Overview
Capital gains tax in India is levied when you sell an asset — shares, mutual funds, real estate, or gold — at a profit. The rate you pay depends on two factors: the type of asset and how long you held it before selling. Getting the calculation right matters because the difference between short-term and long-term treatment can mean paying 20% versus 12.5% (or even zero) on the same gain.
This guide walks you through the exact 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 is not included.
| 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 is 370 days — more than one year — so the gain is LTCG.
If you had sold on 9 June 2025 (364 days), 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. No indexation is available.
Use the LTCG Tax Calculator to run these numbers automatically.
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 is below the Rs 1.25 lakh exemption → Tax = Nil
Now extend the example: suppose you also redeemed mutual fund units this year with a gain of Rs 80,000 (LTCG, held >1 year). Total LTCG = Rs 70,000 + Rs 80,000 = Rs 1,50,000. Taxable LTCG = Rs 1,50,000 − Rs 1,25,000 = Rs 25,000. Tax = 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 — no exemption, no indexation.
Use the STCG Tax Calculator for quick calculations.
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
The same Rs 70,000 gain costs Rs 14,000 in STCG versus nil in LTCG. Holding for just four more months saves Rs 14,000 here.
Step 4: Calculate Real Estate Capital Gains
Real estate held for more than two years is long-term. Post the July 2024 Union Budget, you choose the option that results in lower tax:
- Option A: 12.5% on gains without indexation
- Option B: 20% on gains with indexation (using Cost Inflation Index)
This choice applies to property purchased before 23 July 2024. For property purchased on or after that date, only the 12.5% without-indexation rate applies.
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
- Choose Option A (12.5% without indexation) — saves Rs 2.57 lakh
For short-term real estate gains (held ≤ 2 years), the entire gain is 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 a single annual limit across all equity transactions — shares, equity mutual funds, ELSS, balanced advantage funds (equity-oriented).
Aggregation checklist:
- List every equity sale and equity mutual fund redemption in the financial year.
- Calculate gain/loss on each transaction.
- Sum all LTCG (held >1 year) into a single figure.
- Deduct Rs 1.25 lakh exemption from this total.
- Apply 12.5% on the balance.
Real estate and gold LTCG are separate — they do not share the Rs 1.25 lakh equity exemption.
You can track year-to-date LTCG using the CAGR Calculator to understand annualised return versus taxable gain.
Step 6: Report Capital Gains in ITR-2
All capital gains — equity, real estate, gold — are reported in Schedule CG of ITR-2. ITR-1 does not support capital gains reporting.
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 — these 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 → fill LTCG and STCG figures for each asset type.
- Set off capital losses against gains in the 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 is selling underperforming investments before 31 March to book a capital loss that offsets taxable gains. It is completely legal.
How it works:
- You have LTCG of Rs 2 lakh from equity sales.
- You also hold mutual fund units currently 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 — below the Rs 1.25 lakh exemption → tax = nil.
- You can repurchase the same units after 48 hours to maintain your portfolio allocation.
Rules:
- STCL can offset both STCG and LTCG.
- LTCL can only offset LTCG — not STCG.
- Unabsorbed losses carry forward for 8 assessment years (file ITR on time to preserve this right).
Grandfathering for Pre-January 2018 Equity
Equity held before 31 January 2018 benefits from grandfathering. The effective purchase price for LTCG purposes is 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. If you bought shares at Rs 200 in 2015 and the 31 January 2018 price was Rs 450, your deemed cost is Rs 450 — gains below that price are 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: 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