LTCG rate on equity and equity mutual funds after 23 July 2024: 12.5% flat, ₹1.25L exemption — what actually changed
Long-term capital gains on listed equity and equity mutual funds are taxed at 12.5% under s.112A for transfers on or after 23 July 2024, with the exemption raised to ₹1,25,000. What changed, the grandfathering rule, and a worked example.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Long-term capital gains on listed equity shares and equity-oriented mutual funds are taxed at 12.5% under s.112A of the Income-tax Act, 1961 for every transfer made on or after 23 July 2024, with the annual exemption raised to ₹1,25,000. Before that date the rate was 10% with a ₹1,00,000 exemption. The Finance (No. 2) Act, 2024 made both changes effective from the date of the Budget, not from the start of a financial year, which is why the cutover is pinned to a specific day. For FY 2025-26 (AY 2026-27), every equity sale you complete is taxed under the new 12.5% / ₹1,25,000 regime.
Staleness alert: A large share of blogs, broker explainers, and even some PDFs still quote 10% LTCG with a ₹1 lakh exemption. Those numbers stopped applying to new sales on 23 July 2024. If a source does not mention the July 2024 cutover, treat its numbers as outdated.
At a glance: what the rate change actually did
The holding-period rule did not change — the "long term" threshold for listed equity remains more than 12 months. What changed is the rate you pay once you cross it, and the size of the exemption that sits in front of the rate.
What changed for FY 2025-26: the before/after diff
Three practical consequences follow for the current filing season:
- The cutover rides on the transfer date, not the purchase date. If you bought shares in FY 2022-23 and sold them in FY 2025-26, the sale is taxed at 12.5% with the ₹1,25,000 exemption, because the transfer happened after 23 July 2024. The rate is locked on the date of sale, not the date of acquisition.
- The ₹1,25,000 exemption is annual and per category. It applies to the aggregate of your s.112A gains in the financial year, not per transaction. You do not get ₹1,25,000 per share sale.
- The paired STCG change is easy to miss. Short-term gains on the same assets moved from 15% to 20% on the same date. Many articles updated the LTCG number and left the STCG figure stale.
Which assets sit inside s.112A
Section 112A applies to long-term capital gains from the transfer of:
- Equity shares listed on a recognised stock exchange in India, where Securities Transaction Tax (STT) has been paid on both purchase and sale (subject to the notified exceptions); and
- Units of equity-oriented mutual funds — funds that invest at least 65% of their assets in domestic equity — where STT has been paid on the transfer.
Gains are computed under s.48: sale consideration minus cost of acquisition (and cost of improvement, if any). Indexation is not available for this class of asset — a position the post-2024 amendment did not disturb. If you sell within 12 months, the gain is short-term under s.111A and taxed at 20%, not 12.5%.
The grandfathering rule for shares bought before 1 February 2018
If you held shares already on 31 January 2018, your cost of acquisition is not your original purchase price but the higher of the original cost and the fair market value as of 31 January 2018 — the grandfathering protection introduced by the Finance Act, 2018. The rule sits in s.55(2)(ac) read with the proviso to s.112A. It matters because the grandfathered cost can be substantially above what you actually paid, shrinking the taxable gain.
A common misunderstanding is that grandfathering "resets" the holding period. It does not — the holding period still runs from your original date of purchase, which is what decides long-term versus short-term. Grandfathering only adjusts the cost figure used under s.48.
Worked example: Priya sells 1,000 shares
Persona: Priya, salaried resident individual, FY 2025-26 (AY 2026-27).
Facts:
- Bought 1,000 shares in FY 2022-23 at ₹100 per share — cost ₹1,00,000
- Sold them in FY 2025-26 at ₹300 per share — sale consideration ₹3,00,000
- STT paid on both legs; shares held more than 12 months
Step 1 — Compute the gain under s.48
₹3,00,000 − ₹1,00,000 = ₹2,00,000 long-term capital gain.
Step 2 — Apply the s.112A exemption
Exemption: min(₹2,00,000, ₹1,25,000) = ₹1,25,000.
Taxable LTCG: ₹2,00,000 − ₹1,25,000 = ₹75,000.
Step 3 — Tax at 12.5%
₹75,000 × 12.5% = ₹9,375, plus 4% health & education cess = ₹9,750 total.
The arithmetic is reproducible: gain ₹2,00,000 → exempt ₹1,25,000 → taxable ₹75,000 → tax ₹9,375 (₹9,750 with cess). You can verify the same numbers in the Capital Gains Calculator 2025.
Where s.112A gains sit in your ITR
Section 112A gains are a separate charge at a flat rate. They do not merge with your slab-rate salary income, and the ₹1,25,000 exemption is not the basic exemption limit under the old or new regime. Two filing points matter:
- Report s.112A gains on the capital-gains schedule (Schedule CG in ITR-2 / ITR-3), on the line for listed-equity LTCG — not as "other sources".
- The department's back-end recomputes the tax at 12.5%. Entering the gain on the wrong line produces a different figure and can trigger a s.143(1) intimation.
ITA 2025 transition note
Under the Income-tax Act, 2025 (in force for Tax Year 2026-27), the provisions are renumbered: s.112A → s.198, s.111A → s.196, s.112 → s.197. The rates and the ₹1,25,000 exemption carry over unchanged. Track the full mapping on the ITA 2025 section map.
See Also
Frequently Asked Questions
What is the LTCG rate on equity shares for FY 2025-26?
12.5% under s.112A of the Income-tax Act, 1961, for listed equity shares and equity-oriented mutual fund units transferred on or after 23 July 2024. The rate was raised from 10% by the Finance (No. 2) Act, 2024.
Is the ₹1 lakh LTCG exemption still valid?
No. The Finance (No. 2) Act, 2024 raised the annual s.112A exemption from ₹1,00,000 to ₹1,25,000 with effect from AY 2025-26. It applies to the aggregate of the full financial year's gains, whichever side of 23 July 2024 the transfers fall — only the rate (10% to 12.5%) turns on the transfer date.
What holding period qualifies equity gains as long-term?
More than 12 months. The holding-period threshold under s.112A did not change — equity shares held for 12 months or less produce short-term gains (taxed at 20% under s.111A), while those held for more than 12 months qualify for the 12.5% LTCG rate.
How is the ₹1,25,000 exemption applied — per transaction or per year?
Per financial year. The ₹1,25,000 exemption applies to the aggregate of all s.112A gains in the FY, not per transaction. If you make multiple sales, the exemption covers the first ₹1,25,000 of cumulative LTCG.
Does the 12.5% rate apply to shares bought before 23 July 2024?
Yes. The rate is determined by the date of transfer (sale), not the date of acquisition. Any equity sale completed on or after 23 July 2024 is taxed at 12.5% regardless of when the shares were purchased. Shares bought before 1 February 2018 benefit from a grandfathering rule for cost computation.
What changed for STCG on the same date?
Short-term capital gains on listed equity (s.111A) rose from 15% to 20% on 23 July 2024. The Finance (No. 2) Act, 2024 raised both LTCG and STCG rates on the same date. Many articles updated the LTCG figure but left the STCG number stale.
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