Capital Gains Tax

Capital gains tax (CGT) is charged on the profit when you sell a capital asset for more than you paid. In India the rate depends on *what* you sold and *how long* you held it, a distinction that changed meaningfully after the July 2024 Budget.

Short-term vs long-term

The holding period decides the category. For listed equity shares and equity mutual funds, gains on units held over 12 months are long-term (LTCG); 12 months or less is short-term (STCG).

Under the current rules:

- Equity STCG is taxed at 20%. - Equity LTCG is taxed at 12.5%, with the first ₹1.25 lakh of gains per financial year exempt.

For debt mutual funds bought after April 2023, gains are added to your income and taxed at slab rates, with no special long-term benefit. Property and unlisted assets have longer holding-period thresholds and their own LTCG rate of 12.5%.

In India

The 2024 Budget also removed indexation (the inflation adjustment to cost) for most assets, though sellers of property bought before July 2024 can choose between 12.5% without indexation or the older 20% with indexation, whichever is lower. STT (Securities Transaction Tax) is charged separately on every equity trade and was raised for F&O.

Why it matters

CGT directly shapes net returns. A few practical levers, all legal:

- Hold equity over a year to qualify for the lower LTCG rate. - Harvest the ₹1.25 lakh exemption by booking a small amount of long-term gains each year. - Offset gains with capital losses, which can be carried forward for eight years if you file your return on time.

For real estate, exemptions under Sections 54 and 54EC let you reinvest gains into another house or specified bonds to defer tax. The headline rate is only half the story; timing and reinvestment do the rest.