Capital Gains · s.45 · s.111A · s.112 · s.112A · Finance Act 2024
Capital gains tax in India: the holding test, Finance Act 2024 rate changes, and the four things the ITR actually asks.
Finance Act 2024 rewrote the capital gains landscape from 23 July 2024 — STCG on listed equity up to 20%, LTCG on equity up to 12.5%, and indexation removed for most assets. The rules are now simpler in structure and harder to plan around without knowing them precisely.
The four issues
Where this area actually goes wrong.
Each of the four pillars below is statute-cited — the section, the form, and the consequence. No vague claims.
What triggers a capital gain — s.45 and the asset classification
Capital gains arise on "transfer" of a capital asset — s.45 of the Income-tax Act. The tax depends on the nature of the asset and the holding period, not on whether money was actually received. Holding periods that cross the long-term threshold differ by asset class: listed equity shares and equity-oriented mutual fund units cross from short-term to long-term at 12 months (s.2(42A)). Real property (land and buildings) and unlisted shares cross at 24 months. Debt mutual fund units (post Finance Act 2023) are taxed at slab rate regardless of holding — the long-term concept no longer applies to them. A common error: treating all MF units as "equity" — the distinction is whether the fund has 65%+ equity exposure.
s.45 · s.2(42A) · 12 months (listed equity) · 24 months (property/unlisted) · debt MF at slab
Short-term capital gains — s.111A and slab rate
Short-term capital gains on listed equity shares, equity-oriented MF units, and units of business trusts on which STT is paid are taxed at 20% under s.111A — the Finance Act 2024 raised this from 15% with effect from 23 July 2024. The 20% is on the gain, not gross proceeds. STCG from other assets — unlisted shares, property, debt MF, gold — is taxed at the individual's slab rate as ordinary income. The distinction matters if your tax bracket is below 20% and the asset is a listed equity instrument sold before 12 months.
s.111A · 20% from 23 Jul 2024 (was 15%) · STT required · other STCG at slab
Long-term capital gains — s.112A (equity) and s.112 (all other assets)
Section 112A governs LTCG on listed equity and equity-oriented MFs held beyond 12 months. Finance Act 2024 raised the rate from 10% to 12.5% and the exemption from ₹1 lakh to ₹1.25 lakh per financial year, both from 23 July 2024. No indexation is available under 112A, and no deduction under Chapter VI-A reduces 112A gains. Section 112 governs all other LTCG. Finance Act 2024 reduced the rate to 12.5% and removed indexation for most assets transferred on or after 23 July 2024. For residential property, a grandfathering provision allows individuals and HUFs to elect the earlier regime (20% with indexation) for property purchased before 23 July 2024 if it results in lower tax — Section 112 proviso. The pre-2018 equity grandfathering (s.55(2)(ac)) fixes acquisition cost as the higher of actual cost or fair market value on 31 January 2018, capped at the sale price — gains accrued before that date remain exempt.
s.112A 12.5% ₹1.25L exempt from 23 Jul 2024 · s.112 12.5% · property FA2024 grandfathering · s.55(2)(ac) pre-2018 equity
Set-off, carry-forward, and ITR disclosure — s.70–74 and Schedule CG
Capital losses offset capital gains in a strict hierarchy. Short-term loss can be set off against both STCG and LTCG (s.70). Long-term loss can only be set off against LTCG (s.74). Where a loss remains unabsorbed, it can be carried forward for eight assessment years — but only if the return is filed within the due date under s.139(1). A belated return under s.139(4) carries no right to carry forward capital losses. Capital gains must be disclosed in Schedule CG of ITR-2 or ITR-3. ITR-1 and ITR-4 cannot accommodate any capital gain. An s.112A exemption claim requires a broker-issued statement showing scrip-by-scrip lot details — the department cross-references it against STT paid data.
s.70–74 · LTCL only against LTCG · 8-year carry-forward · timely filing required · Schedule CG in ITR-2/ITR-3
Free tools
Calculate before you decide.
Capital Gains Calculator FY 2025-26 →
FA 2024 rates, s.111A/112/112A, grandfathering for pre-2018 equity and pre-Jul-2024 property.
Capital Gains Calculator →
STCG/LTCG with old and new rate comparison.
Capital Gains Harvester →
Model loss harvesting and set-off within s.70–74 hierarchy.
Cost Inflation Index →
CII table for indexed cost computation under s.48.
The honest angle
Four capital gains beliefs that increase your tax bill
Finance Act 2024 invalidated planning built on the old rates. These four assumptions now cost money.
"Debt MFs are taxed at 20% LTCG"
Finance Act 2023 removed this benefit. Debt MF gains — on units purchased after 1 April 2023 — are taxed at slab rate regardless of holding period. If you held debt MFs for 5 years expecting a 20% cap, the number is now your marginal slab rate.
"I can set off my LTCG against STCG loss"
Section 74 prohibits this. A long-term loss can only be applied against a long-term gain. A short-term loss is more flexible — it can absorb both STCG and LTCG. Mismatching the categories is a common return error that the CPC catches in processing.
"Indexation saves tax on my property"
From 23 July 2024, the default for property is 12.5% without indexation. For property bought before that date, individuals and HUFs can elect the old 20% with indexation regime if it gives a lower tax — but many properties purchased recently enough will be better off at 12.5%. The calculation must be done before filing; you cannot switch after.
"I will harvest gains in the same account as my losses"
Loss harvesting works — but only within the correct category. LTCL can only absorb LTCG. If you are harvesting a short-term loss against long-term gains, the matching is one-way: STCL can absorb LTCG but the reverse does not hold. Cross-category matching errors are a frequent reason returns are processed with higher demand than expected.
Our engagement
Five tracks for a clean capital gains position.
Pre-transaction structuring
Review holding period, asset class, and applicable rate before a transfer — particularly where the Finance Act 2024 grandfathering election (20% with indexation vs 12.5%) materially affects net proceeds.
Event-driven
Capital gains computation
Full lot-by-lot computation: FIFO vs other basis, s.55(2)(ac) FMV for pre-2018 equity, indexation for eligible property, STT credit, and s.112A ₹1.25L exemption allocation.
Annual / transaction
Loss harvesting and set-off planning
Identifying gains and losses within the same category — s.70/74 hierarchy — to minimise net capital gains tax in the year. Carry-forward eligibility check for timely filing.
Annual (Q4 review)
Schedule CG preparation and broker reconciliation
Broker statement scrub against 26AS/AIS, FIFO lot matching, and Schedule CG population in ITR-2 or ITR-3 with all required disclosure fields.
Annual
Advance tax on capital gains
Capital gains arising in Q1–Q3 must be included in the corresponding advance tax instalment under s.211(2). Missed instalment = 234C interest. High-value transfers mid-year trigger a mid-year top-up estimate.
Event-driven
FAQs
Five capital gains questions asked before every filing season.
What is the LTCG tax rate on listed equity and equity mutual funds for FY 2025-26?
12.5% under Section 112A for gains exceeding ₹1.25 lakh in the financial year, on equity shares, equity-oriented MF units, and business trust units held for more than 12 months with STT paid on both purchase and sale. Finance Act 2024 raised the rate from 10% (which applied to transfers before 23 July 2024) and raised the exemption from ₹1 lakh. The 12.5% is computed on the gain that exceeds the exemption threshold for the year — not the full gain.
Does indexation still apply to the sale of a house property?
For property transferred on or after 23 July 2024, the default rate is 12.5% without indexation under the Finance Act 2024 amendment to Section 112. However, for property purchased before 23 July 2024, individuals and HUFs can elect to apply the pre-amendment regime — 20% with indexation — if it results in a lower tax amount. The election is made at the time of filing the return; the option that gives a lower tax number should be computed before choosing. For property purchased after 23 July 2024, only the 12.5% without indexation route is available.
How does the pre-January 2018 grandfathering work for equity?
Section 55(2)(ac) sets the deemed cost of acquisition for listed equity and equity-oriented MF units acquired before 31 January 2018 as the higher of (a) actual cost of acquisition and (b) the lower of the asset's FMV on 31 January 2018 and the actual sale consideration. This means gains accrued up to 31 January 2018 are effectively exempt — you start the taxable gain from the FMV as of that date. The FMV is the highest traded price on the recognised stock exchange on 31 January 2018 for listed shares. For MF units, NAV on that date. Gains on equity realised before 31 January 2018 and not yet taxed at the time (since LTCG on equity was exempt before the Finance Act 2018) are grandfathered.
Can I carry forward a capital loss if I file my return late?
No. Section 74 of the Income-tax Act allows carry-forward of unabsorbed capital losses only if the return is filed within the original due date under Section 139(1). A belated return under Section 139(4) does not entitle you to carry forward any unadjusted capital loss. You can still set off current-year losses against current-year gains in a belated return, but the unabsorbed balance is lost. This is the single biggest practical reason to file the ITR on time when you have unrealised losses.
Are debt mutual funds still eligible for LTCG at 20%?
No. Finance Act 2023 removed the long-term capital gains benefit for debt mutual funds with effect from 1 April 2023 for units purchased on or after that date. Gains on debt MF units purchased on or after 1 April 2023 are treated as short-term capital gains and taxed at the individual's applicable slab rate, regardless of how long the units are held. Units purchased before 1 April 2023 retain the old treatment — LTCG at 20% with indexation if held for more than 36 months — but those holdings are diminishing in relevance each year.
Plan your capital transaction
Know your capital gains tax before you transfer — not after.
Send us the asset, acquisition date and cost, and the expected transfer price. We return the STCG/LTCG classification, the applicable rate under the Finance Act 2024 amended sections, the set-off and harvesting options, and the advance-tax instalment impact if the transfer is mid-year.
Plan this transaction