How capital gains tax works
When you sell an asset for more than you paid, the profit is a capital gain and may be taxed. India taxes gains differently based on what you sold (equity versus property/other assets) and how long you held it (short-term versus long-term). The rules changed materially on 23 July 2024, simplifying rates but removing indexation for most assets.
The two thresholds to remember: 12 months separates short- and long-term for listed equity, and 24 months does so for property and other assets.
The rules at a glance
| Asset | Long-term (rate) | Short-term (rate) |
|---|---|---|
| Listed equity / equity funds | 12.5% on gains above ₹1.25 lakh/yr | 20% |
| Property / other assets | 12.5% (no indexation) | Taxed at your slab |
Capital gain = sale price − purchase price. For long-term equity, subtract the ₹1.25 lakh annual exemption before applying 12.5%.
Worked example
You buy listed shares for ₹5,00,000 and sell for ₹9,00,000 after 30 months (long-term for equity).
- Capital gain = 9,00,000 − 5,00,000 = ₹4,00,000
- Less the ₹1.25 lakh exemption = taxable gain ₹2,75,000
- Tax = 2,75,000 × 12.5% = ₹34,375
- Effective rate on the gain ≈ 8.6%, and net proceeds after tax ≈ ₹8,65,625
Sell the same shares within 12 months instead and the entire ₹4,00,000 is short-term, taxed at 20% = ₹80,000 — more than double. Holding past the one-year mark is one of the simplest ways to cut equity tax.
Ways to manage the tax
- Harvest the ₹1.25 lakh exemption every year by booking some long-term equity gains tax-free.
- Hold long enough to convert short-term gains (20%) into long-term gains (12.5%) where it makes sense.
- Offset losses. Capital losses can be set off against gains under the rules, reducing the taxable amount.
- Property reinvestment exemptions (Sections 54/54F) can defer or eliminate property LTCG when proceeds are reinvested.
Rules reflect the post-23 July 2024 regime. Property short-term gains are taxed at your slab, and special cases (grandfathering, reinvestment exemptions) need professional advice — this is an estimate, not tax advice.