Capital Gains Tax Under the Income-tax Act, 2025 — Complete Guide
Quick Answer
Capital gains under the Income-tax Act, 2025 (Act 30 of 2025, assented 21 August 2025, commencing 1 April 2026) follow the Budget 2024 framework: a uniform 12.5 per cent LTCG rate without indexation, a 20 per cent STCG rate on listed equity and equity mutual funds, and a two-tier holding period — 12 months for listed securities and 24 months for all other assets. A Rs 1,25,000 annual LTCG exemption applies to listed equity. Resident individuals and HUFs can elect 20 per cent with indexation instead of 12.5 per cent on land or building acquired before 23 July 2024. Sections 54, 54F and 54EC exemptions are retained.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
Capital gains is the most structurally rewritten head under the 2025 Act. While the rewrite itself is linguistic, the underlying rules were fundamentally reshaped by Finance (No. 2) Act, 2024 — with effect from 23 July 2024 — and the 2025 Act carries those rules forward verbatim. The changes matter because they simultaneously simplified and tightened the framework: indexation benefit has been withdrawn across the board, the LTCG rate has been unified at 12.5 per cent, the STCG rate on equity has jumped to 20 per cent, holding periods have been rationalised into two tiers, and a transitional election has been created for long-held real estate. This guide walks through every computation, every exemption and every worked example a resident or non-resident taxpayer needs for tax year 2026-27 onwards.
Definition — Capital asset (under the Income-tax Act, 2025): Property of any kind held by an assessee, whether or not connected with business or profession, but excluding stock-in-trade (other than securities held by an FII), personal effects (other than jewellery, archaeological collections, drawings, paintings, sculptures and works of art), agricultural land in specified areas, specified gold and sovereign gold bonds, and specified bullion instruments. Transfer of a capital asset is the triggering event for capital gains taxation.
Capital gain = Full value of consideration minus (cost of acquisition + cost of improvement + expenditure on transfer). For short-term capital assets (holding period 12 months or less for listed securities, 24 months or less for other assets), the gain is added to total income and taxed at slab rate, except for listed equity/equity mutual funds which attract the flat 20 per cent STCG rate (Section 111A equivalent). For long-term capital assets, the gain is taxed at 12.5 per cent flat without indexation. Listed equity/equity mutual funds enjoy a Rs 1,25,000 annual LTCG exemption. Resident individuals and HUFs may elect the older 20 per cent with indexation for land or building held before 23 July 2024 if that yields lower tax.
Table of Contents
- Charging scheme under the 2025 Act
- Holding periods — short-term vs long-term
- LTCG and STCG rates
- Computation of capital gain
- Transitional rule for old land & buildings
- Section 54, 54F, 54EC exemptions
- Slump sale and specified transactions
- Conversion of stock-in-trade into capital asset
- Capital losses — set-off and carry forward
- Worked examples
- Related articles in the series
- Expert Insight
- Key Takeaways
- Frequently Asked Questions
1. Charging scheme under the 2025 Act
Chapter IV of the Income-tax Act, 2025 retains the five-head structure. The Capital Gains head corresponds to Sections 45 to 55A of the 1961 Act. The charging event is “transfer” of a capital asset, which the Act defines broadly to include sale, exchange, relinquishment, extinguishment of rights, compulsory acquisition, conversion into stock-in-trade, and specific corporate actions (amalgamation, demerger, capital reduction, share buy-back for certain categories). Certain transactions are treated as transfers even where no consideration flows — gifts to a non-relative above the Rs 50,000 threshold, for instance, can trigger both capital gains in the donor and other-sources income in the donee.
Terminology: the “previous year” and “assessment year” concepts are replaced by a single tax year. Tax year 2026-27 is the first tax year under the 2025 Act. A capital gain is taxable in the tax year in which the transfer takes place, except where the Act specifies a different year (joint development agreements, for instance, have their own timing rule under the Section 45(5A) equivalent).
2. Holding periods — short-term vs long-term
Budget 2024 rationalised the holding periods and these are retained in the 2025 Act. The two-tier classification is:
| Asset class | Long-term if held for |
|---|---|
| Listed equity shares (recognised stock exchange) | More than 12 months |
| Units of equity-oriented mutual funds | More than 12 months |
| Listed bonds, debentures and zero-coupon bonds | More than 12 months |
| Units of Business Trust (REITs, InvITs) | More than 12 months |
| Unlisted shares (including foreign company shares) | More than 24 months |
| Immovable property (land, building) | More than 24 months |
| Gold and other bullion | More than 24 months |
| Debt mutual funds (specified after 1 April 2023) | Always short-term regardless of holding (deemed STCG at slab rate) |
| Any other capital asset | More than 24 months |
Debt mutual funds where more than 35 per cent is invested in Indian equities but not qualifying as equity-oriented (between 36 and 65 per cent equity) are treated as long-term after 24 months and taxed at 12.5 per cent. Pure debt funds (equity less than 35 per cent) purchased on or after 1 April 2023 are deemed short-term regardless of holding and taxed at slab rates, per the Section 50AA equivalent.
3. LTCG and STCG rates
| Asset | STCG rate | LTCG rate |
|---|---|---|
| Listed equity / equity MF (STT paid) | 20% (up from 15%) | 12.5% (up from 10%), exemption Rs 1,25,000 per year |
| Unlisted shares | Slab rate | 12.5% without indexation (down from 20% with indexation) |
| Immovable property (land, building) | Slab rate | 12.5% without indexation; transitional election available (see next section) |
| Gold, jewellery, bullion | Slab rate | 12.5% without indexation |
| Debt MF (post 1 April 2023) | Slab rate | Slab rate (no LTCG treatment) |
| Listed bonds, debentures | Slab rate | 12.5% without indexation |
| Virtual Digital Asset (crypto, NFT) | Flat 30% | Flat 30% (no benefit of holding period) |
Surcharge on LTCG is capped at 15 per cent across all income brackets, unlike the 25 per cent / 37 per cent surcharge on other income. The 37 per cent highest surcharge on income from non-capital sources has been abolished under the new regime and capped at 25 per cent.
4. Computation of capital gain
Capital gain = Full value of consideration minus (Cost of acquisition + Cost of improvement + Expenditure on transfer).
- Full value of consideration: Actual consideration, but for immovable property the stamp duty value is adopted if higher than the actual consideration (Section 50C equivalent), with a safe harbour of 10 per cent tolerance.
- Cost of acquisition: Actual cost, with step-up rules for inherited or gifted assets (cost to the previous owner), and grandfathering for listed equity held on or before 31 January 2018 (Section 112A grandfathering).
- Cost of improvement: Capital expenditure on the asset after acquisition, excluding routine repairs or maintenance.
- Expenditure on transfer: Brokerage, legal fees, stamp duty, registration expenses, commission paid to agents.
Indexation benefit is abolished except for the narrow transitional election discussed in the next section. The cost inflation index is no longer applied to LTCG computation.
5. Transitional rule for old land & buildings
For transfers by resident individuals or Hindu Undivided Families of land or building (or both) acquired on or before 23 July 2024, the taxpayer may elect between two tax computations:
- 12.5 per cent of LTCG without indexation (the new default rule), OR
- 20 per cent of LTCG with indexation (the pre-Budget-2024 rule, using the cost inflation index and indexed cost of acquisition)
The taxpayer picks whichever yields lower tax. Non-residents, companies, LLPs, firms and AOPs do not get this election — they always pay 12.5 per cent without indexation. The election is made transaction-wise, not year-wise, so on the same return you can elect differently on different properties.
Option A (12.5% without indexation): LTCG = 1,20,00,000 – 20,00,000 = Rs 1,00,00,000. Tax at 12.5% = Rs 12,50,000.
Option B (20% with indexation): LTCG = 1,20,00,000 – 58,00,000 = Rs 62,00,000. Tax at 20% = Rs 12,40,000.
Option B wins by Rs 10,000. Shrinivas elects the indexation option, which is available only because he is a resident individual and bought the asset before 23 July 2024. For longer holdings or heavier indexation, the savings in Option B can be much larger.
6. Section 54, 54F, 54EC exemptions
Section 54 — Sale of residential house
LTCG on transfer of a long-term residential house is exempt to the extent invested in another residential house in India, purchased within 1 year before or 2 years after transfer, or constructed within 3 years after transfer. Key features:
- Maximum exemption capped at Rs 10 crore (Finance Act, 2023)
- Only one residential house can be purchased — except that a one-time election to buy two houses is available if the gain does not exceed Rs 2 crore
- Unutilised amount must be deposited in the Capital Gains Account Scheme (CGAS) before the due date of return filing, and utilised within the prescribed period
- New house cannot be transferred within 3 years; if it is, the exemption is withdrawn
Section 54F — Sale of any other long-term asset
LTCG on transfer of a long-term asset (other than a residential house) is exempt to the extent the net consideration (not just the gain) is invested in the purchase or construction of a residential house. The exemption is proportional if only part of the net consideration is reinvested:
Exempt gain = (Amount invested / Net consideration) x Long-term capital gain
- Cap of Rs 10 crore on amount invested
- Assessee must not own more than one residential house (other than the new house) on the date of transfer
- Cannot purchase or construct another residential house within 2/3 years of the original transfer (other than the new house)
Section 54EC — Investment in specified bonds
LTCG on land or building (or both) can be exempted by investment in specified bonds (NHAI, REC, PFC, IRFC) within 6 months of transfer. Maximum investment is Rs 50 lakh per tax year across the current and the immediately following tax year combined (so effectively Rs 50 lakh in total for gains from a single transfer). Bonds have a 5-year lock-in. If bonds are transferred or converted into cash within 5 years, the exemption is withdrawn and the amount is deemed LTCG in that year.
7. Slump sale and specified transactions
A slump sale is a transfer of an undertaking as a going concern for lump sum consideration without values being assigned to individual assets and liabilities (Section 50B equivalent). The capital gain is:
Sale consideration (or FMV of the undertaking, if higher) minus Net worth (assets less liabilities, without revaluation).
Long-term slump-sale gain (undertaking held more than 36 months) is taxed at 12.5 per cent; short-term at slab rate. Specified transactions with their own timing/valuation rules include joint development agreements (Section 45(5A) equivalent, taxed in the year of completion certificate), company buy-back of listed shares (now taxed as deemed dividend in the hands of the shareholder, post the Finance Act, 2024 reform), and compulsory acquisition (taxed in the year compensation is first received).
8. Conversion of stock-in-trade into capital asset
The 2025 Act retains the symmetric treatment of conversions introduced in 2018. If stock-in-trade is converted into a capital asset, the FMV on the date of conversion is treated as business income in the year of conversion. When the converted asset is later transferred, the same FMV becomes the cost of acquisition, and the difference between sale consideration and FMV is taxed as capital gain. Holding period for long-term classification runs from the date of conversion.
Conversely, when a capital asset is converted into stock-in-trade, the FMV on the date of conversion is deemed full value of consideration for capital gains (taxable in the year of actual sale of stock) and also becomes the cost for business profit computation.
9. Capital losses — set-off and carry forward
| Type of loss | Intra-head set-off (same year) | Carry forward |
|---|---|---|
| Short-term capital loss | Against STCG and LTCG | 8 tax years; against STCG or LTCG |
| Long-term capital loss | Only against LTCG | 8 tax years; only against LTCG |
Capital loss cannot be set off against income from other heads (salary, business, other sources). Carry forward is conditional on filing the return by the due date. No carry forward of loss from VDA (cryptocurrency) transfers is allowed, and VDA losses cannot be set off against any other head.
10. Worked examples
Priya sells listed equity shares in August 2026. Sale consideration Rs 15,00,000; cost of acquisition Rs 7,00,000; holding period 28 months.
LTCG = 15,00,000 – 7,00,000 = Rs 8,00,000
Less: Annual exemption Rs 1,25,000
Taxable LTCG = Rs 6,75,000
Tax at 12.5% = Rs 84,375
Add: Health & education cess 4% = Rs 3,375
Total tax on LTCG = Rs 87,750
Rohit sells his Chennai flat in September 2026 for Rs 1,80,00,000. Flat was bought in 2012 for Rs 50,00,000. He buys a new flat in Bengaluru for Rs 1,40,00,000 in March 2027.
LTCG = 1,80,00,000 – 50,00,000 = Rs 1,30,00,000 (he is a resident individual; could elect indexation if beneficial)
Exemption under Section 54 = Rs 1,30,00,000 (but capped at investment of Rs 1,40,00,000, so full gain is exempt)
Taxable LTCG = Nil
If Rohit had invested only Rs 80,00,000 in the new flat, exemption = Rs 80,00,000 (amount invested); taxable LTCG = Rs 50,00,000 x 12.5% = Rs 6,25,000 plus cess.
Meera sells listed equity shares held for 9 months in December 2026 for Rs 6,00,000. Cost of acquisition Rs 4,50,000.
STCG = Rs 1,50,000
Tax at 20% = Rs 30,000
Add: Cess 4% = Rs 1,200
Total tax on STCG = Rs 31,200
This STCG is not eligible for the Rs 1,25,000 exemption; that exemption applies only to LTCG under the Section 112A equivalent.
11. Related articles in the series
- Salary Income under the Income-tax Act, 2025
- House Property Income under the 2025 Act
- Business & Profession Income under the 2025 Act
- Income from Other Sources under the 2025 Act
- Section 54 house property exemption guide
- Cryptocurrency and VDA taxation under the 2025 Act
Expert Insight
CA V. Viswanathan: Three patterns dominate capital gains planning in my practice under the 2025 Act. First, the transitional election on old real estate is genuinely valuable and is being missed by a lot of taxpayers. For any resident individual or HUF selling land or building acquired before 23 July 2024, you must compute both the 12.5 per cent flat tax and the 20 per cent with indexation tax, and pick the lower. For pre-2010 acquisitions of urban flats, the indexation route is almost always better because the cost base steps up dramatically. For post-2020 acquisitions, the flat 12.5 per cent usually wins. Document the CII multiplication and keep the working with the return. Second, Section 54 and 54F reinvestment planning still works well with the Rs 10 crore cap. Clients with a single large residential house sale can defer tax indefinitely by rotating into another residential house every few years. But the 10 crore cap does bite on ultra-high-value transactions, and wealth-tier clients need to layer 54EC bonds (up to Rs 50 lakh) alongside 54/54F for full coverage. Third, the 20 per cent STCG rate on equity is easy to forget because retail investors still think of 15 per cent as the equity rate. Always confirm your STCG tax before short-dated trades. Finally, remember that the uniform 12.5 per cent LTCG rate has effectively made unlisted shares and debt instruments much more attractive: what used to attract 20 per cent with indexation for unlisted shares is now a flat 12.5 per cent with no indexation — a real benefit for PE, start-up and private company exits.
Key Takeaways
- Income-tax Act, 2025 received assent on 21 August 2025 and commences 1 April 2026; first tax year is 2026-27.
- LTCG rate unified at 12.5 per cent without indexation across all asset classes.
- STCG on listed equity and equity MF taxed at 20 per cent (up from 15 per cent).
- Holding periods: 12 months for listed securities, 24 months for all other assets.
- Rs 1,25,000 annual LTCG exemption on listed equity / equity MF (up from Rs 1 lakh).
- Transitional election for resident individuals/HUFs: 20 per cent with indexation vs 12.5 per cent flat on land/building acquired before 23 July 2024.
- Section 54 / 54F exemptions retained, capped at Rs 10 crore.
- Section 54EC bond investment Rs 50 lakh cap, 5-year lock-in.
- LTCG surcharge capped at 15 per cent, unlike non-capital income.
- Capital loss set off restricted to capital gains; carry forward 8 tax years.
Frequently Asked Questions
When does the Income-tax Act, 2025 start applying to capital gains?
The Act (30 of 2025) received assent on 21 August 2025 and commences on 1 April 2026. Transfers on or after 1 April 2026 are taxed under the 2025 Act. The underlying rate rules (12.5 per cent LTCG, 20 per cent STCG) were introduced by Finance (No. 2) Act, 2024 and already apply to transfers from 23 July 2024.
What is the new LTCG rate under the 2025 Act?
LTCG on all asset classes is taxed at a uniform 12.5 per cent flat without indexation. Listed equity / equity MF enjoy an annual exemption of Rs 1,25,000 before the 12.5 per cent rate applies.
What is the STCG rate on listed equity?
20 per cent, up from 15 per cent. This applies to listed equity shares and equity-oriented mutual fund units on which STT is paid. STCG on other assets is taxed at the applicable slab rate.
What are the holding periods for long-term classification?
Two tiers: 12 months for listed securities (equity, equity MF, listed bonds, Business Trust units); 24 months for all other assets (unlisted shares, real estate, gold, debt MF, etc.). The 36-month tier has been abolished.
Is the transitional indexation election available for old real estate?
Yes. Resident individuals and HUFs selling land or building acquired before 23 July 2024 may elect between 12.5 per cent without indexation and 20 per cent with indexation. Non-residents, companies and firms do not get this election.
What is the Rs 1.25 lakh exemption?
LTCG on listed equity and equity-oriented mutual funds on which STT is paid is exempt up to Rs 1,25,000 per tax year per taxpayer. Only the amount beyond Rs 1,25,000 is taxed at 12.5 per cent.
Is indexation benefit still available?
Largely abolished. The only exception is the transitional election for resident individuals and HUFs on land or building acquired before 23 July 2024.
What is the Section 54 exemption?
LTCG on sale of a residential house (held more than 24 months) is exempt if invested in another residential house in India within 1 year before or 2 years after (purchase) or 3 years after (construction). Capped at Rs 10 crore investment.
What is the Section 54F exemption?
LTCG on any long-term asset (other than a residential house) is exempt to the extent net consideration (not just gain) is invested in a residential house, proportionally if only part is invested. Also capped at Rs 10 crore.
How is a slump sale taxed?
Capital gain = sale consideration (or FMV, if higher) minus net worth of the undertaking. Long-term if undertaking held more than 36 months, taxed at 12.5 per cent. Short-term is taxed at slab rate.
How is conversion of stock-in-trade into capital asset taxed?
FMV on the date of conversion is treated as business income in the year of conversion. That FMV becomes cost of acquisition for subsequent capital gains computation. Holding period starts from the conversion date.
What is Section 54EC?
LTCG on land or building can be exempted by investment of up to Rs 50 lakh in specified bonds (NHAI, REC, PFC, IRFC) within 6 months of transfer. Bonds have a 5-year lock-in.
How are capital losses treated?
Short-term loss against any capital gain; long-term loss only against LTCG. Carry forward 8 tax years. Cannot be set off against other heads. No set-off or carry forward for VDA losses.
How are ESOP sales taxed?
On exercise, FMV minus exercise price is taxable as salary perquisite. On sale, sale price minus FMV on exercise date is taxable as capital gain. Holding period runs from the exercise date, not grant date.
Does Section 112A grandfathering continue?
Yes. For listed equity and equity MF acquired on or before 31 January 2018, the cost of acquisition is stepped up to the higher of actual cost or FMV on 31 January 2018. This grandfathering carries forward into the 2025 Act unchanged.
For a personalised capital gains tax review for tax year 2026-27, contact our team at virtualauditor.in/contact-us or call +91 99622 60333.