When you sell a capital asset — property, shares, mutual funds, gold, bonds — at a profit, that profit is a capital gain and is taxable. Capital gain tax applies only on the profit, not on the entire sale proceeds. If you sell at a loss, it is a capital loss — which can be set off against gains (rules below).

Capital assets include: residential and commercial property, land (urban agricultural land), listed and unlisted shares, equity and debt mutual funds, gold jewellery, gold ETFs, sovereign gold bonds, bonds, debentures, and intellectual property. Rural agricultural land is specifically excluded — its sale has no capital gains tax.

Short Term Capital Gains (STCG)

Long Term Capital Gains (LTCG)

Example 1 — Equity Shares LTCG (Correct Budget 2024 Rate)

Purchased: ₹5 lakh. Sold after 15 months at ₹8.5 lakh. Listed shares — STT paid.

No indexation for equity — the ₹1.25L exemption is the only offset available. ₹1.25L exemption is per financial year — if you have multiple equity LTCG transactions, the total exemption across all is ₹1.25L, not per stock.

Example 2 — Property LTCG with Grandfathering (Corrected from Prior Version)

Flat purchased: FY 2017-18 for ₹80 lakh. Sold: FY 2025-26 for ₹1.45 crore. CII 2017-18: 272. CII 2025-26: 376 (estimate).

For this property: older purchase + moderate appreciation = indexation still wins. Always compute both — the result varies by purchase year and appreciation rate. A newer purchase or higher appreciation often makes Option A better.

If this gain is reinvested in a new residential property (Section 54) — entire ₹34.4L (or ₹65L under Option A) exempt. Zero tax.

Example 3 — Gold LTCG (Corrected from Prior Version)

Gold jewellery purchased: 2015 for ₹4 lakh. Sold: FY 2025-26 for ₹11 lakh. Held 10+ years — qualifies as LTCG. CII 2015-16: 254. CII 2025-26: 376 (estimate).

For gold with high appreciation, the 12.5% flat rate often beats 20% with indexation. The prior article showed this at “₹90,000 @ 20% with indexation” — the correct current answer is ₹87,500 at 12.5% (Option A).

Example 4 — Debt Mutual Fund (Post April 2023)

Purchased: April 2024 for ₹3 lakh. Sold: March 2026 for ₹3.6 lakh. Held 23 months — would have been LTCG under old rules, but post-April 2023 debt funds have no LTCG benefit.

No indexation, no flat rate advantage — debt fund gains post-April 2023 are taxed exactly like interest income. This change fundamentally altered the tax efficiency of debt mutual funds. For tax-efficient debt investing, consider tax-free bonds, PPF, or SGB instead.

Example 5 — Short Term Capital Loss Set-Off

Equity STCG from quick trade: −₹1 lakh (loss). Property LTCG from apartment sale: +₹3 lakh.

Short term capital loss can be set off against both STCG and LTCG. Long term capital loss can only be set off against LTCG — not against STCG. Both must be declared in Schedule CG of ITR-2 to get the benefit.

For property sales, capital gain is computed on the higher of actual sale price OR stamp duty value (circle rate valuation). If you sell at ₹70 lakh but the circle rate values the property at ₹85 lakh — capital gain is computed on ₹85 lakh, not ₹70 lakh.

Safe harbour of 10%: If actual sale price is within 10% of stamp duty value — actual price is accepted. If the gap is more than 10%, stamp duty value governs. A property sold at ₹76.5L with stamp duty value of ₹85L: difference is 10% exactly — safe harbour applies, actual price accepted. Sold at ₹70L: gap is 17.6% — stamp duty value of ₹85L is used for capital gains.

A common and costly mistake: selling a property or large equity position in, say, July 2025, and planning to pay the tax only at ITR filing in July 2026. Section 234C requires advance tax on capital gains to be paid in the quarter in which the gain arises.

The exception: if the capital gain arises from a one-time sale (not a regular occurrence), 100% of the tax can be paid by March 15 of the same financial year without Section 234C interest. But Section 234B interest (for shortfall in advance tax overall) still applies if you pay nothing throughout the year and only settle at ITR time.

Practical rule: Sell property in Q1/Q2 → pay estimated capital gain tax by March 15 → avoids all Section 234B/C interest. Consult a CA before large sales to schedule advance tax correctly.

NRIs pay the same capital gains tax rates as residents — 12.5% LTCG, 20% equity STCG, slab rate for property STCG, grandfathering option for pre-July 2024 assets. The key differences:

• Buyer of NRI’s property must deduct TDS at the applicable LTCG rate (not the flat 1% applicable for resident sellers) — typically 12.5% + surcharge + cess on LTCG amount
• NRI should apply for Section 197 Lower Deduction Certificate before sale to match TDS to actual tax post-exemptions
• NRIs cannot claim Section 87A rebate — the zero-tax benefit available to residents up to ₹12L taxable (New Regime) or ₹5L (Old Regime) does not apply to NRIs
• DTAA (Double Tax Avoidance Agreement) between India and the country of NRI’s residence may provide relief — verify with a CA for your specific country

Using 20% with indexation for all property LTCG after Budget 2024:
The default rate from July 23, 2024 is 12.5% without indexation. For pre-July 23, 2024 purchases, the grandfathering option allows you to compare — but requires calculating both. Using 20% with indexation by default for new transactions is incorrect. As Example 3 (gold) above shows — 12.5% often produces lower tax than 20% with indexation, especially for high-appreciation assets.

Expecting indexation on debt mutual funds purchased after April 2023:
The Finance Act 2023 removed LTCG benefit and indexation from debt mutual funds for purchases made on or after April 1, 2023. These are now taxed at slab rate regardless of holding period. Debt funds purchased before April 2023 retain the old LTCG-with-indexation treatment. The purchase date — not the sale date — determines which rule applies.

Missing capital loss carry forward by filing ITR late:
Capital losses can only be carried forward if the ITR is filed by the due date. A freelancer who files ITR in October instead of July loses the right to carry forward F&O losses, equity losses, or property losses from that year — permanently. On a ₹5 lakh capital loss at 12.5% LTCG rate, the lost future tax saving is ₹62,500.

Counting holding period from allotment date of bonus shares:
Bonus shares’ holding period starts from the date of allotment of bonus shares — not from the date you bought the original shares. If you bought shares in January 2023 and received a bonus in June 2024, selling the bonus shares in September 2024 (3 months after bonus allotment) is STCG — taxed at 20%. This is consistently misunderstood and results in incorrect LTCG treatment.