Quick Answer
20 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
Under the Income Tax Act 2025, long-term capital gains (LTCG) on all assets are taxed at a flat 12.5% without indexation. Short-term capital gains (STCG) on listed equity are taxed at 20%, and on other assets at slab rates.
In this case, the new regime results in slightly higher tax (Rs 12,50,000 vs Rs 11,58,974). This is why the transitional provision exists — it allows taxpayers to choose the lower tax for pre-July 2024 assets.
8. Transitional Provision for Pre-July 2024 Assets
Recognising that the removal of indexation could disadvantage taxpayers who acquired assets decades ago and factored indexation into their investment decisions, the government introduced a transitional provision. This provision applies specifically to immovable property and unlisted assets acquired before 23 July 2024.
8.1 How It Works
For eligible assets (immovable property and unlisted assets acquired before 23 July 2024), the taxpayer computes the tax under both methods:
(a) Old method: LTCG computed with indexation, taxed at 20%
(b) New method: LTCG computed without indexation, taxed at 12.5%
The taxpayer pays the lower of the two tax amounts. This is a per-transaction choice, not a blanket election for the entire year. Different assets sold in the same year can have different methods applied based on which produces lower tax.
8.2 When Does the Transitional Provision Not Apply
The transitional provision does not apply to listed equity shares and equity-oriented mutual funds, as indexation was never available for these assets (they were always taxed at a flat rate). It also does not apply to assets acquired on or after 23 July 2024 — the new 12.5% regime without indexation applies mandatorily to such assets. For cryptocurrency and VDA transactions, the separate 30% flat-rate regime applies and the transitional provision is not relevant.
9. Section 54 — Reinvestment in Residential Property
Section 54 provides exemption from long-term capital gains arising on the sale of a residential house property if the taxpayer reinvests the gains in purchasing or constructing another residential house property in India.
9.1 Conditions
The taxpayer must be an individual or HUF. The asset transferred must be a long-term residential house property. The new residential house must be purchased within 1 year before or 2 years after the date of transfer, or constructed within 3 years after the date of transfer. The new property must be in India. The exemption is available for investment in one residential house property (or two, if the capital gain does not exceed Rs 2 crore — one-time option).
9.2 Amount of Exemption
The exemption is the lower of: (a) the amount of LTCG, or (b) the cost of the new residential house property. If the entire capital gain is reinvested, the full gain is exempt. If only a part is reinvested, proportionate exemption is available. If the new property is sold within 3 years of purchase, the exempted gain is taxed as LTCG in the year of sale of the new property. This interacts closely with house property income provisions for the new property.
9.3 Capital Gains Account Scheme (CGAS)
If the taxpayer is unable to invest the capital gains before the due date of filing the return, the unutilised amount must be deposited in a Capital Gains Account with a designated bank before the return filing due date. The deposited amount must be utilised for purchase or construction within the prescribed time limits. Failure to utilise results in the unutilised amount being taxed as LTCG in the year in which the time limit expires.
10. Section 54F — Sale of Any LTCA, Reinvest in House
Section 54F provides exemption when a taxpayer sells any long-term capital asset (other than a residential house) and invests the net consideration in a new residential house property.
10.1 Key Differences from Section 54
Section 54 applies when a residential house is sold and gains are reinvested in another house. Section 54F applies when any other long-term asset (shares, gold, commercial property, land) is sold and the net consideration (not just the gain) is invested in a residential house. If the entire net consideration is invested, the entire LTCG is exempt. If only a part of the net consideration is invested, the exemption is proportionate: (amount invested / net consideration) multiplied by the capital gain.
10.2 Conditions for Section 54F
The taxpayer must not own more than one residential house (other than the new house) on the date of transfer. The new house must not be sold within 3 years. The taxpayer must not purchase any other residential house within 1 year after, or construct within 3 years after, the date of transfer (other than the new house). If these conditions are violated, the exempted amount is taxed in the year of violation. The same Capital Gains Account Scheme provisions apply if the investment is not completed before the return due date.
11. Section 54EC — Investment in Specified Bonds
Section 54EC provides exemption from LTCG if the gains are invested in specified bonds within 6 months of the date of transfer. The specified bonds are issued by NHAI (National Highways Authority of India), REC (Rural Electrification Corporation), IRFC (Indian Railway Finance Corporation), and PFC (Power Finance Corporation).
The maximum investment eligible for exemption is Rs 50 lakh per financial year. The bonds have a lock-in period of 5 years (increased from 3 years). The interest rate on these bonds is typically 5-5.25% per annum, which is lower than market rates — this is the opportunity cost of the exemption. For taxpayers facing LTCG of Rs 50 lakh or more, the tax saving at 12.5% (Rs 6.25 lakh) may outweigh the lower interest earned over the 5-year lock-in period.
Strategically, Section 54EC is often combined with Section 54 or 54F. For instance, a taxpayer selling immovable property with LTCG of Rs 80 lakh could invest Rs 50 lakh in 54EC bonds and the remaining gain in a new residential house under Section 54, achieving complete tax exemption on the entire gain.
12. Rs 10 Crore Aggregate Cap on Section 54/54F
An aggregate cap of Rs 10 crore has been imposed on the combined exemption available under Section 54 and Section 54F for investment in residential house property. This means the cost of the new residential house property for which exemption is claimed cannot exceed Rs 10 crore. Any gain attributable to investment exceeding Rs 10 crore is taxable.
This cap was introduced to restrict the benefit for ultra-high-net-worth individuals who were using the exemption to acquire high-value properties while avoiding capital gains tax entirely. For the vast majority of taxpayers, the Rs 10 crore cap will not be a constraint. However, for NRI taxpayers selling high-value properties in India and reinvesting in residential real estate, this cap is an important planning consideration.
13. Capital Gains on Immovable Property — Stamp Duty Deemed Consideration
For transfers of immovable property, if the actual sale consideration is less than the stamp duty value (the value adopted by the stamp valuation authority for the purpose of stamp duty), the stamp duty value is deemed to be the full value of consideration for computing capital gains. This provision prevents tax avoidance through underreporting of property prices.
A tolerance margin of 10% applies: if the actual consideration is within 10% of the stamp duty value, the actual consideration is accepted without any deemed adjustment. For example, if the stamp duty value is Rs 1 crore and the actual sale price is Rs 92 lakh (within 10% threshold), the actual price of Rs 92 lakh is accepted. If the sale price is Rs 85 lakh (more than 10% below), the stamp duty value of Rs 1 crore is deemed as the consideration.
This provision also has implications for the buyer — if the buyer pays less than stamp duty value (beyond the 10% tolerance), the difference is taxable as income from other sources in the buyer’s hands under the gift taxation provisions. For property valuations, engaging a registered valuer can help establish the fair market value and negotiate with stamp duty authorities where the guideline value is disputed.
14. Computation Examples by Asset Class
14.1 Example A — Listed Equity Shares
Ms Deepa purchased 500 shares of Reliance Industries in January 2024 at Rs 2,500 per share (cost: Rs 12,50,000). She sells them in August 2026 at Rs 3,200 per share (proceeds: Rs 16,00,000). Holding period: 31 months (exceeds 12 months — LTCG). STT is paid on both purchase and sale.
LTCG = Rs 16,00,000 minus Rs 12,50,000 = Rs 3,50,000. Less annual exemption Rs 1,25,000 = Taxable LTCG Rs 2,25,000. Tax at 12.5% = Rs 28,125. Plus 4% cess = Rs 29,250.
14.2 Example B — Unlisted Shares
Mr Venkat holds shares in a private company acquired in March 2022 at Rs 5,00,000. He sells them in October 2026 at Rs 15,00,000. Holding period: 55 months (exceeds 24 months — LTCG). Since acquired before July 2024, transitional provision applies.
New method: LTCG = Rs 15,00,000 minus Rs 5,00,000 = Rs 10,00,000. Tax at 12.5% = Rs 1,25,000.
Old method: Indexed cost = Rs 5,00,000 x 363/331 (CII 2025-26/CII 2021-22) = approximately Rs 5,48,340. LTCG = Rs 15,00,000 minus Rs 5,48,340 = Rs 9,51,660. Tax at 20% = Rs 1,90,332.
Mr Venkat pays the lower amount: Rs 1,25,000 under the new method. The new method wins because the appreciation is substantial while the holding period is relatively short (low indexation benefit).
14.3 Example C — Immovable Property (Long Holding Period)
Mrs Kamala purchased a flat in Chennai in April 2010 for Rs 40,00,000. She sells it in December 2026 for Rs 1,60,00,000. Since acquired before July 2024, transitional provision applies.
New method: LTCG = Rs 1,60,00,000 minus Rs 40,00,000 = Rs 1,20,00,000. Tax at 12.5% = Rs 15,00,000.
Old method: CII 2010-11 = 167, CII 2025-26 = 363. Indexed cost = Rs 40,00,000 x 363/167 = Rs 86,94,611. LTCG = Rs 1,60,00,000 minus Rs 86,94,611 = Rs 73,05,389. Tax at 20% = Rs 14,61,078.
Mrs Kamala pays the lower amount: Rs 14,61,078 under the old method. The old method wins due to the very long holding period (16 years) with significant indexation benefit. If she wishes to claim exemption, she could invest Rs 50 lakh in Section 54EC bonds (saving approximately Rs 6.25 lakh tax under the new method) and the balance in a new house under Section 54.
14.4 Example D — Gold and Debt Mutual Funds
Mr Rajan purchased gold ETF units in February 2024 for Rs 8,00,000 and sells them in May 2026 for Rs 11,50,000. Holding period: 27 months (exceeds 24 months — LTCG). Since acquired before July 2024, transitional provision applies.
New method: LTCG = Rs 3,50,000. Tax at 12.5% = Rs 43,750.
Old method: Indexed cost = Rs 8,00,000 x 363/348 = Rs 8,34,483. LTCG = Rs 3,15,517. Tax at 20% = Rs 63,103.
Mr Rajan pays Rs 43,750 under the new method. For shorter holding periods with moderate appreciation, the new 12.5% rate without indexation typically produces lower tax than 20% with indexation.
15. Holding Period by Asset Class — Summary Table
| Asset Class | Holding Period for LTCG |
|---|---|
| Listed equity shares (STT paid) | More than 12 months |
| Equity-oriented mutual fund units | More than 12 months |
| Listed bonds and debentures | More than 12 months |
| Immovable property (land and buildings) | More than 24 months |
| Unlisted shares and securities | More than 24 months |
| Gold, gold ETFs, sovereign gold bonds | More than 24 months |
| Debt mutual funds | More than 24 months |
| Jewellery and precious metals | More than 24 months |
| Any other capital asset | More than 24 months |
16. Tax Rates by Type of Gain — Summary Table
| Type of Gain | Tax Rate | Indexation |
|---|---|---|
| STCG on listed equity/equity MF (STT paid) | 20% | Not applicable |
| STCG on other assets | Slab rates | Not applicable |
| LTCG on listed equity/equity MF (STT paid) | 12.5% (above Rs 1.25L exemption) | No |
| LTCG on immovable property | 12.5% (transitional choice for pre-July 2024) | No (transitional: optional) |
| LTCG on unlisted shares | 12.5% (transitional choice for pre-July 2024) | No (transitional: optional) |
| LTCG on gold, debt MFs, other assets | 12.5% (transitional choice for pre-July 2024) | No (transitional: optional) |
| VDA/Cryptocurrency gains | 30% flat (no STCG/LTCG distinction) | Not applicable |
17. Exemptions Available — Conditions Table
| Section | Asset Sold | Reinvestment Required | Time Limit | Cap |
|---|---|---|---|---|
| 54 | Residential house (LTCG) | New residential house in India | 1 yr before / 2 yrs after (buy) or 3 yrs (construct) | Rs 10 crore (aggregate with 54F) |
| 54F | Any LTCA (other than house) | New residential house in India | 1 yr before / 2 yrs after (buy) or 3 yrs (construct) | Rs 10 crore (aggregate with 54) |
| 54EC | Any LTCA | NHAI/REC/IRFC/PFC bonds | 6 months from date of transfer | Rs 50 lakh per FY |
| 54GB | Residential property (LTCG) | Equity of eligible startup | Before return due date | Proportionate to investment |
18. Old Regime (Pre-July 2024) vs Current (2025 Act) Comparison
| Parameter | Old Regime (Pre-July 2024) | Current (2025 Act) |
|---|---|---|
| LTCG on listed equity | 10% (above Rs 1L exemption) | 12.5% (above Rs 1.25L exemption) |
| LTCG on immovable property | 20% with indexation | 12.5% without indexation |
| LTCG on gold and debt MFs | 20% with indexation (or slab for debt MFs post-2023) | 12.5% without indexation |
| STCG on listed equity | 15% | 20% |
| Indexation | Available for property, gold, debt MFs, unlisted shares | Permanently removed (transitional choice for pre-July 2024 assets) |
| Holding period — immovable property | 24 months | 24 months |
| Section 54/54F cap | Rs 10 crore (from April 2023) | Rs 10 crore |
| Surcharge cap on CG | 15% (for listed equity LTCG) | 15% (for all capital gains) |
The overall direction of the reform is simplification and rate reduction. Investors in listed equity face a higher STCG rate (20% vs 15%) and slightly higher LTCG rate (12.5% vs 10%). Property and gold investors benefit from a lower headline rate (12.5% vs 20%) but lose indexation. The net impact depends heavily on holding period and the inflation during that period. For investors with a diversified portfolio, the new regime is generally favourable for shorter holding periods and unfavourable for very long holding periods on physical assets. Understanding these nuances is essential for advance tax planning on investment income.
Expert View — CA V. Viswanathan
The removal of indexation is the most consequential change in capital gains taxation in India’s history. For properties held 15-20 years, indexation could reduce the taxable gain by 50-70% — losing this is significant. However, the transitional provision provides meaningful relief for pre-July 2024 acquisitions. My advice to clients is threefold: (1) always compute both methods for pre-July 2024 assets and use the favourable one, (2) for equity investors, utilise the Rs 1.25 lakh annual exemption through disciplined annual harvesting of long-term gains, and (3) for property sellers facing large gains, explore the Section 54 + 54EC combination to defer or eliminate the tax. For complex transactions involving multiple asset classes, I recommend consulting a professional — our team at Virtual Auditor regularly handles capital gains planning for clients across Chennai and nationally.
Key Takeaways
- LTCG on all assets is taxed at a uniform 12.5% without indexation under the 2025 Act
- STCG on listed equity (STT paid) is taxed at 20%; STCG on other assets at slab rates
- Holding periods are simplified to 2 tiers: 12 months (listed equity) and 24 months (all others)
- Indexation has been permanently removed — the Cost Inflation Index is no longer applicable
- Transitional provision allows pre-July 2024 assets to use the lower of old (20% + indexation) or new (12.5%) method
- Annual exemption of Rs 1.25 lakh on LTCG from listed equity and equity MFs
- Section 54 and 54F exemptions for reinvestment in residential property continue with Rs 10 crore aggregate cap
- Section 54EC allows Rs 50 lakh investment in NHAI/REC/IRFC/PFC bonds with 5-year lock-in
- Stamp duty value is deemed consideration for immovable property (with 10% tolerance)
- Surcharge on capital gains is capped at 15% regardless of income level
Frequently Asked Questions
What is the LTCG tax rate under the Income Tax Act 2025?
Long-term capital gains on all asset classes are taxed at a flat rate of 12.5% under the Income Tax Act 2025, without the benefit of indexation. For listed equity shares and equity-oriented mutual funds, an annual exemption of Rs 1.25 lakh is available — LTCG up to this threshold is tax-free. No surcharge exceeding 15% applies on capital gains.
Has indexation been permanently removed under the 2025 Act?
Yes, the benefit of cost inflation indexation has been permanently removed for all capital asset transfers from 23 July 2024 onwards. The cost of acquisition is now the actual cost without any inflation adjustment. However, a transitional provision allows taxpayers to choose the lower tax between the old regime (20% with indexation) and the new regime (12.5% without indexation) for assets acquired before 23 July 2024, specifically for immovable property and unlisted assets.
What is the holding period to qualify for long-term capital gains?
Under the 2025 Act, the holding period is simplified to two tiers: 12 months for listed equity shares, equity-oriented mutual funds, and listed securities; and 24 months for all other capital assets including immovable property, gold, debt mutual funds, unlisted shares, and other assets. Assets held beyond these periods qualify as long-term.
What is the STCG tax rate on listed equity shares?
Short-term capital gains on listed equity shares and equity-oriented mutual funds (where Securities Transaction Tax is paid) are taxed at a flat rate of 20% under the 2025 Act. This was increased from 15% effective from 23 July 2024. STCG on other assets continues to be taxed at the applicable slab rates.
What is the Section 54 exemption for capital gains on house property?
Section 54 provides exemption from LTCG on sale of a residential house property if the gains are reinvested in purchasing or constructing another residential house. The new house must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years. The exemption is limited to the amount of capital gain or the cost of the new house, whichever is lower. An aggregate cap of Rs 10 crore applies to Section 54 and 54F exemptions combined.
What is the transitional provision for assets acquired before July 2024?
For immovable property and unlisted assets acquired before 23 July 2024, taxpayers can compute tax under both methods — the old method (20% tax with indexation benefit) and the new method (12.5% without indexation) — and pay the lower of the two. This ensures no taxpayer is worse off due to the removal of indexation. For listed equity and equity mutual funds, no transitional relief is needed as indexation was never available for these.
How is capital gains on immovable property calculated using stamp duty value?
If the actual sale consideration for immovable property is less than the stamp duty value, the stamp duty value is deemed to be the full value of consideration for computing capital gains. A tolerance margin of 10% applies — if the difference between stamp duty value and actual consideration is within 10% of the stamp duty value, the actual consideration is accepted. This provision prevents underreporting of property sale prices.
What is the Rs 1.25 lakh annual exemption on LTCG?
An annual exemption of Rs 1.25 lakh is available on long-term capital gains from the sale of listed equity shares and equity-oriented mutual funds. LTCG up to Rs 1.25 lakh in a financial year from these assets is completely tax-free. Gains exceeding this threshold are taxed at 12.5%. This exemption was increased from Rs 1 lakh to Rs 1.25 lakh effective from 23 July 2024.
What is the Section 54EC exemption for capital gains?
Section 54EC provides exemption from LTCG if the gains are invested in specified bonds (NHAI, REC, IRFC, or PFC bonds) within 6 months of the transfer. The maximum investment is Rs 50 lakh per financial year. The bonds have a lock-in period of 5 years. This exemption is available for LTCG arising from any capital asset, not just immovable property.
How are capital gains on cryptocurrency and VDAs taxed?
Capital gains on Virtual Digital Assets (VDAs) including cryptocurrency are taxed at a flat rate of 30% regardless of the holding period (no STCG/LTCG distinction). No deduction is allowed except the cost of acquisition. Losses from VDA transfers cannot be set off against any other income. TDS at 1% is deducted on the transfer of VDAs. These provisions are covered in the dedicated VDA taxation framework.
Can capital losses be set off against other income?
Short-term capital losses can be set off against both short-term and long-term capital gains. Long-term capital losses can be set off only against long-term capital gains. Capital losses (whether short-term or long-term) cannot be set off against income from any other head such as salary, business, or house property. Unabsorbed capital losses can be carried forward for 8 assessment years.
What is the Rs 10 crore cap on Section 54 and 54F exemptions?
An aggregate cap of Rs 10 crore has been imposed on the total exemption that can be claimed under Section 54 and Section 54F combined, for investment in a residential house property. This means the cost of the new residential house for which exemption is claimed cannot exceed Rs 10 crore. This cap was introduced to restrict the benefit for ultra-high-value property transactions.
