LTCG vs STCG in India: How Capital Gains Tax Works

When you sell an asset — shares, mutual funds, property, or gold — the profit is called a capital gain. The Indian Income Tax Act splits these gains into two buckets: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). The bucket you fall into determines your tax rate, and the difference can be significant.

What Decides Short-Term vs Long-Term?

The holding period varies by asset class. Here is a quick reference for FY 2025-26:

The clock starts on the date of purchase and stops on the date of sale.

STCG Tax Rates

Short-term gains are generally taxed at higher rates:

• Listed equity and equity-oriented MFs (Section 111A): 20% flat (plus 4% cess = 20.8% effective). This applies only if Securities Transaction Tax (STT) was paid.
• All other assets (debt MFs, property, gold, etc.): Added to your total income and taxed at your applicable income tax slab rate.

Example: Rahul earns ₹8 lakh in salary and makes ₹1 lakh STCG on a debt fund sold within 18 months. That ₹1 lakh is added to his income, making taxable income ₹9 lakh, taxed at the new regime slab rates.

LTCG Tax Rates

Long-term gains enjoy preferential rates:

• Listed equity and equity-oriented MFs (Section 112A): 12.5% on gains above ₹1.25 lakh per financial year (no indexation benefit, STT must have been paid). The first ₹1.25 lakh of equity LTCG is fully exempt.
• Property, gold, unlisted shares (Section 112): 12.5% without indexation, or 20% with indexation (indexation benefit applies to assets acquired before 23 July 2024; post that date, 12.5% without indexation is mandatory).
• Debt mutual funds purchased after 1 April 2023: Taxed at slab rates regardless of holding period — the LTCG benefit was removed for new purchases.

The ₹1.25 Lakh Equity Exemption — Harvesting Strategy

Every financial year you can book up to ₹1.25 lakh in equity LTCG completely tax-free. Many investors use tax-loss harvesting or gain harvesting to optimise this:

Annual equity LTCG exemption: ₹1,25,000

If your unrealised LTCG = ₹3,00,000
Sell enough units to realise ₹1,25,000 → Zero tax
Remaining ₹1,75,000 stays invested (clock resets)
Net tax saved vs selling all at once: ₹1,75,000 × 12.5% = ₹21,875

You can repurchase the same units immediately — there is no wash-sale rule in India.

Property Sales: With or Without Indexation?

For property acquired before 23 July 2024, you could choose between:

• 20% with indexation (Cost Inflation Index adjusts your purchase price upward, reducing taxable gain)
• 12.5% without indexation (lower rate but on the full nominal gain)

For property acquired on or after 23 July 2024, only 12.5% without indexation applies. Use our compound interest calculator to model the impact of inflation on your real returns before deciding.

Setting Off Capital Losses

Capital losses can be set off against capital gains under these rules:

• STCL can set off against both STCG and LTCG.
• LTCL can set off only against LTCG (not STCG).
• Unabsorbed capital losses can be carried forward for 8 assessment years, provided you file your ITR on time.

Filing and Compliance

Capital gains must be reported in Schedule CG of ITR-2 or ITR-3. Equity gains are auto-populated from broker data in AIS/Form 26AS, but always reconcile with your own records. If LTCG from equity exceeds ₹1.25 lakh, advance tax obligations may arise — see our guide on advance tax.

Conclusion

LTCG and STCG are not just tax jargon — they directly affect your post-tax returns. Equity investors benefit from a generous ₹1.25 lakh annual exemption. Property sellers need to model whether the indexation choice (for pre-July-2024 assets) works in their favour. Keep records of every purchase date and cost, and reconcile with Form 26AS before filing.

These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.