Capital Gains Tax
Definition
Capital Gains Tax (CGT) is a tax levied on the profit realized from the sale of a capital asset — such as stocks, mutual funds, real estate, gold, or bonds. In India, Short-Term Capital Gains (STCG) on listed equity are taxed at 20% and Long-Term Capital Gains (LTCG) at 12.5% above ₹1.25 lakh (post-Budget 2024). In the United States, long-term capital gains are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income, while short-term gains are taxed at ordinary income tax rates (10%–37%). Capital gains tax is triggered only when an asset is sold — unrealized gains (paper profits) are not taxed.
Why is Capital Gains Tax Important?
Navigating the Indian tax system requires a clear understanding of terms like Capital Gains Tax. With the introduction of the new income tax regime alongside the old one, taxpayers must evaluate their deductions, exemptions, and tax brackets carefully. This concept is a key component in optimizing your tax liabilities under the Income Tax Act and GST framework.
Proper tax planning using this metric can help individuals and businesses maximize their take-home income while remaining fully compliant with government regulations. We provide free tax calculators to help you estimate these figures accurately and make informed decisions before filing your returns.
What Is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell a capital asset for more than you paid for it. Capital assets include stocks, mutual funds units, real estate (land, house, apartment), gold (physical, digital, sovereign gold bonds), bonds, and other investments. The key principle: you pay tax only when you sell — unrealized gains (paper profits while you hold the asset) are not taxed.
The tax rate depends on two factors: how long you held the asset (holding period) and what type of asset it is. Assets held beyond a specified period qualify as long-term (usually taxed at lower rates), while those sold earlier are short-term (usually taxed at higher rates).
Capital Gains Tax in India (FY 2025-26)
India's capital gains tax structure was significantly revised by the Union Budget 2024 (effective July 23, 2024). The new rates apply for FY 2025-26 (AY 2026-27).
Holding Periods by Asset Type
| Asset Type | Short-Term (STCG) If Held | Long-Term (LTCG) If Held |
|---|---|---|
| Listed equity shares | ≤ 12 months | > 12 months |
| Equity mutual funds | ≤ 12 months | > 12 months |
| Immovable property (land/building) | ≤ 24 months | > 24 months |
| Unlisted shares | ≤ 24 months | > 24 months |
| Gold (physical, digital, ETF) | ≤ 24 months | > 24 months |
| Debt mutual funds | ≤ 24 months | > 24 months |
| Listed bonds / debentures | ≤ 12 months | > 12 months |
India CGT Rates (Post-Budget 2024)
| Type | Applicable To | Tax Rate |
|---|---|---|
| STCG (Section 111A) | Listed equity shares, equity MFs (STT paid) | 20% (was 15%) |
| STCG (Other assets) | Property, gold, debt MFs, unlisted shares | As per income tax slab rates |
| LTCG (Section 112A) | Listed equity shares, equity MFs (STT paid) | 12.5% above ₹1.25 lakh (was 10% above ₹1L) |
| LTCG (Other assets) | Property, gold, debt MFs, unlisted shares | 12.5% without indexation (uniform rate) |
Special rule for property bought before July 23, 2024: Taxpayers can choose whichever gives lower tax — 12.5% without indexation OR 20% with indexation (using the Cost Inflation Index).
Indexation — What Changed?
Before Budget 2024: LTCG on property, gold, and debt funds was taxed at 20% with the benefit of indexation (adjusting purchase price using CII to account for inflation).
After Budget 2024: Indexation benefit has been removed for all assets acquired on or after July 23, 2024. The trade-off is a lower flat rate of 12.5% instead of 20%. For property bought before July 23, 2024, taxpayers get the choice of either method.
LTCG Exemption Limit
- Listed equity and equity MFs: LTCG up to ₹1.25 lakh per financial year is exempt (increased from ₹1 lakh)
- Other assets: No exemption limit — entire LTCG is taxable at 12.5%
Capital Gains Tax Exemptions in India
Section 54 — Reinvestment in Residential Property
LTCG from sale of a residential house property is exempt if reinvested in another residential property:
- Purchase: Within 1 year before or 2 years after the sale date
- Construction: Within 3 years of the sale date
- Exemption cap: ₹10 crore (from AY 2024-25)
- Two-property option: For LTCG up to ₹2 crore, one-time exemption for investing in 2 houses (from AY 2020-21)
- Lock-in: New property must not be sold within 3 years — otherwise exemption is reversed
- CGAS: If reinvestment not completed before ITR filing, deposit gains in Capital Gains Account Scheme
Section 54F — Sale of Any Asset (Except House)
LTCG from sale of any capital asset other than a residential house is exempt if the net sale consideration (not just the gain) is invested in one residential house in India. Same timelines and ₹10 crore cap apply.
Section 54EC — Investment in Specified Bonds
LTCG from property can be exempt up to ₹50 lakh per financial year if invested in NHAI or REC bonds within 6 months of sale. These bonds have a 5-year lock-in.
Capital Gains Tax in the United States (2025–2026)
In the US, capital gains are classified based on a simple 1-year holding period for all asset types.
US Holding Period
- Short-term: Asset held ≤ 1 year — taxed at ordinary income tax rates (10% to 37%)
- Long-term: Asset held > 1 year — taxed at preferential rates (0%, 15%, or 20%)
US Long-Term Capital Gains Tax Rates (2025)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351 – $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 – $600,050 | Over $600,050 |
| Head of Household | Up to $64,750 | $64,751 – $566,700 | Over $566,700 |
US Long-Term Capital Gains Tax Rates (2026)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $49,450 | $49,451 – $545,500 | Over $545,500 |
| Married Filing Jointly | Up to $98,900 | $98,901 – $613,700 | Over $613,700 |
Additional US Taxes on Capital Gains
- Net Investment Income Tax (NIIT): An additional 3.8% surtax on investment income (including capital gains) for individuals with MAGI above $200,000 (single) or $250,000 (married filing jointly)
- Collectibles: Gains from art, coins, stamps, antiques are taxed at a maximum rate of 28%
- Unrecaptured Section 1250 Gain: Depreciation recapture on real property is taxed at a maximum of 25%
- Qualified Small Business Stock (Section 1202): Up to 100% exclusion of gain from QSBS held for 5+ years (for stock acquired after September 2010)
US Capital Gains Exemptions
- Primary residence exclusion (Section 121): Exclude up to $250,000 (single) or $500,000 (married filing jointly) of capital gains on the sale of your primary home if you've lived in it for at least 2 of the last 5 years
- 1031 Exchange: Defer capital gains tax on investment/business real estate by reinvesting proceeds into a "like-kind" property
- Opportunity Zones: Tax benefits for investing capital gains in designated economically distressed communities
- Tax-loss harvesting: Offset capital gains with capital losses — up to $3,000 of net losses can be deducted against ordinary income per year, with unused losses carried forward indefinitely
India vs USA vs Global — Capital Gains Tax Comparison
| Country | Short-Term Rate | Long-Term Rate | LTCG Holding Period | Key Feature |
|---|---|---|---|---|
| India | 20% (equity); Slab rates (others) | 12.5% (uniform) | 12 months (equity); 24 months (property/gold) | ₹1.25L LTCG exemption on equity; Section 54 reinvestment exemption |
| United States | 10%–37% (ordinary rates) | 0% / 15% / 20% | 12 months (all assets) | $250K/$500K home sale exclusion; 1031 exchange; NIIT 3.8% surtax |
| United Kingdom | 18% (basic rate) / 24% (higher rate) | No separate STCG/LTCG distinction | £3,000 annual exempt amount (2024-25) | |
| Australia | Marginal tax rate | 50% discount on gains | 12 months | CGT discount makes effective rate half the marginal rate |
| UAE | 0% (no capital gains tax) | N/A | No CGT for individuals | |
| Singapore | 0% (no capital gains tax) | N/A | No CGT; gains from trading may be treated as income | |
| Canada | 50% of gain included in income (66.67% above $250K) | No time-based distinction | Lifetime capital gains exemption on QSBC shares ($1.25M in 2025) | |
How to Calculate Capital Gains
The basic formula for calculating capital gains is the same worldwide:
Capital Gain = Sale Price − Cost of Acquisition − Improvement Costs − Transfer Expenses
In India, for LTCG on assets bought before July 23, 2024 (where indexation is available):
Indexed Capital Gain = Sale Price − Indexed Cost of Acquisition − Indexed Improvement Cost
Where: Indexed Cost = Original Cost × (CII of Sale Year ÷ CII of Purchase Year)
Strategies to Minimize Capital Gains Tax
India
- Hold equity for 12+ months — LTCG at 12.5% vs 20% STCG on listed equity
- Utilize the ₹1.25 lakh exemption — Harvest gains annually up to the exempt limit
- Reinvest in property (Section 54/54F) — Full or partial exemption on LTCG from residential property
- Invest in 54EC bonds — Exempt up to ₹50 lakh of property LTCG via NHAI/REC bonds
- Set off losses — Short-term losses can offset both STCG and LTCG; LTCG losses offset only LTCG. Carry forward unused losses for 8 assessment years
- Gift and transfer planning — Transfer assets to family members in lower tax brackets (subject to clubbing provisions)
United States
- Hold assets for 1+ year — Qualify for 0/15/20% LTCG rates instead of up to 37% ordinary rates
- Tax-loss harvesting — Sell losing investments to offset gains; $3,000 ordinary income deduction per year
- Primary residence exclusion — $250K/$500K exclusion after 2 years of primary residence
- 1031 Exchange — Defer tax on real estate by reinvesting in like-kind property
- Qualified Opportunity Zones — Invest gains in designated zones for tax reduction/deferral
- Charitable giving — Donate appreciated assets directly to charity to avoid CGT entirely
- Step-up in basis at death — Inherited assets receive a stepped-up cost basis, eliminating tax on gains accrued during the decedent's lifetime