When you sell a capital asset — shares, mutual funds, property, gold, or bonds — the profit you make is called a capital gain, and it’s taxable. The rate at which it’s taxed depends on what you sold, how long you held it before selling, and when the sale happened. Getting this wrong in your ITR is one of the more common mistakes, partly because the rules for different asset classes genuinely are different.
This guide covers all the major capital gain categories for FY 2026-27 following the changes introduced in the Union Budget 2024, which significantly revised rates and holding periods.
Important Context: Budget 2024 Changes
The Union Budget 2024 (effective from 23 July 2024) made significant changes to capital gains taxation, including revised holding periods for certain assets and revised tax rates. This means transactions before and after 23 July 2024 within the same financial year could be taxed differently for some asset classes. The rates and periods in this guide reflect the current post-Budget 2024 rules applicable for FY 2026-27.
Short-Term vs Long-Term Capital Gains
Whether a gain is short-term (STCG) or long-term (LTCG) depends on how long you held the asset before selling:
Listed equity shares and equity-oriented mutual funds:
- Held up to 12 months: Short-term capital gain
- Held more than 12 months: Long-term capital gain
Unlisted shares and securities:
- Held up to 24 months: Short-term capital gain
- Held more than 24 months: Long-term capital gain
Immovable property (land, building, house):
- Held up to 24 months: Short-term capital gain
- Held more than 24 months: Long-term capital gain
Debt mutual funds (purchased on or after 1 April 2023):
- Taxed as short-term capital gains regardless of holding period, added to income and taxed at slab rates, following the change made in Finance Act 2023
Other assets (gold, jewelry, unlisted bonds, etc.):
- Held up to 24 months: Short-term capital gain
- Held more than 24 months: Long-term capital gain
Tax Rates on Capital Gains (FY 2026-27)
Listed equity shares and equity-oriented mutual funds (STT-paid):
- STCG: 20% (revised from 15% by Budget 2024, effective 23 July 2024)
- LTCG: 12.5% without indexation (revised from 10% by Budget 2024, effective 23 July 2024), on gains exceeding ₹1.25 lakh per year (exemption threshold increased from ₹1 lakh by Budget 2024)
Immovable property:
- STCG: Added to total income and taxed at applicable slab rates
- LTCG: 12.5% without indexation (indexation benefit removed by Budget 2024 for sales after 23 July 2024, though a specific grandfathering option may exist for certain cases — confirm current rules for your specific transaction)
Other assets (gold, jewelry, unlisted shares, etc.):
- STCG: Added to total income and taxed at applicable slab rates
- LTCG: 12.5% without indexation (post Budget 2024 rates)
Debt mutual funds (purchased on or after 1 April 2023):
- All gains added to total income and taxed at slab rates, regardless of holding period
Always confirm the exact applicable rate for your specific asset and transaction date with a tax advisor, since transitional provisions and specific exceptions can apply.
The ₹1.25 Lakh LTCG Exemption for Equity
Long-term capital gains on listed equity shares and equity-oriented mutual funds up to ₹1.25 lakh per financial year are exempt from tax. Above this, gains are taxed at 12.5%.
This ₹1.25 lakh is per taxpayer per year, across all LTCG from equity and equity mutual funds combined — not per transaction or per fund.
How Capital Gains Are Calculated
For most assets: Capital Gain = Sale Price minus Cost of Acquisition minus Cost of Improvement minus Transfer Expenses
For inherited assets: The original cost to the previous owner generally becomes your cost of acquisition, though specific rules around fair market value apply for assets acquired before certain dates.
For gifts received: The cost to the original purchaser is generally your cost of acquisition.
Grandfathering for Pre-2018 Equity Gains
For equity shares and equity mutual funds held before 31 January 2018, a grandfathering provision applies — the cost of acquisition is considered to be the higher of the actual purchase cost or the fair market value as of 31 January 2018. This means gains accrued before that date generally aren’t subject to LTCG tax. This provision continues to apply for qualifying assets.
Section 54 and Other Exemptions
Several exemptions can reduce or eliminate capital gains tax, the most commonly used being:
Section 54: Exemption on LTCG from sale of a residential house, if the proceeds are reinvested in another residential house within specified time limits (one year before or two years after the sale, or three years if constructing). Subject to conditions and caps — check current rules.
Section 54EC: Exemption on LTCG from land or building, if the gains (not full sale proceeds) are invested in specified bonds (currently NHAI and REC bonds) within 6 months of the sale, up to ₹50 lakh per year, with a 5-year lock-in.
Section 54F: Exemption on LTCG from assets other than a house property, if the full net sale consideration (not just the gain) is reinvested in a residential house, subject to conditions.
These exemptions have specific conditions, timelines, and limits — and some allow the reinvestment amount to be deposited in a Capital Gains Account Scheme (CGAS) in a nationalized bank if you haven’t yet purchased/constructed the new property by the ITR filing deadline. Consult a tax advisor to confirm eligibility and correct application.
How to Report Capital Gains in Your ITR
- Use ITR-2 (for individuals with capital gains but no business income) or ITR-3 (if you also have business income) — ITR-1 cannot be used if you have capital gains
- Enter each transaction in the capital gains schedule, showing the asset type, purchase date and cost, sale date and proceeds, and the resulting gain or loss
- For equity transactions, your broker’s tax P&L report typically provides all the necessary details in a format that maps reasonably well to the ITR schedule
- Set off losses: short-term capital losses can be set off against both STCG and LTCG; long-term capital losses can only be set off against LTCG
- Any unadjusted capital losses can be carried forward for 8 assessment years (subject to timely filing of the return in which the loss first arises)
Common Mistakes to Avoid
- Using ITR-1 when you have capital gains of any kind, making the return defective
- Not reporting small or loss-making transactions because you assume they don’t matter — all transactions should be reported, and losses have carry-forward value
- Forgetting that debt mutual fund gains (for units purchased after 1 April 2023) are fully at slab rates regardless of holding period, not at a flat 20% LTCG rate
- Missing the 6-month window for Section 54EC bond investment after a property sale, losing a potentially significant exemption
- Not depositing unutilized reinvestment amounts in the CGAS before the ITR filing date when using Section 54 or 54F, which can invalidate the exemption
FAQs
Do I need to report capital gains if I made a loss? Yes, losses should be reported in your ITR to be eligible to carry them forward against future gains for up to 8 years. Unreported losses cannot be carried forward.
Are capital gains taxed under the new tax regime? Capital gains have special tax rates (like 12.5% for equity LTCG) that generally apply regardless of which regime you choose — the regime choice primarily affects slab-rate income and deductions, not the flat-rate capital gains taxes.
Is LTCG on equity available for set-off against STCG losses? Long-term capital gains can be set off against long-term capital losses. Short-term losses can be set off against both STCG and LTCG. However, capital losses cannot be set off against regular income like salary.
What counts as the cost of acquisition for shares received as a bonus? Bonus shares typically have a nil cost of acquisition for tax purposes, meaning the entire sale proceeds of bonus shares become a taxable gain. The holding period for bonus shares generally starts from the date of allotment of the bonus shares.
Does switching between mutual fund schemes trigger capital gains? Yes, switching from one fund to another, even within the same fund house, is treated as a redemption and reinvestment for capital gains purposes — the switch triggers capital gains on the units redeemed, based on the applicable STCG or LTCG rules for the holding period.
