Understanding how capital gains are taxed in India is essential for any investor—whether you’re into stocks, real estate, gold, or mutual funds. Two critical concepts to know are short-term capital gains (STCG) and long-term capital gains (LTCG). These not only affect your overall tax liability but also shape your investment strategy.
In this guide, we’ll break down everything you need to know about short-term vs long-term capital gains tax in India—definitions, rates, holding periods, exemptions, calculations, and tips to save tax legally.
What is Capital Gains Tax?
Capital gains tax is the tax you pay on the profit earned from the sale of a capital asset. Capital assets include:
- Stocks & equity mutual funds
- Real estate (land/buildings)
- Bonds & debt mutual funds
- Gold and jewellery
- Vehicles, art, collectibles
Capital Gains: Short-Term vs Long-Term
The classification into short-term or long-term depends on the holding period—i.e., how long you owned the asset before selling.
✅ Holding Periods for Different Assets
| Asset Type | Short-Term | Long-Term |
|---|---|---|
| Listed equity shares | Less than 12 months | 12 months or more |
| Equity mutual funds | Less than 12 months | 12 months or more |
| Debt mutual funds | Less than 36 months | 36 months or more |
| Real estate (property) | Less than 24 months | 24 months or more |
| Gold, jewellery, others | Less than 36 months | 36 months or more |
Tax Rates: Short-Term vs Long-Term Capital Gains
1. Short-Term Capital Gains (STCG) Tax
- Listed equity shares & equity mutual funds:
Taxed at 15% (plus cess & surcharge) under Section 111A. - Other assets (property, gold, debt funds):
Taxed as per your income tax slab rate.
2. Long-Term Capital Gains (LTCG) Tax
- Equity shares & equity mutual funds:
Taxed at 10% (plus cess) for gains exceeding ₹1 lakh per year (Section 112A).
No indexation benefit allowed. - Other assets (real estate, gold, debt funds):
Taxed at 20% with indexation benefit (Section 112).
Key Differences: STCG vs LTCG at a Glance
| Feature | Short-Term Capital Gains | Long-Term Capital Gains |
|---|---|---|
| Holding Period (Equity) | < 12 months | ≥ 12 months |
| Tax Rate (Equity) | 15% | 10% (after ₹1 lakh exemption) |
| Tax Rate (Other Assets) | As per income tax slab | 20% with indexation |
| Indexation Benefit | ❌ Not available | ✅ Available for non-equity assets |
| Exemption Options | Limited | More (Sections 54, 54EC, 54F, etc.) |
How is Capital Gains Tax Calculated?
Formula:
Capital Gain = Sale Price – Purchase Price – Expenses – Exemptions
Let’s break it down by type.
1. Short-Term Capital Gains Example (Equity)
- Bought 100 shares of Infosys at ₹1,000 = ₹1,00,000
- Sold within 6 months at ₹1,200 = ₹1,20,000
- STCG = ₹20,000
- Tax = 15% of ₹20,000 = ₹3,000
2. Long-Term Capital Gains Example (Equity)
- Bought mutual funds worth ₹2,00,000
- Sold after 2 years at ₹3,50,000
- LTCG = ₹1,50,000
- Exempt up to ₹1,00,000
- Tax = 10% of ₹50,000 = ₹5,000
3. LTCG on Property Example (with Indexation)
- Bought property in 2015-16 for ₹50,00,000
- Sold in 2024-25 for ₹90,00,000
- CII for 2015-16 = 254, for 2024-25 = 348
- Indexed Cost = ₹50,00,000 × (348 ÷ 254) = ₹68,50,393
- LTCG = ₹90,00,000 – ₹68,50,393 = ₹21,49,607
- Tax = 20% of ₹21,49,607 = ₹4,29,921
Exemptions Available for Long-Term Capital Gains
Only LTCG qualifies for tax exemption under specific sections. Here are some popular ones:
| Section | Eligible Assets | Exemption Condition |
|---|---|---|
| Section 54 | Residential property | Buy another residential property within 2 years or construct in 3 years |
| Section 54F | Any long-term asset | Must invest full sale proceeds in a residential house |
| Section 54EC | Land/building | Invest in REC/NHAI bonds within 6 months (up to ₹50 lakh) |
Tax Planning Tips to Reduce Capital Gains Tax
- Hold equity for 1+ year to benefit from LTCG tax rate.
- Use exemption sections like 54, 54F, or 54EC for property gains.
- Sell in different financial years to split gains and reduce tax.
- Harvest long-term gains up to ₹1 lakh each year (zero tax up to that limit).
- Offset capital losses—STCL can be set off against STCG & LTCG; LTCL only against LTCG.
Set-Off and Carry Forward of Capital Losses
- Short-term capital loss (STCL) can be set off against both STCG and LTCG.
- Long-term capital loss (LTCL) can be set off only against LTCG.
- Capital losses can be carried forward up to 8 assessment years.
| Loss Type | Can be set off against | Carry forward allowed? |
|---|---|---|
| STCL | STCG and LTCG | Yes, for 8 years |
| LTCL | LTCG only | Yes, for 8 years |
Capital Gains Tax for NRIs
For Non-Resident Indians (NRIs):
- STCG (equity): 15%
- LTCG (equity): 10% above ₹1 lakh (no indexation)
- LTCG (property): 20% with indexation + TDS at 20%+
- STCG (property): Taxed as per slab + TDS at 30%
NRIs should file ITR to claim refunds if actual tax liability is less than TDS deducted.
Capital Gains Tax Under New Regime vs Old Regime
Capital gains tax is separate from your income tax regime (old or new).
That means: STCG and LTCG are taxed independently of whether you opt for new or old tax slabs.
Summary Table: Capital Gains Tax Snapshot (India, 2025)
| Asset | Type | Holding Period | Tax Rate |
|---|---|---|---|
| Equity Shares | STCG | < 12 months | 15% (Section 111A) |
| Equity Shares | LTCG | ≥ 12 months | 10% above ₹1 lakh (Section 112A) |
| Debt Funds | STCG | < 36 months | As per income tax slab |
| Debt Funds | LTCG | ≥ 36 months | 20% with indexation (Section 112) |
| Property | STCG | < 24 months | As per income tax slab |
| Property | LTCG | ≥ 24 months | 20% with indexation (Section 112) |
| Gold/Jewellery/Others | STCG | < 36 months | As per income tax slab |
| Gold/Jewellery/Others | LTCG | ≥ 36 months | 20% with indexation |
Conclusion
Understanding the difference between short-term and long-term capital gains tax is essential for smart investing. LTCG often enjoys lower tax rates and offers tax-saving exemptions. Whether you’re dealing with shares, mutual funds, property, or gold, your holding period can significantly impact your tax bill.
With proper planning, you can optimize your tax liability, maximize gains, and build wealth effectively. Always consult a tax advisor or CA for personalized guidance.