When you sell a house, shares, gold or any other investment and make a profit, that
profit is called a capital gain. India taxes this profit differently depending on what
you sold and how long you held it. This guide explains capital gains in simple terms
— including short-term vs long-term rules, tax rates for each asset class and the exemptions available — under the Income-tax Act, 2025, as applicable for
Tax Year 2026-27 (1 April 2026 – 31 March 2027).
Income Tax — Tax Year 2026-27
Capital Gains — Rates and Exemptions
| Asset | STCG | Held > | LTCG |
|---|---|---|---|
| Listed Equity / Equity MF | 20% | 12 months | 12.5% (>₹1.25L) |
| House Property / Plot | Slab rate | 24 months | 12.5% no indexation* |
| Gold / Jewellery | Slab rate | 24 months | 12.5% no indexation |
| Unlisted Shares | Slab rate | 24 months | 12.5% no indexation |
| Debt MF (bought Apr ’23) / Unlisted bonds | Slab rate — always short-term, regardless of holding period | ||
Exemptions (LTCG only)
🏠 Sec 82
Reinvest in property
Max ₹10 cr
🌾 Sec 83
Reinvest in agricultural land – Max ₹10 cr
📜 Sec 85
Invest in specified bonds –
Max ₹50 lakh
🏘 Sec 86
Any asset —
buy house
Max ₹10 cr
What Is a Capital Gain?
A capital gain is the profit you make when you sell a capital asset for more than what you originally paid for it.
Simple example:
| Transaction | Amount |
|---|---|
| You bought a flat in 2018 | ₹40,00,000 |
| You sold it in 2026 | ₹70,00,000 |
| Your capital gain | ₹30,00,000 |
This ₹30,00,000 profit is a capital gain. You must pay income tax on this amount.
If you sold at a loss, it is called a capital loss — which can be set off against other capital gains (subject to rules).
What Is a Capital Asset?
A capital asset is almost any property you own. This includes (as defined under Section 2(22) of the Income-tax Act, 2025):
- Immovable property — house, flat, plot of land, commercial property
- Shares and mutual funds — listed or unlisted equity shares, equity mutual funds, debt mutual funds
- Gold and jewellery — physical gold, gold ETFs, Sovereign Gold Bonds
- Bonds and debentures
- Goodwill, trademarks and patents
What Is NOT a Capital Asset?
The following are excluded from the definition of capital asset — so any profit on selling these is not a capital gain:
| Not a Capital Asset | Example |
|---|---|
| Stock-in-trade (business inventory) | Goods sold by a trader |
| Personal effects (movable) | Car, furniture, clothes |
| Rural agricultural land | Land in a village |
| 6.5% Gold Bonds, Special Bearer Bonds | Specific government securities |
Note: Jewellery, paintings, sculptures and archaeological collections are capital assets even though they are personal effects.
When Does a Capital Gain Arise?
A capital gain arises in any of these situations (chargeable under Section 67 of the Income-tax Act, 2025):
- Sale of the asset — most common situation (selling a house, shares, gold)
- Transfer of the asset — giving property as a gift, exchange or barter
- Compulsory acquisition — government acquires your land under the Land Acquisition Act
- Redemption of mutual funds — switching funds or withdrawing triggers a capital gain
- Buyback of shares — company buys back its own shares
Short-Term vs Long-Term Capital Gains
The most important factor that determines your tax is how long you held the asset before selling.
- If you held it for a short period — it is a Short-Term Capital Gain (STCG).
- If you held it for a long period — it is a Long-Term Capital Gain (LTCG).
Holding Period for Each Asset Class
| Asset Class | Short-Term (held for ≤) | Long-Term (held for >) |
|---|---|---|
| Listed equity shares | 12 months | 12 months |
| Equity mutual funds (incl. ELSS) | 12 months | 12 months |
| Listed bonds and debentures | 12 months | 12 months |
| Unlisted equity shares | 24 months | 24 months |
| House property (residential or commercial) | 24 months | 24 months |
| Plot of land | 24 months | 24 months |
| Gold — physical or jewellery | 24 months | 24 months |
| Gold ETFs and gold mutual funds | 24 months | 24 months |
| Sovereign Gold Bonds (SGBs) | 12 months (if sold before maturity via exchange) | Maturity proceeds fully exempt |
| Debt mutual funds (purchased on/after 1 April 2023) | Always short-term — slab rate regardless of holding period (Section 76) | |
| Debt mutual funds (purchased before 1 April 2023) | 24 months | 24 months |
| Unlisted bonds and debentures | Always short-term — slab rate regardless of holding period | |
Tax Rates on Capital Gains — Tax Year 2026-27
Short-Term Capital Gains (STCG)
| Asset Class | Tax Rate |
|---|---|
| Listed equity shares, equity mutual funds and ETFs (Section 196) | 20% + surcharge + 4% cess |
| All other assets — property, gold, debt funds, unlisted shares | Slab rate (as per your income tax bracket) |
Long-Term Capital Gains (LTCG)
| Asset Class | Tax Rate | Key Notes |
|---|---|---|
| Listed equity shares and equity mutual funds — gains up to ₹1,25,000 | Nil | Exempt per year (Section 198) |
| Listed equity shares and equity mutual funds — gains above ₹1,25,000 (Section 198) | 12.5% (no indexation) | No deduction under Chapter VI-A; Section 156 rebate not available |
| House property (transferred on/after 23 July 2024) | 12.5% (no indexation) | Or 20% with indexation if acquired before 23 Jul 2024 — choose whichever is lower |
| Gold — physical, ETF, jewellery | 12.5% (no indexation) | Or 20% with indexation if acquired before 23 Jul 2024 — choose whichever is lowe |
| Unlisted shares | 12.5% (no indexation) | Or 20% with indexation if acquired before 23 Jul 2024 — choose whichever is lowe |
| Unlisted bonds and debentures | 12.5% (no indexation) | Or 20% with indexation if acquired before 23 Jul 2024 — choose whichever is lowe |
| Debt mutual funds purchased before 1 April 2023, held > 24 months | 12.5% (no indexation) or 20% with indexation | Choose whichever results in lower tax where applicable |
| Sovereign Gold Bonds — redeemed at maturity | Exempt | Maturity redemption is fully tax-free |
Note: These rates apply for Tax Year 2026-27 (income of FY 2025-26 under the erstwhile Income-tax Act, 1961, was governed by the same Finance (No. 2) Act, 2024 rates).
Surcharge and Health & Education Cess apply on top of the base rates shown.
What Is Indexation?
Indexation adjusted your purchase price using the Cost Inflation Index (CII) published each year by the government, to arrive at a fair taxable gain. Example: if you bought a property for ₹30 lakh in 2010 and the CII adjustment makes it ₹55 lakh, your taxable gain was calculated as sale price minus ₹55 lakh — not ₹30 lakh.
For properties transferred on or after 23 July 2024, indexation has been removed. The flat rate is 12.5% with no inflation adjustment — except that individuals and HUFs who acquired land or a building before 23 July 2024 may choose whichever is lower of: (a) 12.5% without indexation, or (b) 20% with indexation.
How to Compute Capital Gains
For Immovable Property
Full Value of Consideration (sale price)
minus Cost of Acquisition (purchase price)
minus Cost of Improvement (renovation, construction additions)
minus Transfer Expenses (stamp duty on purchase, brokerage, legal fees)
= Capital Gain
For Listed Shares and Equity Mutual Funds
For shares purchased before 31 January 2018, there is a grandfathering provision — the cost of acquisition is the higher of:
- The actual purchase price, or
- The fair market value (highest price on stock exchange) as on 31 January 2018
This ensures you are not taxed on gains that accrued before the LTCG tax was reintroduced.
Exemptions on Long-Term Capital Gains
The Income-tax Act, 2025 provides several exemptions that allow you to legally avoid or reduce capital gains tax by reinvesting the proceeds. The old Sections 54, 54B, 54D, 54EC and 54F under the 1961 Act have been renumbered — the substantive conditions are unchanged.
Section 82 — Sale of Residential House Property (erstwhile Section 54)
| Condition | Details |
|---|---|
| Asset sold | Residential house property (LTCG) |
| Reinvestment required | Purchase one or two residential houses in India (two-house option available only if gains ≤ ₹2 crore) |
| Time limit to purchase | Within 1 year before or 2 years after sale |
| Time limit to construct | Within 3 years of sale |
| Maximum exemption | ₹10 crore |
| Deposit exemption | If not reinvested before ITR due date, deposit in Capital Gains Account Scheme (CGAS) |
Section 83 — Sale of Agricultural Land (erstwhile Section 54B)
| Condition | Details |
|---|---|
| Asset sold | Agricultural land used by the taxpayer or their parents for 2 years |
| Reinvestment required | Purchase agricultural land within 2 years |
| Eligible taxpayer | Individual or HUF |
Section 85 — Investment in Specified Bonds (erstwhile Section 54EC)
| Condition | Details |
|---|---|
| Asset sold | Any long-term asset — land, building, or both, held > 24 months |
| Time limit | Invest in specified bonds (NHAI, REC, PFC, IRFC, notified HUDCO bonds) within 6 months of transfer |
| Maximum investment | ₹50 lakh per financial year |
| Lock-in period | 5 years |
Section 86 — Any Long-Term Asset (Other Than House) (erstwhile Section 54F)
| Condition | Details |
|---|---|
| Asset sold | Any long-term capital asset except residential house |
| Reinvestment required | Purchase ONE residential house in India |
| Time limit to purchase | Within 1 year before or 2 years after sale |
| Time limit to construct | Within 3 years of sale |
| Exemption calculation | Entire net sale consideration (not just gain) must be reinvested for full exemption |
| Maximum exemption | ₹10 crore |
| Condition | Taxpayer must not own more than one other residential house (excluding the new one) at the time of sale |
Section 84 — Compulsory Acquisition of Industrial Land/Building (erstwhile Section 54D)
Applies when industrial land or building is compulsorily acquired by the government. The exemption is available if reinvested in industrial land or building within 3 years.
Capital Gains Account Scheme (CGAS)
If you cannot reinvest the sale proceeds before your ITR filing due date for Tax Year 2026-27 (31 July 2027 for individuals not subject to audit), you must:
- Deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) account at an authorised bank, before the ITR due date (Section 263(1) of the Income-tax Act, 2025).
- Claim the exemption in your ITR.
- Withdraw only for the specified purpose (buying or constructing a house, etc.) within the prescribed period.
Failure to open a CGAS account before the ITR due date means the exemption is forfeited for that year; and any amount not utilised within the 2-year (purchase) or 3-year (construction) window is taxed as capital gains in the year that period expires.
Setting Off Capital Losses
Capital losses can be set off against capital gains as follows:
| Type of Loss | Can Be Set Off Against |
|---|---|
| Short-term capital loss | STCG or LTCG from any asset |
| Long-term capital loss | LTCG only (against gain from any asset) |
| Losses that cannot be set off in the current year | Can be carried forward for up to 8 assessment/tax years |
Key rule: Long-term capital loss from equity shares and equity mutual funds can now be set off against LTCG — this is applicable from AY 2019-20 onwards and continues under the new Act.
Reporting Capital Gains in ITR
- Use ITR-2 (if no business income) or ITR-3 (if business income exists) to report capital gains.
- ITR-1 (Sahaj) cannot be used if you have capital gains.
- Report each transaction under the Schedule CG of the ITR.
- Equity mutual fund and share transaction details are pre-filled in the Income Tax Department’s e-filing portal — verify carefully before filing.
The information provided herein is for general guidance and informational purposes only. For advice tailored to your specific situation, please consult a qualified Chartered Accountant.