Capital Gains Tax Under the Income Tax Act, 2025 — Complete Guide

Capital Gains Tax Under the Income Tax Act, 2025 — Complete Guide

Selling a house, redeeming mutual funds, or booking profit on shares — any of these can trigger capital gains tax. The rules were significantly overhauled by the Finance Act 2024, and the Income Tax Act, 2025 carries these rules forward with new section numbers but the same substance.

The Two Buckets: Short-Term vs Long-Term

Asset Type

Long-Term Holding Period

Listed equity shares, equity mutual funds, business trust units

More than 12 months

Unlisted shares, immovable property, gold, debt mutual funds (pre-April 2023)

More than 24 months

Debt mutual funds purchased on/after 1 April 2023

Always short-term (taxed at slab rate)

Virtual Digital Assets (crypto)

Not applicable — flat 30% regardless of holding period

Tax Rates

Gain Type

Rate

STCG on STT-paid equity/equity funds

20%

LTCG on listed equity/equity funds (above ₹1.25 lakh/year)

12.5%

LTCG on property, gold, unlisted shares

12.5% (no indexation) or 20% (with indexation) — lower of the two, for assets bought on/before 22 July 2024

LTCG on property bought after 22 July 2024

12.5% flat, no indexation choice

STCG on non-equity assets

Taxed at your slab rate

VDA/crypto (any holding period)

Flat 30%, no loss set-off

The ₹1.25 Lakh Equity Exemption

Long-term gains on listed equity and equity mutual funds are exempt up to ₹1,25,000 per year. This resets annually — a popular tax-planning move (“tax harvesting”) is to book gains up to this limit each year and reinvest, resetting your cost basis without paying tax.

Property: The Indexation Choice

For property bought on or before 22nd July 2024, individuals and HUFs can choose whichever of these two gives the lower tax:

•             Option A: 12.5% on the actual gain (no indexation)

•             Option B: 20% on the indexed gain (cost adjusted for inflation using the Cost Inflation Index)

Example

A flat bought in 2015 for ₹40,00,000, sold in 2026 for ₹1,10,00,000. Using CII, the indexed cost comes to roughly ₹59,21,260, giving an indexed gain of ₹50,78,740 (tax at 20% ≈ ₹10.16 lakh). Without indexation, the gain is ₹70,00,000 (tax at 12.5% = ₹8.75 lakh). Here, Option A (no indexation) is cheaper — always compute both.

Exemptions on Reinvestment (Section 54 Series)

Reinvesting property sale proceeds into another residential property (within 2 years of purchase / 3 years of construction) can exempt the gain, subject to a cap of ₹10 crore per taxpayer. If you can’t complete the reinvestment before your ITR due date, park the gain in a Capital Gains Account Scheme (CGAS) to preserve the exemption.

Frequently Asked Questions

Q1. Does the Section 87A rebate reduce my capital gains tax? No — capital gains taxed at special rates are excluded from the rebate calculation, even if your total income is otherwise below ₹12 lakh.

Q2. Can I set off a short-term loss against a long-term gain? Yes — short-term capital losses can be set off against both short-term and long-term gains. Long-term losses can only be set off against long-term gains (with a limited one-time relief allowing LTCL up to 31 March 2026 to offset STCG in Tax Year 2026-27 specifically).

Q3. Which ITR form do I use if I have capital gains? ITR-1 now permits limited equity LTCG (up to ₹1.25 lakh) to be reported; for anything beyond that, or for property/other capital gains, ITR-2 (or ITR-3, if you also have business income) is required.

Rates reflect Tax Year 2026-27, continuing the framework introduced by the Finance Act 2024. Always confirm current rates before filing.