BAJAJ BROKING
March 18, 2025
7 mins read
Long-Term Capital Gains Tax (LTCG) is the tax applied on profits earned from the sale of assets held for a specified period, typically more than one year. In India, assets like equities, real estate, and bonds are subject to LTCG tax, with rates varying based on the asset class and holding period.
Understanding the distinction between short-term and long-term capital gains is crucial for effective tax planning. There have been several updates to the definition of the holding period and applicable capital gain tax in recent few years. Here’s a table of prominent asset classes and applicable capital gains tax on them.
Asset Class | Short-Term Holding Period | Long-Term Holding Period | Short-Term Capital Gains Tax Rate | Long-Term Capital Gains Tax Rate |
Equity Shares & Equity-Oriented Mutual Funds | Less than 12 months | More than 12 months | 15% | 12.5% (for gains exceeding ₹ 1.25 lakh) |
Debt-Oriented Mutual Funds | Irrespective of the holding period | As per income tax slab rates 12.5% | ||
Real Estate/Property | Less than 24 months | More than 24 months | As per income tax slab rates | 12.5% |
Gold/Jewellery | Less than 24 months | More than 24 months | As per income tax slab rates | 12.5% |
Note: The above rates are based on the Union Budget 2025 announcements.
Equity Shares & Equity-Oriented Mutual Funds: LTCG exceeding ₹ 1.25 lakh are taxed at 12.5%.
Debt-Oriented Mutual Funds: Debt funds are taxed as per your individual tax slab rate, irrespective of the holding period.
Real Estate, Gold: LTCG are taxed at 12.5%, with no minimum threshold.
Calculating long-term capital gains (LTCG) involves determining the difference between the selling price and the purchase price of an asset, after accounting for exemptions and deductions. Let’s break this down with a detailed example involving stocks.
Formula for LTCG Calculation:
LTCG = Full Sale Price - Cost of Acquisition - Any Expenses Related to Sale
Example:
Let’s assume you bought shares of a company in April 2023 for ₹2,00,000. You decided to sell them in March 2023 for ₹5,00,000. Since the holding period exceeds one year, the gains are classified as long-term capital gains.
Step 1: Determine the Full Sale Price
Here, ₹ 5,00,000 is your total sale value.
Step 2: Check the Cost of Acquisition
Since these are equity shares, indexation benefits do not apply. Thus, the cost of acquisition is ₹ 2,00,000.
Step 3: Calculate the Long-Term Capital Gains
LTCG = Sale Price − Purchase Price
LTCG = ₹ 5,00,000 − ₹ 2,00,000 = ₹ 3,00,000
Step 4: Apply the LTCG Tax Exemption on Equity Investments
According to current tax rules, long-term capital gains from equity shares and equity mutual funds are tax-free up to ₹ 1,25,000. Any gains above this threshold are taxed at 12.5% without indexation.
Taxable LTCG = ₹ 3,00,000 − ₹ 1,25,000 = ₹ 1,75,000
Step 5: Apply the LTCG Tax Rate
LTCG on equity assets is taxed at 12.5%.
LTCG Tax = 12.5% × ₹ 1,75,000 = ₹ 21,875
Thus, you will need to pay ₹ 21,875 as LTCG tax on his equity investment.
If you had invested in a debt mutual fund instead of equity shares, the taxation would be different and all gains would be taxed as per your individual tax slab rate, irrespective of the holding period.
Exemptions and Deductions Available
Section 54: Exemption on LTCG from the sale of residential property if invested in another residential property within a specified period.
Section 54EC: Exemption on LTCG if invested in specific bonds such as the ones offered by REC or NHAI) within six months of the asset transfer, subject to a maximum of ₹ 50 lakh.
Section 54F: LTCG exemption from the sale of any asset except a residential house, if the net consideration is invested in a residential house.
Capital Gain Account Scheme (CGAS): It allows you to claim tax exemptions on capital gains without immediately purchasing a residential property. Under this scheme, funds deposited can only be used to buy houses or plots, as permitted by the Government of India. If the withdrawn amount is not utilised within three years, it becomes taxable under long-term capital gains (LTCG) tax rates applicable at that time.
Additional Read - How to Avoid LTCG Tax on Mutual Funds?
Minimizing Long-Term Capital Gains (LTCG) tax liability requires careful financial planning and strategic investment decisions. Here are some effective ways to reduce LTCG tax and optimize overall tax efficiency:
1. Utilize Tax Harvesting
Tax harvesting involves offsetting long-term capital gains with capital losses from other investments. By strategically selling loss-making assets, investors can reduce their taxable gains.
For instance, if you have ₹ 2 lakh in LTCG and ₹ 50,000 in capital losses from another investment, you can offset the gains and only pay tax on ₹ 1.5 lakh.
This is particularly useful in equity investments where only gains over ₹ 1.25 lakh are taxable.
2. Reinvest Under Section 54 and 54F Exemptions
The Income Tax Act provides exemptions for reinvesting LTCG into specific assets:
Section 54: If you sell a residential property and reinvest the LTCG in another residential house, you can claim a tax exemption.
Section 54F: If you sell a capital asset (other than a residential property) and reinvest the proceeds in a new house, you can claim an exemption.
Section 54EC: You can invest LTCG (up to ₹50 lakh) in specified bonds (like REC or NHAI bonds) within six months of the sale to avail of tax benefits.
3. Invest in Tax-Exempt Instruments
Some investment avenues do not attract LTCG tax if held for a specified duration.
PPF (Public Provident Fund) and EPF (Employees' Provident Fund) provide tax-free returns.
Gains from Unit-Linked Insurance Plans (ULIPs) are also tax-exempt if held for at least five years.
4. Spread Out Gains Over Multiple Financial Years
If possible, spread the sale of capital assets across different financial years.
Since LTCG tax on equities is applicable only beyond ₹ 1.25 lakh, staggering sales ensures you stay within the tax-free limit each year.
For other capital assets, selling portions in different years helps keep the taxable amount lower.
Remember: LTCG tax rules change periodically, impacting tax planning strategies. Investors should monitor government policies, such as exemptions, tax slabs, and investment limits, to take advantage of beneficial tax provisions. By implementing these strategies, investors can optimize their tax outgo while ensuring compliance with LTCG tax regulations.
The Union Budget introduced significant changes to the LTCG tax structure:
Increased Tax Rate: LTCG tax rate on equities was raised to 12.5%.
Adjusted Exemption Limit: The exemption threshold for LTCG on equities was increased from ₹ 1 lakh to ₹ 1.25 lakh.
These reforms aim to enhance tax revenues while encouraging long-term investments.
Misclassifying Gains: Incorrectly categorizing short-term gains as long-term (or vice versa) can result in tax discrepancies.
Overlooking Exemptions: Not claiming eligible exemptions under relevant sections can increase tax liability.
Missing Deadlines: Delays in reinvesting gains to claim exemptions can lead to disqualification.
By understanding and applying these aspects, investors can effectively navigate LTCG taxation and optimize their tax liabilities.
Long-Term Capital Gains Tax (LTCG) applies to profits earned from the sale of assets held for a longer duration, typically over a year. The tax rates and exemptions vary based on the type of asset, with indexation benefits available for certain investments like real estate and debt funds. Recent tax reforms have adjusted LTCG rates and thresholds, making it essential for investors to plan their investments strategically.
By leveraging exemptions under sections like 54, 54EC, and 54F, optimizing holding periods, and reinvesting gains efficiently, taxpayers can minimize their LTCG liabilities. Understanding key tax rules, avoiding common filing mistakes, and staying updated with tax law changes are crucial for effective tax planning.
Do you have a trading account app or demat account app?
You can open an account with Bajaj Broking in minutes.
Download the Bajaj Broking app now from the Play Store or App Store.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For All Disclaimers Click Here: https://www.bajajbroking.in/disclaimer
Share this article: 
No result found
A long-term capital asset is any asset held for more than a specified period before being sold. This includes real estate, stocks, mutual funds, gold, and bonds. The required holding period varies: one year for equity investments and three years for real estate, debt funds, and gold.
The holding period is calculated from the date of purchase to the date of sale. For equity investments, the minimum holding period for LTCG classification is more than 12 months, while for real estate, debt mutual funds, and gold, it is more than 24 months.
Yes, certain assets are exempt from LTCG tax under specific conditions. Gains from agricultural land, specified government bonds, and investments in some startups may qualify for exemptions. Additionally, LTCG up to ₹ 1,25,000 from equity shares and mutual funds is tax-free.
Indexation helps adjust the purchase price of an asset for inflation using the Cost Inflation Index (CII). This reduces taxable gains, lowering the tax liability. Indexation applies to debt mutual funds, real estate, and gold, but not to equity investments, which are taxed without this benefit.
Yes, long-term capital losses (LTCL) can be used to offset LTCG. If LTCL exceeds LTCG in a year, the remaining loss can be carried forward for up to eight financial years, reducing tax liability in future years. However, short-term losses cannot offset long-term gains.
Recent tax reforms removed indexation benefits for debt mutual funds acquired after April 1, 2023, meaning they are now taxed at slab rates instead of 20% with indexation. However, equity LTCG tax remains at 12.5% on gains exceeding ₹ 1,25,000 per financial year.
When an inherited property is sold, the LTCG is calculated based on the original purchase price of the previous owner, adjusted for indexation. The holding period includes the time the asset was held by both the original owner and the inheritor, ensuring it qualifies as a long-term asset.
Yes, Non-Resident Indians (NRIs) are liable for LTCG tax on assets sold in India as per the prevalent tax rates and slabs. Tax Deducted at Source (TDS) applies when NRIs sell assets.
You can reduce LTCG tax by investing in Section 54 (property reinvestment), Section 54EC (capital gains bonds), or ELSS mutual funds. Holding assets for a longer period, utilizing indexation, and offsetting losses against gains are also effective ways to minimize LTCG tax liability.
Key documents include purchase and sale agreements, brokerage statements, property registration details, and cost indexation records. If claiming exemptions, you may need investment proof in capital gains bonds or property purchase documents. Proper documentation ensures accurate tax filing and compliance.
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
TRENDING CALCULATORS AND STOCKS ON BAJAJ BROKING
POPULAR STOCKS: Tata Motors Share Price Infosys Share Price IRFC Share Price SBI Card Share Price Cipla Share Price NBCC Share Price IDFC First Bank Share Price IRCTC Share Price PNB Share Price Zomato Share Price Vodafone Idea Share Price Axis Bank Share Price JSW Steel Share Price Bandhan Bank Share Price SBI Share Price Tata Steel Share Price ONGC Share Price Ashok Leyland Share Price Paytm Share Price Subex Share Price DLF Share Price Reliance Share Price HDFC Bank Share Price Suzlon Share Price IOC Share Price HUL Share Price Asian Paints Share Price Bank Of Baroda Share Price ITC Share Price TCS Share Price HFCL Share Price Icici Bank Share Price Tata Chemicals Share Price CDSI Share Price MRF Share Price Tata Power Share Price Adani Green share price BPCL Share Price Vedanta Share Price Dmart Share Price Hindalco Share Price LIC Share Price SAIL Share Price Adani Port Share Price IEX Share Price Nalco Share Price L&T Share Price Adani Power Share Price BHEL Share Price Bajaj Finance Share Price Canara Bank Share Price Indusind Bank Share Price Gail Share Price Yes Bank Share Price Wipro Share Price Happiest Minds Share Price Coal India Share Price Maruti Share Price Reliance Power Share Price
INDIAN INDICES: Nifty 50 Share Price SENSEX Share Price Nifty Next 50 Share Price BSE100 Share Price Nifty Bank Share Price LRGCAP Share Price Nifty 100 Share Price MIDCAP Share Price Nifty 200 Share Price SMLCAP Share Price Nifty 500 Share Price BSE500 Share Price Nifty Midcap 50 Share Price ALLCAP Share Price NIFTY SMLCAP 50 Share Price BSE200 Share Price India VIX Share Price BSEIPO Share Price
