gains.
TDS on property sale: Under Section 194IA, the buyer must deduct TDS at 1% on the sale consideration if the property value exceeds Rs 50 lakh. The seller gets credit for this TDS in the ITR.
Advance Tax on Capital Gains
Capital gains are generally not predictable. However, if LTCG arises before 15 March, include in the advance tax estimate. The entire advance tax on capital gains can be paid in the 15 March instalment without attracting interest under Section 234C for underestimation in earlier instalments.
This article reflects the law as amended by Finance Act 2024. Tax laws are subject to change; consult a qualified CA for your specific situation.
Frequently Asked Questions
What are the capital gains tax rates after the Finance Act 2024?
From FY 2024-25: short-term capital gains on listed equity and equity mutual funds are taxed at 20% under Section 111A (up from 15%). Long-term capital gains on all assets are taxed at 12.5% under Section 112 (reduced from 20% with indexation). The indexation benefit has been removed for all assets acquired after 23 July 2024.
What is the LTCG exemption limit for listed equity?
The exemption under Section 112A for long-term capital gains on listed equity shares and equity-oriented mutual funds is ₹1.25 lakh per financial year (increased from ₹1 lakh by Finance Act 2024). Gains above this threshold are taxed at 12.5% without indexation.
How is the holding period determined for capital gains classification?
For listed equity shares and equity mutual funds: 12 months (short-term if held less). For unlisted shares: 24 months. For immovable property: 24 months. For debt mutual funds, gold, and other assets: 24 months. The holding period starts from the date of acquisition (purchase, allotment, or transfer) and ends on the date of transfer.
Has indexation been completely abolished?
For assets acquired on or after 23 July 2024, indexation is not available. For immovable property acquired before 23 July 2024, the taxpayer can choose the lower of: (a) 12.5% without indexation, or (b) 20% with indexation (grandfathering provision). For all other assets acquired before 23 July 2024, only the 12.5% rate without indexation applies from FY 2024-25.
Are capital gains from selling a house taxable if I reinvest in another house?
LTCG from sale of a residential property can be exempt under Section 54 if reinvested in one residential house within 1 year before or 2 years after sale (or 3 years for construction). The exemption is capped — from FY 2023-24, the maximum exemption under Section 54 is ₹10 crore. Alternatively, LTCG up to ₹50 lakh can be deposited in NHAI/REC bonds under Section 54EC.
I'm CA Harun Raaj, Visakhapatnam. If any of this affects you or your business, reach out — I'd be glad to help.
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See Also
Frequently Asked Questions
What is the holding period for long term capital gains on listed equity shares after finance act 2024?+
Under Section 2(42A) of the Income Tax Act 1961, listed equity shares are classified as long-term capital assets when held for more than 12 months. The Finance Act 2024 did not change this holding period; it remains 12 months for listed equities and equity-oriented mutual funds.
How much capital gains tax do I pay on equity mutual funds sold in 2024 2025?+
For transfers on or after 23 July 2024, short-term capital gains on equity-oriented mutual funds (covered under Section 111A) are taxed at 20%, increased from the previous 15%. Long-term capital gains on equity MFs (Section 112A) are taxed at 12.5% without indexation benefit, with the first Rs 1.25 lakh per year being tax-free.
Is indexation benefit available for property sold after july 2024?+
No. For immovable property transferred after 23 July 2024, indexation benefit has been removed. Per Section 112, long-term capital gains on immovable property are now taxed at 12.5% without indexation. However, for properties acquired before 23 July 2024, taxpayers may elect the more beneficial option of either 12.5% without indexation or 20% with indexation under Cost Inflation Index provisions.
What is the threshold limit for tax free capital gains on equity shares in 2024?+
Under Section 112A as amended by Finance Act 2024, the tax-free threshold for long-term capital gains on listed equity shares and equity-oriented mutual funds has been raised from Rs 1 lakh to Rs 1.25 lakh per financial year, effective from 23 July 2024.
How is capital gain calculated on unlisted shares and gold after finance act 2024?+
Under Section 112, long-term capital gains on unlisted shares, gold, and debt mutual funds are now taxed at 12.5% without indexation benefit for transfers after 23 July 2024. The indexation benefit under Section 48 has been removed for these assets, meaning gains are calculated on the difference between sale price and cost of acquisition without inflation adjustment.
What tax rate applies to bonds and debentures transferred in 2024?+
Per Section 112 as revised by Finance Act 2024, long-term capital gains on bonds and debentures are taxed at 12.5% without indexation benefit for transfers on or after 23 July 2024. Market-linked debentures are treated as short-term capital gains regardless of holding period.
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