When Rajesh, a salaried investor from Mumbai, sold his equity portfolio after 18 months in October 2026, he was confused about the tax liability. Should he pay 12.5% or 20%? Is the ₹1.25 lakh exemption automatic? Understanding India's capital gains tax framework—especially the distinction between LTCG and STCG—is critical for every taxpayer in FY 2026-27.
This comprehensive guide covers the complete history of capital gains taxation in India from 1947 to 2026, current tax rates under Section 111A and Section 112A, holding period rules, exemptions, and how to calculate your tax liability accurately for Assessment Year 2026-27.
- STCG on listed equity is taxed at 20% (Section 111A) and LTCG at 12.5% above ₹1.25 lakh (Section 112A) for FY 2026-27
- Finance Act 2024 changed rates effective July 23, 2024: STCG increased from 15% to 20%, LTCG from 10% to 12.5%
- Holding period is 12 months for listed securities and 24 months for other assets like property and gold
- Indexation benefit removed for most assets; property acquired before July 23, 2024 gets dual-rate choice option
What Are LTCG and STCG? Understanding Capital Gains Classification
Capital gains represent the profit earned when you sell a capital asset—such as stocks, mutual funds, property, or gold—at a price higher than the purchase cost. They are classified as short-term capital gains or long-term capital gains, depending on the period for which the capital asset has been held.
Short-Term Capital Gains (STCG)
Listed equity shares, equity mutual funds are considered short-term if held for ≤ 12 months, while other assets like property, gold, and debt funds are short-term if held for ≤ 24 months. STCG on equity is governed by Section 111A of the Income Tax Act when Securities Transaction Tax (STT) has been paid.
Long-Term Capital Gains (LTCG)
Long-term capital gains (LTCG) on shares arise when listed equity shares, equity-oriented mutual funds, or business trust units held for over 12 months are sold at a profit. For non-equity assets like real estate and gold, the holding period is more than 24 months. LTCG on equity is governed by Section 112A, while other assets fall under Section 112.
Current LTCG and STCG Tax Rates for FY 2026-27 (AY 2026-27)
The Finance (No. 2) Act, 2024 rates - 20 per cent STCG and 12.5 per cent LTCG with a Rs 1.25 lakh annual exemption - remain unchanged for FY 2026-27. Budget 2025 and Budget 2026 confirmation: No changes were made to capital gains tax rates or holding periods in either the Union Budget 2025 or Budget 2026. The rates and periods above remain in effect for FY 2025-26.
| Asset Type | Holding Period (Short-Term) | STCG Tax Rate | Holding Period (Long-Term) | LTCG Tax Rate | Exemption |
|---|---|---|---|---|---|
| Listed Equity Shares, Equity Mutual Funds (STT paid) | ≤ 12 months | 20% (Section 111A) | > 12 months | 12.5% (Section 112A) | ₹1.25 lakh per year |
| Property (Land/Building) | ≤ 24 months | As per slab rate | > 24 months | 12.5% (Section 112) | None (Exemptions u/s 54, 54F available) |
| Gold, Unlisted Shares | ≤ 24 months | As per slab rate | > 24 months | 12.5% (Section 112) | None |
| Debt Mutual Funds (acquired on/after April 1, 2023) | Any period | As per slab rate | Not applicable | As per slab rate | None |
A 4 per cent health-and-education cess applies to all capital gains tax. The effective minimum rate for STCG becomes 20.8 per cent; for LTCG, 13 per cent. Use the Capital Gain Calculator to compute your exact tax liability including cess.
Complete History of Capital Gains Taxation in India (1947-2026)
1947-1949: Introduction and Quick Abolition
The history of capital gains taxation goes back to the Budget of 1947 when capital gains tax was introduced by inserting section 12B in the then Indian Income-tax Act, 1922 with effect from AY 1947-48 to curb the speculative activity of buying and selling assets in an inflationary environment in the wake of World War II. This levy was, however, short-lived and was abolished after two years as it was considered to be hampering the growth of the stock market.
1957-1991: Permanent Inclusion and Progressive Taxation
Since then, levy of tax on capital gains became a permanent feature of the Indian tax structure. During the period of last over six decades, India has come a long way in the field of capital gains taxation. Since introduction to 1948: Capital gains were taxed in a progressive manner much like our income tax today where taxes up to ₹15,000 were exempt. More than ₹15,000 was taxed at a progressive rate with the highest bracket of more than ₹10,00,000 being taxed at 31.3%.
1992-2004: Indexation Benefit and STT Introduction
Till 1991, the taxation was done at individual's slab rates but its major flaw was that inflation was not taken into account. Then Finance Minister Dr. Manmohan Singh, introduced the concept of indexation that inflates the cost of acquisition with the inflation rate reported by the government every year. While short-term capital gains were subjected to a nominal rate of tax, the budget introduced the concept of securities transaction tax (STT) on the equity and F&O volumes for the first time. In short, the STT was introduced in the 2004 Union Budget in lieu of long-term capital gains tax.
2004-2018: LTCG Exemption Era
This was a golden period for equity investors. Long-term capital gains on listed equity shares were completely exempt from tax, provided STT was paid. Only short-term capital gains attracted tax at concessional rates.
2018: Reintroduction of LTCG Tax (10%)
The Union Budget presented by the then finance minister, Arun Jaitley, in 2018 was again a landmark budget and since then both long-term capital gains and STT on equities co-exist. Effective the 2018 budget, equities were subject to STT and additionally to long-term capital gains tax at 10% of the gains in any year on a flat tax basis without indexation benefits. The LTCG exemption limit for securities was ₹1,00,000 per annum. However, starting from April 1, 2018, the government imposed a 10% tax on LTCG exceeding ₹1 lakh in a financial year on these assets.
July 23, 2024: Finance Act 2024 Overhaul
The tax on short-term capital gains covered under Section 111A shall be 20% instead of 15%. The tax on long-term capital gains covered under Section 112A shall be 12.5% instead of 10%. The capital gains tax structure has also undergone changes: Short-Term Capital Gains (STCG): The tax rate on short-term capital gains from shares, mutual funds, and real estate has been increased from 15% to 20%. Long-Term Capital Gains (LTCG): The tax rate on long-term capital gains has been set at 12.5%. Additionally, the exemption limit for long-term capital gains has been raised from ₹1 lakh to ₹1.25 lakh. No benefit of indexation shall be available on long-term capital gains.
Budget 2026: No Changes
Budget 2026 carried forward the capital gains tax framework established in July 2024. Capital gains taxation in India underwent a significant overhaul in July 2024 when the government restructured rates for equity, property, and other assets. Budget 2026 did not introduce further changes to capital gains rates, which means the July 2024 framework continues to apply for FY 2026-27.
Section 111A vs Section 112A: Complete Comparison
Understanding the distinction between these two sections is crucial for equity investors.
Section 111A: Short-Term Capital Gains
Section 111A of the Income Tax Act deals with the tax imposed on gains made from short-term capital assets, where the assets are: equity shares in a company, a unit of an equity-oriented fund, or a unit of a business trust. The section states that the capital gains from the transfer of these short-term capital assets will be chargeable to securities transaction tax. 111A taxes short-term gains on listed equity (held 12 months or less) at a flat 20%.
Section 112A: Long-Term Capital Gains
Section 112A of the Income Tax Act deals with Long Term Capital Gains on sale of listed equity shares, equity oriented funds, and units of business trust. 12.5% of tax is levied on the capital gains. For eligible transfers made on or after 23 July 2024, Section 112A imposes a 12.5% tax on aggregate eligible long-term capital gains exceeding Rs. 1.25 lakh for eligible long-term capital gains under Section 112A.
Key Differences Table
Holding Period: Section 111A applies to assets held ≤ 12 months; Section 112A applies to assets held > 12 months.
Tax Rate: Section 111A: 20% flat rate; Section 112A: 12.5% on gains above ₹1.25 lakh.
Exemption: Section 111A has no exemption threshold; Section 112A provides ₹1.25 lakh annual exemption.
Indexation: Neither section allows indexation benefit.
Section 87A Rebate: For Section 112A LTCG, the 87A rebate is not available against the tax payable on those gains. For Section 111A STCG, the practical position from FY 2025-26 onward is that special-rate capital gains are excluded from the enhanced new-regime rebate.
Calculate your gains quickly using the Stock Profit Calculator to determine whether your transaction falls under Section 111A or 112A.
How to Calculate LTCG and STCG Tax: Step-by-Step Examples
Example 1: LTCG Calculation on Equity Shares
Priya purchased 500 shares of ABC Ltd. on January 10, 2025, at ₹600 per share (total: ₹3,00,000). She sold them on March 15, 2026, at ₹1,100 per share (total: ₹5,50,000). Brokerage: ₹1,000 (purchase) + ₹1,500 (sale) = ₹2,500.
Calculation:
- Sale Value: ₹5,50,000
- Purchase Cost: ₹3,00,000
- Brokerage: ₹2,500
- Capital Gain: ₹5,50,000 - ₹3,00,000 - ₹2,500 = ₹2,47,500
- Holding Period: 14 months → Long-term (Section 112A)
- Exemption: ₹1,25,000
- Taxable Gain: ₹2,47,500 - ₹1,25,000 = ₹1,22,500
- Tax @ 12.5%: ₹15,312.50
- Add 4% Cess: ₹15,312.50 + ₹612.50 = ₹15,925
Total Tax Liability: ₹15,925
Example 2: STCG Calculation on Mutual Funds
Amit invested ₹2,00,000 in an equity mutual fund on July 1, 2026, and redeemed it on December 20, 2026, for ₹2,45,000.
Calculation:
- Redemption Value: ₹2,45,000
- Investment: ₹2,00,000
- Capital Gain: ₹45,000
- Holding Period: ~5.5 months → Short-term (Section 111A)
- Tax @ 20%: ₹9,000
- Add 4% Cess: ₹9,000 + ₹360 = ₹9,360
Total Tax Liability: ₹9,360
Note: No exemption is available for STCG under Section 111A.
Example 3: Property LTCG with Indexation Choice
Sunita, a resident individual, purchased a residential plot on May 1, 2020, for ₹50,00,000 and sold it on October 10, 2026, for ₹95,00,000. Since the property was acquired before July 23, 2024, she can choose between two options:
Option 1: 12.5% without indexation
- Capital Gain: ₹95,00,000 - ₹50,00,000 = ₹45,00,000
- Tax @ 12.5%: ₹5,62,500
Option 2: 20% with indexation
- CII for FY 2020-21 (year of purchase): 301
- CII for FY 2026-27 (year of sale): 376
- Indexed Cost: ₹50,00,000 × (376/301) = ₹62,45,845
- Capital Gain: ₹95,00,000 - ₹62,45,845 = ₹32,54,155
- Tax @ 20%: ₹6,50,831
Sunita should choose Option 1 (12.5% without indexation) = ₹5,62,500
Resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before that cut-off date will continue to have a choice — either pay long-term capital gains tax at a flat 12.5 per cent without indexation, or opt for a 20 per cent rate with indexation.
For accurate property tax calculations, use the Capital Gain Calculator on TaxFetch.
Exemptions and Deductions Available on Capital Gains
While the tax rates are fixed, several exemptions can help reduce your capital gains tax liability:
Section 54: Exemption on Residential Property Sale
If you sell a residential property and reinvest the capital gains in another residential property within specified timelines, you can claim exemption under Section 54. Investment must be made within 1 year before or 2 years after the sale date, or construct within 3 years.
Section 54F: Exemption on Sale of Any Long-Term Asset
If you sell any long-term capital asset (other than a residential house) and invest the entire sale consideration in a residential property, you can claim proportionate exemption under Section 54F.
Section 54EC: Investment in Specified Bonds
You can claim exemption by investing capital gains in specified bonds (like NHAI or REC bonds) within 6 months of sale, up to ₹50 lakh per financial year. Lock-in period: 5 years.
Sovereign Gold Bonds (SGB) Exemption
Budget 2026 retained these rates but introduced changes to Securities Transaction Tax (STT) on derivatives and the tax exemption on Sovereign Gold Bonds (SGBs). Capital gains on redemption of SGBs on maturity are tax-free for the original subscriber.
Loss Set-Off Rules
Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG. Unabsorbed losses can be carried forward for 8 assessment years.
Track all your tax-saving investments and TDS deductions using the Form 26AS / TDS Fetch Tool to ensure accurate ITR filing.
CBDT Notifications and Recent Updates for FY 2026-27
Cost Inflation Index (CII) for FY 2025-26
The Central Board of Direct Taxes (CBDT) has notified the Cost Inflation Index (CII) for the financial year 2025–26 at 376, up from 363 in 2024–25. This updated index will be used to compute long-term capital gains for the assessment year 2026–27 and subsequent years. The notification officially takes effect from April 1, 2026.
Capital Gains Accounts Scheme 2025
Now, the CBDT has notified the Capital Gains Accounts (Second Amendment) Scheme, 2025, under Sections 54(2), 54B(2). This scheme allows taxpayers to deposit capital gains in specified accounts to claim exemptions under various sections while planning their reinvestment.
Form 173A for Government Securities
In a significant update, the Central Board of Direct Taxes has rolled out Form 173A, effective from October 19, 2026, under the Income-tax Rules. Taxpayers aiming for exemptions on interest and capital gains from government securities must now provide in-depth information, including their securities holdings and personal ID.
SFT Framework for Depository Transactions
The Central Board of Direct Taxes (CBDT), through the Directorate of Income Tax (Systems), has issued Notification No. 1 of 2026 dated September 10, 2026, prescribing the format, procedure and guidelines for submission of Statement of Financial Transactions (SFT-2517) for Depository Transactions under section 508(1) of the Income-tax Act, 2025. This will enable pre-filling of capital gains data in income tax returns.
Common Mistakes to Avoid When Reporting Capital Gains
1. Incorrect Holding Period Calculation: Always count from the date of purchase to the date of sale. For equity, crossing 12 months even by one day makes it long-term.
2. Missing the ₹1.25 Lakh Exemption: Many taxpayers forget to claim the annual exemption under Section 112A. This exemption is automatic and applies to aggregate LTCG from equity.
3. Not Choosing the Right Option for Pre-July 2024 Property: If you sold property acquired before July 23, 2024, calculate tax under both methods and choose the lower one.
4. Ignoring Brokerage and Transaction Costs: These expenses can be deducted from capital gains. Keep all contract notes and payment receipts.
5. Wrong ITR Form Selection: Capital gains must be reported in the appropriate schedule. Use ITR-2 or ITR-3 depending on your income sources.
Simplify your tax calculations with the Income Tax Calculator to ensure accurate reporting and compliance.
Frequently Asked Questions (FAQs)
What is the current LTCG tax rate in India for FY 2026-27?
For FY 2026-27, the long-term capital gains (LTCG) tax rate on listed equity shares and equity-oriented mutual funds is 12.5% under Section 112A on gains exceeding ₹1.25 lakh per financial year. For other assets like property, gold, and unlisted shares, LTCG is taxed at 12.5% under Section 112 without indexation benefit. These rates became effective from July 23, 2024, following the Finance Act 2024 amendments.
What is the difference between Section 111A and Section 112A?
Section 111A deals with short-term capital gains (STCG) on listed equity shares, equity-oriented mutual funds, and business trust units held for 12 months or less, taxed at 20%. Section 112A deals with long-term capital gains (LTCG) on the same assets held for more than 12 months, taxed at 12.5% with an annual exemption of ₹1.25 lakh. Both sections apply only when Securities Transaction Tax (STT) has been paid on the transaction.
When did the capital gains tax rules change in India?
The most recent major changes to capital gains tax rules took effect on July 23, 2024, through the Finance (No. 2) Act, 2024. These changes increased STCG from 15% to 20% and LTCG from 10% to 12.5%, while raising the exemption threshold from ₹1 lakh to ₹1.25 lakh. The holding period was rationalized to 12 months for listed securities and 24 months for other assets, and indexation benefit was removed for most assets.
Is indexation benefit available on capital gains in 2026?
Indexation benefit has been removed for most assets sold on or after July 23, 2024. However, resident individuals and HUFs selling land or building acquired before July 23, 2024, can choose between paying 12.5% tax without indexation or 20% tax with indexation, whichever results in lower tax liability. For all other assets and transactions after this date, a flat 12.5% LTCG rate applies without indexation.
What is the LTCG exemption limit for equity shares in 2026?
For FY 2026-27, the exemption limit for long-term capital gains on listed equity shares and equity-oriented mutual funds is ₹1.25 lakh per financial year under Section 112A. This means the first ₹1.25 lakh of LTCG is completely tax-free, and only gains exceeding this threshold are taxed at 12.5%. This exemption was increased from ₹1 lakh in the Finance Act 2024.
Conclusion: Navigating Capital Gains Tax in 2026
Understanding the nuances of LTCG and STCG taxation is essential for making informed investment decisions. With the Finance Act 2024 changes now fully implemented in FY 2026-27, investors must adapt to the new rate structure of 20% STCG and 12.5% LTCG, rationalized holding periods, and the removal of indexation benefits for most assets. The historical evolution from complete exemption in 2004 to the current regime demonstrates the government's ongoing efforts to balance revenue generation with market growth.
Whether you're trading equity, investing in mutual funds, or selling property, accurate calculation and timely reporting of capital gains are crucial. The ₹1.25 lakh annual exemption under Section 112A remains a valuable benefit for equity investors, while property sellers must carefully evaluate the indexation choice for assets acquired before July 23, 2024.
Stay compliant and maximize your tax savings by using TaxFetch's comprehensive suite of tax tools—from capital gains calculators to automated ITR filing solutions. Our platform keeps you updated with the latest CBDT notifications, helps you track all investments, and ensures error-free tax filing for FY 2026-27.