LTCG
Definition
Long Term Capital Gains (LTCG) is the profit from selling a capital asset held beyond a specified period. For FY 2025-26 (post Budget 2024): equity/mutual funds held 12+ months are taxed at 12.5% on gains above ₹1.25 Lakh. Property and gold (24+ months) at 12.5% without indexation. Debt funds have no LTCG benefit — all gains taxed at slab rate regardless of holding period. The STCG rate on equity is 20%.
Why is LTCG Important?
Navigating the Indian tax system requires a clear understanding of terms like LTCG. 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 LTCG (Long Term Capital Gains)?
Long Term Capital Gains (LTCG) is the profit you earn when you sell a capital asset that you have held beyond a specified minimum period. In India, the holding period required for 'long-term' classification varies by asset type — 12 months for listed equity, 24 months for property, gold, and unlisted shares. LTCG is taxed at a lower rate than Short Term Capital Gains (STCG) to encourage long-term investing.
The major change in Budget 2024 was the simplification: a uniform 12.5% LTCG tax rate across almost all asset classes, and the removal of indexation benefit for most assets (except a special grandfather clause for property bought before 23 July 2024).
Holding Period — What Qualifies as 'Long Term'?
| Asset Type | Holding Period for LTCG | Below This = STCG |
|---|---|---|
| Listed Equity Shares | More than 12 months | ≤ 12 months = STCG |
| Equity Mutual Funds | More than 12 months | ≤ 12 months = STCG |
| Property (Land & Building) | More than 24 months | ≤ 24 months = STCG |
| Gold (Physical, ETF, SGB) | More than 24 months | ≤ 24 months = STCG |
| Unlisted Shares | More than 24 months | ≤ 24 months = STCG |
| Debt Mutual Funds | No LTCG benefit (post Apr 2023) | All gains taxed at slab rate |
| Bonds & Debentures | More than 12 months (listed) / 24 months (unlisted) | Below period = STCG |
LTCG Tax Rates — FY 2025-26 (Post Budget 2024)
| Asset Class | LTCG Tax Rate | Exemption Limit | Indexation |
|---|---|---|---|
| Listed Equity Shares | 12.5% | ₹1.25 Lakh/year | ❌ Not available |
| Equity Mutual Funds | 12.5% | ₹1.25 Lakh/year | ❌ Not available |
| Property (sold after 23 Jul 2024) | 12.5% | No exemption | ❌ Not available |
| Property (bought before 23 Jul 2024) | 12.5% without indexation OR 20% with indexation — whichever is lower | No exemption | ✅ Optional |
| Gold (Physical, ETF) | 12.5% | No exemption | ❌ Not available |
| Sovereign Gold Bonds (SGB) | Completely tax-free if held to maturity | Full exemption | N/A |
| Unlisted Shares | 12.5% | No exemption | ❌ Not available |
| Debt Mutual Funds (post Apr 2023) | At slab rate (no LTCG benefit) | No exemption | ❌ Not available |
Key change: Before Budget 2024, equity LTCG was 10% above ₹1 Lakh. Now it's 12.5% above ₹1.25 Lakh. The effective increase is marginal for small investors but significant for large portfolios.
LTCG vs STCG — Key Differences
| Feature | LTCG | STCG |
|---|---|---|
| Holding Period | Beyond specified period (12/24 months) | Below specified period |
| Tax Rate (Equity) | 12.5% above ₹1.25L | 20% (flat) |
| Tax Rate (Property/Gold) | 12.5% | At income tax slab rate (up to 30%) |
| Exemption Available | Yes — ₹1.25L on equity; Sec 54/54F on property | No exemptions |
| Tax Harvesting | Possible — sell and rebuy to book ₹1.25L tax-free | Not beneficial |
| Set-off Rules | LTCL can offset only LTCG (not STCG or income) | STCL can offset both STCG and LTCG |
| Carry Forward | 8 years (against future LTCG only) | 8 years (against future STCG and LTCG) |
Worked Example — Equity LTCG Calculation
You invested ₹10 Lakh in a Nifty 50 index fund in January 2024. In March 2026 (after 26 months), it's worth ₹15 Lakh.
| Step | Calculation | Amount |
|---|---|---|
| 1. Sale Value | — | ₹15,00,000 |
| 2. Purchase Cost | — | ₹10,00,000 |
| 3. Total LTCG | ₹15,00,000 − ₹10,00,000 | ₹5,00,000 |
| 4. Exemption (Section 112A) | — | −₹1,25,000 |
| 5. Taxable LTCG | ₹5,00,000 − ₹1,25,000 | ₹3,75,000 |
| 6. LTCG Tax (12.5%) | 12.5% × ₹3,75,000 | ₹46,875 |
| 7. + Cess (4%) | 4% × ₹46,875 | ₹1,875 |
| 8. Total Tax Payable | ₹46,875 + ₹1,875 | ₹48,750 |
Effective tax rate: ₹48,750 on ₹5 Lakh gain = 9.75% (lower than the headline 12.5% because of the ₹1.25L exemption).
Worked Example — Property LTCG (Budget 2024 Rules)
You bought a flat in Mumbai in 2018 for ₹60 Lakh. You sell it in 2026 for ₹1.2 Crore.
| Method | Without Indexation (New Rule) | With Indexation (Grandfathered) |
|---|---|---|
| Sale Price | ₹1,20,00,000 | ₹1,20,00,000 |
| Cost of Acquisition | ₹60,00,000 | ₹60,00,000 × (CII 2026/CII 2018) ≈ ₹85,00,000 |
| Capital Gain | ₹60,00,000 | ₹35,00,000 |
| Tax Rate | 12.5% | 20% |
| LTCG Tax | ₹7,50,000 | ₹7,00,000 |
Result: For property bought before 23 July 2024, the taxpayer can choose whichever method gives lower tax. In this example, the 20% with indexation is marginally better.
LTCG Exemptions — How to Save Tax on Capital Gains
| Section | Applicable On | Condition | Exemption Limit |
|---|---|---|---|
| Section 112A | Listed equity & equity MFs | Gains up to ₹1.25L per year are tax-free | ₹1,25,000/year |
| Section 54 | Sale of residential property | Reinvest in another residential property within 2 years (purchase) or 3 years (construction) | ₹10 Crore (max) |
| Section 54F | Sale of any asset other than property | Invest entire sale proceeds in a residential house within 2 years | ₹10 Crore (max) |
| Section 54EC | Sale of property or land | Invest gains in NHAI/REC bonds within 6 months | ₹50 Lakh per FY |
| SGB at Maturity | Sovereign Gold Bonds | Hold SGB till maturity (8 years) | Full LTCG exempt |
LTCG Tax Harvesting — A Legal Strategy to Save Tax Every Year
Tax harvesting involves selling equity or mutual fund investments that have unrealized gains of up to ₹1.25 Lakh, booking the LTCG tax-free, and immediately reinvesting the amount. This resets your cost basis to the current market price.
Example: You have ₹20 Lakh in equity mutual funds with ₹3 Lakh unrealized gains. In March, sell units worth ₹1.25 Lakh in gains → zero tax. Immediately reinvest. Next year, repeat. Over 5 years, you book ₹6.25 Lakh in LTCG completely tax-free — saving ₹78,125 in taxes.
Important: Tax harvesting works best when done annually in February-March before the financial year ends. There is no wash-sale rule in India (unlike the US), so you can buy back the same fund immediately.
Budget 2024 Changes — What Changed for LTCG?
- LTCG rate on equity: Increased from 10% → 12.5%
- LTCG exemption on equity: Increased from ₹1 Lakh → ₹1.25 Lakh
- STCG rate on equity: Increased from 15% → 20%
- Uniform LTCG rate: 12.5% across all asset classes (equity, property, gold, unlisted)
- Indexation removed: For all assets except property bought before 23 July 2024
- Property grandfather clause: Choose lower of 12.5% (no indexation) or 20% (with indexation) for property acquired before 23 July 2024
- Debt funds: No LTCG benefit — all gains at slab rate (since April 2023)
Common Mistakes in LTCG Tax Filing
- Forgetting to report tax-free LTCG: Even if your equity LTCG is below ₹1.25 Lakh (tax-free), you must still report it in your ITR. Non-reporting can trigger a notice
- Mixing up holding periods: For equity, it's 12 months from date of purchase — if you bought on 1 Jan 2025, you must sell on or after 2 Jan 2026 for LTCG
- Not claiming Section 54/54F: Many property sellers pay full LTCG tax without realizing they can reinvest and claim exemption
- Using wrong cost for inherited assets: For inherited property, the cost of acquisition is the cost to the previous owner, not the market value at the time of inheritance. FMV as of 1 April 2001 can be used for assets acquired before 2001
- Ignoring surcharge on high gains: LTCG above ₹50 Lakh triggers surcharge (10-37%) on the tax amount, which can significantly increase the effective tax rate