When you sell an investment for more than you paid, the profit is a capital gain, and how it's taxed depends on what you sold and how long you held it. Budget 2024 simplified — and in places raised — these rules. Here's the working map, with examples. (Confirm current rates before acting; tax law changes.)
Short-term vs long-term: the holding period
The dividing line is the holding period, which differs by asset:
- Listed equity shares and equity mutual funds: long-term if held over 12 months.
- Most other assets (gold, property, unlisted shares, and — with a twist — debt funds): long-term if held over 24 months.
Cross that line and the rate usually drops sharply, so the holding period is often the single most important number in a sell decision.
The rates (post Budget 2024)
- Listed equity & equity funds: STCG at 20% (raised from 15%); LTCG at 12.5% (raised from 10%) on gains above ₹1.25 lakh per year, with no indexation. Changes apply to transfers on or after 23 July 2024.
- Other long-term assets: LTCG at 12.5%, generally without indexation now. For property bought before 23 July 2024, you get a choice — 12.5% without indexation, or the old 20% with indexation, whichever is lower (a grandfathering relief).
- Debt mutual funds bought on/after 1 April 2023: taxed entirely at your slab rate, with no long-term concept (covered in our mutual-fund tax piece).
Worked example 1 — equity LTCG and the exemption
You sell equity-fund units held for 3 years and book a ₹3 lakh long-term gain:
- The first ₹1.25 lakh is exempt.
- The remaining ₹1.75 lakh is taxed at 12.5% = ₹21,875 (plus cess).
Had you sold within 12 months instead, the entire ₹3 lakh would be short-term, taxed at 20% = ₹60,000 — nearly three times as much. The 12-month line is worth respecting.
Worked example 2 — using losses to cut the bill
Now suppose that same year you also sell a different fund at a ₹1 lakh short-term loss. Capital losses offset gains:
- Short-term capital loss offsets both short- and long-term gains.
- Long-term capital loss offsets only long-term gains.
So your ₹1 lakh short-term loss can be set against the ₹1.75 lakh taxable long-term gain, reducing the taxed amount to ₹75,000 (taxed at 12.5% ≈ ₹9,375). Booking losses deliberately to offset gains is tax-loss harvesting — a legitimate, useful year-end move.
Unused losses can be carried forward for 8 years — but only if you file your income-tax return on or before the due date. Miss the deadline and you forfeit the carry-forward.
The ₹1.25 lakh exemption — use it every year
The first ₹1.25 lakh of long-term equity gains each financial year is tax-free, and it doesn't carry forward. So realising gains up to that limit annually (and rebuying) resets your cost base higher tax-free, shrinking the eventual tax on a large holding. Over many years this "gain harvesting" meaningfully reduces lifetime capital-gains tax.
Grandfathering of old equity gains
Gains on listed equity accrued up to 31 January 2018 are protected. For shares or funds bought before then, your cost is treated as the higher of actual cost or the 31 Jan 2018 price, so the appreciation up to that date isn't taxed. If you hold long-standing equity, this materially lowers the taxable gain — make sure your platform applies it.
Property — the indexation choice
Budget 2024 removed indexation broadly but, after feedback, kept a grandfathered choice for property acquired before 23 July 2024: pay 12.5% without indexation or the older 20% with indexation, whichever is lower. For older properties with large nominal gains, indexation can still win; for more recent ones, the flat 12.5% often does. Run both before selling.
Don't forget advance tax and reporting
- Large capital gains can create an advance-tax obligation — tax is due in instalments through the year, not just at filing, and shortfalls attract interest. A big sale in, say, December may require paying advance tax that quarter.
- All gains must be reported in your ITR under the capital-gains schedule, with purchase and sale details. Your broker/AMC capital-gains statement makes this straightforward — keep it.
A note for NRIs
NRIs face TDS on capital gains (often deducted at the time of sale, sometimes at higher rates), and may need to claim refunds or use DTAA benefits when filing. If that's you, plan the cash-flow and paperwork in advance.
Practical checklist
- Track each holding's purchase date — crossing the 12- or 24-month line changes the rate.
- Harvest the ₹1.25 lakh equity exemption annually.
- Book losses before year-end to offset gains, and file on time to carry forward the rest.
- Remember every redemption or switch (including regular → direct) is a taxable event — plan the timing.
- Watch advance-tax dates after a large sale.
Capital gains tax rarely changes whether to invest, but it often changes when and how you sell. A little timing awareness — holding past 12 months, using the annual exemption, harvesting losses, filing on time — quietly keeps more of the gain in your hands.