Overview: How India Taxes Capital Gains
When you sell a capital asset, shares, mutual funds, property, gold, the profit is a capital gain. India taxes these gains in two distinct buckets based on how long you held the asset before selling.
Long Term Capital Gains (LTCG) arise when you sell after a prescribed holding period. Rates run lower, and equity gains enjoy a Rs 1.25 lakh annual exemption.
Short Term Capital Gains (STCG) arise when you sell before completing the holding period. Rates run higher: a flat 20% for equity, or slab rate for most other assets.
The holding period separating LTCG from STCG isn't uniform. It varies by asset class: 12 months for listed equity, 24 months for real estate and gold, 36 months for REITs. Getting this wrong by even a few days can cost tens of thousands of rupees in additional tax. This comparison covers every major asset class for FY 2026-27 (Assessment Year 2027-28).
LTCG vs STCG: Complete Comparison Table
| Asset Class | Holding Period for LTCG | LTCG Rate | STCG Rate |
|---|---|---|---|
| Listed equity shares | More than 12 months | 12.5% (Rs 1.25L exemption) | 20% flat |
| Equity-oriented mutual funds | More than 12 months | 12.5% (Rs 1.25L exemption) | 20% flat |
| Debt mutual funds (post Apr 2023) | No LTCG benefit | Slab rate | Slab rate |
| Real estate / property | More than 24 months | 12.5% (no indexation) or 20% with indexation, whichever is lower | Slab rate |
| Unlisted shares | More than 24 months | 12.5% | Slab rate |
| Physical gold / gold ETFs | More than 24 months | 12.5% | Slab rate |
| Sovereign Gold Bonds (SGB) | More than 24 months (maturity at 8 yrs = tax-free) | 12.5% (maturity redemption exempt) | Slab rate |
| REITs / InvITs | More than 36 months | 12.5% | 20% flat |
| Foreign equity (US stocks, etc.) | More than 24 months | 12.5% (no Rs 1.25L exemption) | Slab rate |
| International fund of funds | No LTCG benefit (treated as debt post Apr 2023) | Slab rate | Slab rate |
All LTCG and STCG rates above are before the 4% health and education cess. Effective rates: 13% (12.5% + cess), 20.8% (20% + cess).
Equity LTCG vs STCG: Worked Example
This is the most common scenario for salaried investors: buying and selling listed shares or equity mutual funds.
Scenario: You buy 500 shares of a company at Rs 1,000 each, total investment Rs 5,00,000. You sell all 500 shares at Rs 1,400 each, total sale value Rs 7,00,000.
Total gain = Rs 2,00,000
If sold after 14 months (LTCG)
Gain = Rs 2,00,000 Annual exemption = Rs 1,25,000 Taxable LTCG = Rs 75,000 Tax at 12.5% = Rs 9,375 Add 4% cess = Rs 375 Total tax = Rs 9,750
Use the LTCG Tax Calculator to replicate this with your own numbers including other gains for the year.
If sold after 10 months (STCG)
STCG = Rs 2,00,000 (no exemption applies) Tax at flat 20% = Rs 40,000 Add 4% cess = Rs 1,600 Total tax = Rs 41,600
That's a difference of Rs 31,850 saved by holding 4 more months, a 13.3% boost to your net profit purely from timing the sale, with no change in market outcome required. For a 30% slab-rate taxpayer, the STCG flat rate of 20% actually comes in lower than their slab rate, but for an investor in the 5% or nil slab, STCG at 20% can sting more than expected.
STCG on Non-Equity Assets
For debt mutual funds, physical gold, real estate, unlisted shares, and foreign equity sold before the LTCG holding period, gains get added to your total income and taxed at your applicable slab rate, the same as salary or interest income.
For someone in the 30% bracket, this means STCG on a gold sale held for 18 months gets taxed at 31.2% (30% + cess), compared to 13% LTCG once you cross 24 months.
The STCG Tax Calculator accounts for slab-based taxation on non-equity STCG and flat-rate STCG on equity, useful when you have both types in the same year.
Key point on debt funds: since 1 April 2023, no holding period qualifies debt mutual funds for LTCG treatment. A debt fund held for 5 years gets taxed identically to one held for 5 months, at slab rate. This wiped out the key tax advantage debt funds once had over bank fixed deposits.
Real Estate: Indexation Choice
Post Budget 2024, property sellers have two options for computing LTCG (applicable to property held more than 24 months):
Option A: 12.5% without Cost Inflation Index benefit Option B: 20% with CII-based indexation
Pick whichever gives you a lower tax.
Example: Property purchased for Rs 50 lakh in April 2015, sold for Rs 1.5 crore in April 2025.
Option A (12.5%, no indexation): Gain = Rs 1.5 crore − Rs 50 lakh = Rs 1 crore Tax = Rs 1 crore × 12.5% = Rs 12.5 lakh
Option B (20%, with indexation): CII for 2015-16 = 254, CII for 2025-26 = 363 (indicative) Indexed cost = Rs 50 lakh × (363 ÷ 254) = Rs 71.46 lakh Gain = Rs 1.5 crore − Rs 71.46 lakh = Rs 78.54 lakh Tax = Rs 78.54 lakh × 20% = Rs 15.71 lakh
In this example, Option A saves Rs 3.21 lakh. For properties with very high CII ratios, or ones purchased at a low cost decades ago, Option B can win instead. Calculate both every time, using the Capital Gains Tax Calculator to model both scenarios before filing.
STCG on property (held less than 24 months) gets added to your income and taxed at slab rate, potentially 31.2% for someone in the top bracket. Rushing a sale can cost crores in additional tax on high-value properties.
Tax-Saving Strategies
1. LTCG Harvesting (Equity)
Each financial year, you can realise up to Rs 1.25 lakh in LTCG on equity completely tax-free. If you hold unrealised gains in equity funds or shares you intend to keep long term, sell and immediately repurchase to lock in the Rs 1.25 lakh tax-free gain, reset your cost basis to the current market price, and reduce future taxable LTCG by the amount already booked.
Done every April, this saves Rs 15,625 in tax annually (12.5% × Rs 1.25 lakh). Over 10 years, that adds up to Rs 1.56 lakh saved, and compounded with investment returns, it runs meaningfully higher.
Use the CAGR Calculator to understand how much of your total return is actually at risk to LTCG tax.
2. Tax-Loss Harvesting
Sell underperforming investments in the same year to book capital losses. These losses offset your capital gains: a Short Term Capital Loss offsets both STCG and LTCG, while a Long Term Capital Loss offsets only LTCG.
Unabsorbed losses carry forward for 8 years. This strategy works best at financial year-end (January to March), once you have visibility on gains for the year.
3. SGB for Gold Exposure
Physical gold and gold ETFs sold after 24 months attract 12.5% LTCG. Sovereign Gold Bonds held to maturity (8 years) are completely tax-free on redemption; you pay zero capital gains tax. The interest on SGBs (2.5% per annum) counts as taxable income, but the capital appreciation stays exempt. For long-term gold allocation, SGBs beat ETFs or physical gold on tax terms without much argument.
4. Hold Property Minimum 2 Years
STCG on real estate gets taxed at slab rate, 31.2% for someone in the 30% bracket. LTCG at 12.5% (the post-2024 option) runs less than half that rate. Even when the market opportunity looks right, holding a few more months to cross the 24-month mark can save a large share of your gain in tax.
5. Book Gains in Lower-Income Years
For assets taxed at slab rate (debt funds, gold under 24 months, real estate STCG), timing the sale to a financial year when your other income runs lower, a gap year, early retirement, a year with no salary, can drop you into a lower tax bracket and reduce the effective rate on the gain.
Key Terms
- LTCG (Long Term Capital Gains): Gains from assets held beyond a specified period, taxed at preferential rates
- STCG (Short Term Capital Gains): Gains from assets sold before the LTCG holding period elapses, taxed at higher rates or slab
- Cost Inflation Index (CII): RBI-notified index used to adjust the purchase cost of assets for inflation when computing indexed LTCG
- Tax Harvesting: Strategy of deliberately realising capital gains or losses to optimise tax liability within a financial year
Verdict
The single highest-impact rule here: hold listed equity and equity mutual funds for at least 12 months and 1 day. The gap between 20% STCG and 12.5% LTCG, with a Rs 1.25 lakh exemption on top, is the largest legal tax saving available to Indian retail investors.
For real estate, the threshold sits at 24 months. Same for gold. For REITs, it's 36 months. Know these numbers before you sell.
Book up to Rs 1.25 lakh in equity LTCG every April at the start of the financial year. It's tax-free, automatic, and built into the rules for exactly this purpose. Skip it and you're paying tax you don't legally owe.