What is Long-Term Capital Gains (LTCG)?
Long-Term Capital Gains (LTCG) applies when you sell a capital asset, meaning anything you own for investment such as shares, mutual fund units, a house or gold, and you have held it longer than the minimum period the Income Tax Act sets for that asset type. The government taxes this gain separately from your salary or business income, as one of the five heads of income tax you report each year.
India has taxed long-term equity gains this way since 2018, when the earlier full exemption on listed shares and equity mutual funds was withdrawn. The rules were revised again in the Union Budget 2024, presented on 23 July 2024, which raised both the tax rate and the exemption limit for equity, and simplified the holding-period rules across other asset classes.
The Securities and Exchange Board of India (SEBI), which regulates stock exchanges and mutual funds, and the Central Board of Direct Taxes (CBDT), which frames income tax rules, both shape how LTCG is calculated and reported. Getting the holding period and asset category right matters, because it decides whether your gain is taxed at the lower LTCG rate or at your regular income slab rate.
Did You Know?
Before Budget 2024, equity LTCG was taxed at 10% above a ₹1 lakh exemption. The government raised both figures with effect from 23 July 2024, to 12.5% above ₹1.25 lakh, as confirmed in the Union Budget 2024-25 press release on capital gains from the Press Information Bureau.
How Does LTCG Work?
LTCG becomes relevant only when you actually sell or redeem an asset; gains on paper, while you continue holding it, are not taxed. Here is how it plays out in practice:
- You buy and hold the asset. The clock for the LTCG holding period starts from the date of purchase or allotment, not the date you decide to sell.
- You cross the minimum holding period. This is more than 12 months for listed securities like equity shares and equity mutual funds, and more than 24 months for property, gold and most other assets.
- You sell or redeem the asset. The gain is the difference between what you receive and what you originally paid, adjusted for costs directly tied to the sale.
- The exemption, where applicable, is applied. For equity investments under Section 112A, the first ₹1.25 lakh of LTCG in a financial year is tax-free; only the amount above that is taxed.
- Tax is paid. This happens either through TDS deducted by the broker or fund house (common for NRIs), advance tax during the year, or self-assessment tax when you file your return.
Pro Tip
If you are close to using up your ₹1.25 lakh equity LTCG exemption for the year, consider staggering large redemptions across two financial years instead of selling everything at once; this can let you use the exemption twice instead of once.
LTCG Formula
LTCG Formula: LTCG = Full Value of Consideration − Cost of Acquisition − Cost of Improvement − Expenses on Transfer Where: Full Value of Consideration = the price you receive when you sell or redeem the asset Cost of Acquisition = what you originally paid to buy the asset, including brokerage paid at purchase Cost of Improvement = money spent on improving the asset, mainly relevant for property (renovation, structural additions) Expenses on Transfer = costs paid to complete the sale itself, such as brokerage, stamp duty or legal fees |
Indexation, which once adjusted the cost of acquisition and improvement for inflation using the Cost Inflation Index published by the Income Tax Department, has been removed for most assets sold on or after 23 July 2024. One exception survives: resident individuals and HUFs selling property bought before that date can still choose the older, indexed 20% rate if it works out cheaper (see the Types section below).
Example with Real Numbers
Imagine Rohan, a 42-year-old marketing manager based in Pune, bought units of an equity mutual fund in June 2022 and sells them in September 2026, after holding them for more than four years. Given: Sale value: ₹9,50,000 Cost of acquisition (original investment): ₹6,00,000 Holding period: over 12 months, so the gain qualifies as long-term Calculation: LTCG = ₹9,50,000 − ₹6,00,000 = ₹3,50,000 Less exemption under Section 112A: ₹1,25,000 Taxable LTCG = ₹3,50,000 − ₹1,25,000 = ₹2,25,000 Tax payable = ₹2,25,000 × 12.5% = ₹28,125 This means Rohan pays ₹28,125 in LTCG tax on this redemption, not tax on the full ₹3,50,000 gain, because the first ₹1.25 lakh of his equity LTCG for the financial year is exempt. |
Types of LTCG by Asset Class
How much LTCG tax you pay, and after how long, depends heavily on what you are selling. The Income Tax Act splits capital assets into a few broad buckets, each with its own holding period and rate.
Listed Equity Shares & Equity Mutual Funds
Shares listed on a stock exchange like the NSE or BSE, and equity-oriented mutual funds where at least 65% of the portfolio is in Indian equities, qualify for LTCG once held for more than 12 months. Gains above ₹1.25 lakh in a financial year are taxed at 12.5% under Section 112A, provided securities transaction tax (STT) was paid on the sale.
Listed Bonds, Debentures & Other Listed Securities
Non-equity instruments listed on an exchange, such as listed non-convertible debentures (NCDs) or government securities traded on the market, also use the 12-month holding period. See our Bonds glossary entry for how these instruments work. Gains are taxed at 12.5%, without indexation, once the holding period is crossed.
Real Estate (Immovable Property)
A house, plot or commercial property must be held for more than 24 months to count as long-term. If you bought the property on or after 23 July 2024, the gain is taxed at 12.5% with no indexation. If you are a resident individual or HUF and bought it before that date, you can choose between 12.5% without indexation or 20% with indexation, whichever works out cheaper for you.
Gold, Unlisted Shares & Other Unlisted Assets
Physical gold, digital gold and gold ETFs held over 24 months, along with unlisted shares or bonds, also need a holding period beyond 24 months. Like real estate bought after 23 July 2024, these are taxed at 12.5% with no indexation. Our Digital Gold glossary entry covers this in more detail for gold specifically.
Debt Mutual Funds
This is the exception worth remembering. Debt mutual fund units, and other ‘specified mutual funds’ under Section 50AA where more than 65% of the portfolio is in debt instruments, bought on or after 1 April 2023, get no LTCG treatment at all. Gains are added to your income and taxed at your regular income tax slab rate, regardless of how long you hold them. Units bought before that date retain the older long-term treatment if held beyond 24 months.
Quick Comparison: LTCG by Asset Type
| Asset Type | Holding Period for LTCG | LTCG Tax Rate |
| Listed equity shares / equity mutual funds | More than 12 months | 12.5% above ₹1.25 lakh/year (Section 112A) |
| Listed bonds, debentures & other listed securities | More than 12 months | 12.5%, no indexation |
| Real estate bought on/after 23 Jul 2024 | More than 24 months | 12.5%, no indexation |
| Real estate bought before 23 Jul 2024 (resident individual/HUF) | More than 24 months | Lower of 12.5% (no indexation) or 20% (with indexation) |
| Gold, unlisted shares & unlisted bonds | More than 24 months | 12.5%, no indexation |
| Debt mutual funds bought on/after 1 Apr 2023 | Not applicable | No LTCG benefit; taxed at your income slab rate |
Key Components of LTCG
- Holding Period: the length of time you owned the asset before selling, counted from the purchase or allotment date to the sale date. This decides whether you are in LTCG or short-term capital gains (STCG) territory, which is usually taxed at a higher rate.
- Cost of Acquisition: what you originally paid for the asset, including purchase-related charges like brokerage. This is subtracted from the sale price to arrive at your gain.
- Exemption Threshold (Section 112A): for equity investments only, the first ₹1.25 lakh of LTCG in a financial year is tax-free. This resets every financial year and does not carry forward if unused.
- Indexation: an inflation adjustment to cost that reduces taxable gain, now available only in the one legacy case for pre-23 July 2024 real estate held by resident individuals and HUFs.
- Exemption Sections (54, 54EC, 54F): separate provisions that let you defer or reduce LTCG tax on property by reinvesting the gain into another house (Section 54), into specified bonds (Section 54EC), or into a house using proceeds from any long-term asset’s sale (Section 54F).
Benefits of LTCG Treatment
- Lower tax rate than short-term gains: LTCG is taxed at 12.5%, compared with 20% for short-term equity gains or your income slab rate for many other short-term gains, rewarding patience over quick trading.
- An annual exemption on equity gains: the ₹1.25 lakh exemption under Section 112A means many long-term equity investors, especially those with moderate portfolios, pay little to no LTCG tax in most years.
- Predictable retirement income planning: because LTCG tax is generally lower and more predictable than income tax on other sources, it fits well into structured withdrawal strategies; our SWP Advisors service works through this kind of sequencing in detail.
- Multiple ways to defer or reduce tax: provisions such as Section 54EC bonds give property sellers a legitimate way to lower their LTCG tax bill by reinvesting gains, rather than avoiding tax through non-compliance.
Risks & Limitations of LTCG
- The equity exemption does not carry forward: if you do not use your ₹1.25 lakh exemption in a given financial year, it is lost; it cannot be carried to the next year.
- Debt mutual funds get no LTCG benefit at all: funds bought on or after 1 April 2023 are always taxed at your slab rate, which can be a costly surprise for investors who assume every mutual fund qualifies for LTCG treatment.
- Indexation removal raises effective tax on inflation-heavy gains: for assets held many years where prices simply tracked inflation, losing indexation can mean paying tax on a gain that is not, in real terms, much of a gain at all.
- TDS timing can create cash-flow mismatches: NRIs, in particular, often have TDS deducted on the full sale value at redemption and must file a return to claim back any excess, which can tie up money for months.
- Misreporting risk in your ITR: capital gains must be reported asset-by-asset in Schedule CG; mixing up short-term and long-term gains, or the wrong section, is a common and avoidable filing error. Check your figures against your broker or fund house’s capital gains statement and Form 26AS/AIS before filing (see our ITR-2 glossary entry).
Important
A common mistake is assuming every mutual fund gets favourable LTCG treatment. Debt-oriented funds bought on or after 1 April 2023 do not, however long you hold them.
Frequently Asked Questions
What is LTCG in simple terms?
Long-Term Capital Gains (LTCG) is the profit you make when you sell an investment, like shares, mutual funds, property or gold, after holding it for longer than a set minimum period. It is taxed separately from your salary income, usually at a lower rate than short-term gains.
How is LTCG calculated?
You subtract what you originally paid for the asset, plus any costs directly tied to the sale, from what you sold it for. The result is your capital gain. For equity investments, you then subtract the ₹1.25 lakh annual exemption before applying the 12.5% tax rate.
What is the current LTCG tax rate in India?
Most long-term gains are taxed at 12.5% following the 2024 Budget changes. Equity shares and equity mutual funds get an additional ₹1.25 lakh exemption each financial year under Section 112A; other assets like gold, bonds and most property do not get this exemption.
How is LTCG different from short-term capital gains (STCG)?
STCG applies when you sell before the minimum holding period, which is 12 months for listed securities or 24 months for most other assets. STCG on equity is taxed at 20%, and STCG on many other assets is added to your income and taxed at your slab rate, both generally higher than LTCG rates.
What affects how much LTCG tax I actually pay?
Three things matter most: which asset type you are selling, how long you held it, and whether you can claim an exemption, such as the ₹1.25 lakh equity exemption or a reinvestment exemption like Section 54EC for property.
Does LTCG work differently for NRIs?
The tax rates are the same for NRIs and resident Indians. The practical difference is TDS: for NRIs, the fund house or buyer usually deducts tax at source on the full transaction, and the ₹1.25 lakh exemption often is not applied upfront. NRIs typically need to file an Indian income tax return to claim back any excess TDS.
Is it true that the ₹1.25 lakh exemption applies to each mutual fund I hold separately?
No, this is a common misunderstanding. The ₹1.25 lakh exemption under Section 112A applies to your total equity LTCG across all your shares and equity mutual funds combined in a financial year, not separately to each investment.
When should I think about LTCG while making investment decisions?
It is worth checking before any large redemption, property sale, or portfolio rebalancing, since the tax difference between selling a few weeks before versus after the holding-period threshold can be significant. A financial planner can help you sequence sales to use exemptions efficiently across years.