Overview
Capital gains tax in India applies when you sell an asset at a profit: shares, mutual funds, real estate, or gold. What you owe depends on two things, the type of asset and how long you held it before selling. Getting this calculation right matters because short-term versus long-term treatment can mean the difference between paying 20% and paying 12.5%, sometimes nothing at all, on the exact same gain.
This guide walks through the calculation steps for FY 2026-27, with worked examples for each asset class.
What you need before you start:
- Purchase price (cost of acquisition)
- Sale price
- Purchase date and sale date
- Asset type (equity, debt, real estate, gold)
- Any improvement costs (relevant for real estate)
Step 1: Determine the Holding Period
The holding period decides whether your gain is short-term or long-term. Count from the date of purchase to the date of sale; the sale date itself doesn't count.
| Asset Type | Long-Term Threshold | Short-Term Threshold |
|---|---|---|
| Listed equity shares | More than 1 year | 1 year or less |
| Equity mutual funds | More than 1 year | 1 year or less |
| Debt mutual funds | Any period | Any period (slab rate, post Apr 2023) |
| Real estate | More than 2 years | 2 years or less |
| Physical gold | More than 2 years | 2 years or less |
| Gold ETFs / Gold funds | Any period | Any period (slab rate) |
Example: You bought 200 units of an equity mutual fund on 10 June 2024 and sold on 15 June 2025. That's 370 days, more than one year, so the gain qualifies as LTCG.
Had you sold on 9 June 2025 instead, just 364 days in, the gain would be STCG taxed at 20%.
Step 2: Calculate LTCG on Equity
Long-term capital gains on listed equity shares and equity mutual funds are taxed at 12.5% on gains above Rs 1.25 lakh per financial year, with no indexation available.
Run these numbers automatically with the LTCG Tax Calculator.
Formula:
LTCG = Sale Price − Purchase Price
Taxable LTCG = LTCG − Rs 1,25,000 (annual exemption)
Tax = Taxable LTCG × 12.5%
Worked Example:
- Bought 100 shares at Rs 500 each = Rs 50,000
- Sold after 14 months at Rs 1,200 each = Rs 1,20,000
- Gain = Rs 1,20,000 − Rs 50,000 = Rs 70,000
- Gain sits below the Rs 1.25 lakh exemption, so tax = Nil
Now extend the example: say you also redeemed mutual fund units this year with a gain of Rs 80,000, held over a year, so also LTCG. Total LTCG becomes Rs 70,000 + Rs 80,000 = Rs 1,50,000. Taxable LTCG is Rs 1,50,000 − Rs 1,25,000 = Rs 25,000, and tax comes to Rs 25,000 × 12.5% = Rs 3,125.
The Rs 1.25 lakh exemption applies to your total annual LTCG from equity, not per investment.
Step 3: Calculate STCG on Equity
Short-term capital gains on listed equity and equity mutual funds are taxed at 20% on the full gain, with no exemption and no indexation.
The STCG Tax Calculator handles this in seconds.
Formula:
STCG = Sale Price − Purchase Price
Tax = STCG × 20%
Worked Example:
- Bought 100 shares at Rs 500 = Rs 50,000
- Sold after 8 months at Rs 1,200 = Rs 1,20,000
- STCG = Rs 70,000
- Tax = Rs 70,000 × 20% = Rs 14,000
That same Rs 70,000 gain costs Rs 14,000 in STCG versus nil in LTCG. Waiting four more months here would have saved Rs 14,000.
Step 4: Calculate Real Estate Capital Gains
Real estate held for more than two years counts as long-term. Following the July 2024 Union Budget, you pick whichever option results in lower tax:
- Option A: 12.5% on gains without indexation
- Option B: 20% on gains with indexation (using the Cost Inflation Index)
This choice applies only to property purchased before 23 July 2024. Property purchased on or after that date is stuck with the 12.5% without-indexation rate.
Formula with indexation:
Indexed Cost = Purchase Price × (CII of Sale Year ÷ CII of Purchase Year)
LTCG = Sale Price − Indexed Cost − Improvement Costs
Tax (Option B) = LTCG × 20%
Worked Example:
- Property bought in FY 2015-16 for Rs 40 lakh (CII = 254)
- Sold in FY 2026-27 for Rs 1.2 crore (CII = 363, assumed)
- Indexed cost = Rs 40 lakh × (363 ÷ 254) = Rs 57.16 lakh
- LTCG with indexation = Rs 1.2 crore − Rs 57.16 lakh = Rs 62.84 lakh → tax at 20% = Rs 12.57 lakh
- LTCG without indexation = Rs 1.2 crore − Rs 40 lakh = Rs 80 lakh → tax at 12.5% = Rs 10 lakh
- Option A wins here, saving Rs 2.57 lakh
For short-term real estate gains, held two years or less, the entire gain gets added to your income and taxed at your slab rate, up to 30%.
Step 5: Aggregate All LTCG for the Financial Year
The Rs 1.25 lakh LTCG exemption on equity is one single annual limit across all equity transactions: shares, equity mutual funds, ELSS, equity-oriented balanced advantage funds.
Aggregation checklist:
- List every equity sale and equity mutual fund redemption in the financial year.
- Calculate gain or loss on each transaction.
- Sum all LTCG (held more than a year) into a single figure.
- Deduct the Rs 1.25 lakh exemption from that total.
- Apply 12.5% on the balance.
Real estate and gold LTCG sit outside this bucket; they don't share the equity exemption.
The CAGR Calculator can help you track annualised return against taxable gain across the year.
Step 6: Report Capital Gains in ITR-2
All capital gains, equity, real estate, gold, get reported in Schedule CG of ITR-2. ITR-1 doesn't support capital gains reporting at all.
Documents to gather:
- Contract notes or mutual fund statements showing purchase and sale prices
- Form 26AS and Annual Information Statement (AIS) from the Income Tax Portal, which pre-populate many transactions
- Property sale deed and purchase deed for real estate
- Cost of improvement certificates (renovation invoices, etc.)
Filing steps:
- Log in to the Income Tax e-Filing Portal.
- Select ITR-2 for AY 2027-28 (FY 2026-27 income).
- Navigate to Schedule CG and fill in LTCG and STCG figures for each asset type.
- Set off capital losses in order: STCL offsets STCG first, then LTCG; LTCL offsets only LTCG.
- Compute tax, add education cess (4%), and verify against AIS.
Tax-Loss Harvesting
Tax harvesting means selling underperforming investments before 31 March to book a capital loss that offsets taxable gains. It's completely legal.
How it works:
- You have LTCG of Rs 2 lakh from equity sales.
- You also hold mutual fund units currently sitting at a loss of Rs 80,000.
- Sell the loss-making units before 31 March: realised LTCL = Rs 80,000.
- Net taxable LTCG = Rs 2 lakh − Rs 80,000 = Rs 1.2 lakh, which falls below the Rs 1.25 lakh exemption, so tax = nil.
- You can repurchase the same units after 48 hours to keep your portfolio allocation intact.
Rules:
- STCL can offset both STCG and LTCG.
- LTCL can offset LTCG only.
- Unabsorbed losses carry forward for 8 assessment years; file your ITR on time to keep this right.
Grandfathering for Pre-January 2018 Equity
Equity held before 31 January 2018 benefits from grandfathering. The effective purchase price for LTCG purposes becomes the higher of:
- Actual purchase price
- Fair market value (highest traded price) on 31 January 2018
This applies only to listed shares and equity mutual funds. Bought shares at Rs 200 in 2015, and the 31 January 2018 price was Rs 450? Your deemed cost is Rs 450, so gains below that price stay grandfathered and exempt.
Key Terms
- LTCG: Long-Term Capital Gains, profit from selling an asset held beyond the qualifying period
- STCG: Short-Term Capital Gains, profit from selling an asset within the qualifying period
- Cost Inflation Index: CII, the government-published index used to adjust purchase price for inflation when calculating LTCG with indexation
- Tax Harvesting: selling loss-making investments to offset taxable capital gains before the financial year ends