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 If a source does not mention the July 2024 cutover, treat its numbers as outdated.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.
Frequently asked questions
1. What is the LTCG rate on equity shares for FY 2025-26?
12.5% under s.112A, ITA 1961, for listed equity shares and equity-oriented mutual funds held more than 12 months and sold on or after 23 July 2024, after the ₹1,25,000 annual exemption.2. Is the ₹1 lakh LTCG exemption still valid?
No. The exemption is ₹1,25,000 for transfers on or after 23 July 2024. The ₹1,00,000 figure applied only before the Finance (No. 2) Act, 2024 cutover and is now misquoted on many sites.3. Which date decides the rate — purchase or sale?
The transfer (sale) date. Shares bought in 2023 but sold in FY 2025-26 are taxed at 12.5% because the sale happened after 23 July 2024. The purchase date only fixes the holding-period count.4. Do I still get the ₹1.25 lakh exemption if I sell multiple times in a year?
One exemption per year, not per sale. The ₹1,25,000 applies to the aggregate of your s.112A gains in the financial year. Once aggregate gains cross the threshold, the excess is taxed at 12.5%.5. Is indexation available on these gains?
No. Indexation is not available for s.112A equity gains — before or after July 2024. Cost of acquisition is taken at actual cost (or grandfathered FMV as of 31 January 2018 for pre-1 Feb 2018 holdings) under s.48.6. What if I hold shares bought before 1 February 2018?
Grandfathering applies. Cost is the higher of actual cost and FMV as of 31 January 2018 under s.55(2)(ac) read with the proviso to s.112A — it reduces your taxable gain, and the holding period still runs from the original purchase date.---
Last verified: 2026-08-05 (FY 2025-26 / AY 2026-27)
Sources: s.112A and s.111A, Income-tax Act, 1961, as amended by the Finance (No. 2) Act, 2024 (rates effective 23-07-2024); s.55(2)(ac) read with the proviso to s.112A (grandfathering, Finance Act 2018); s.48 (computation of gains); Income-tax Act, 2025 renumbering (s.112A → s.198). Rates cross-checked against the FY 2025-26 tax config used across harunraaj.com tools. For your holding-period splits and exemption math, book a consultation at harunraaj.com.
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