Key Takeaways
- Equity LTCG above Rs 1.25 lakh is taxed at a flat 12.5% (Section 112A). STCG on equity is now 20% where STT has been paid.
- For non-equity assets (land, building, gold, debt MFs, unlisted shares), LTCG is a uniform 12.5% and the holding period is 24 months.
- Property purchased on or before 22 July 2024 gives individuals and HUFs a one-time choice: 12.5% without indexation or 20% with indexation, whichever is lower. Property purchased on or after 23 July 2024 gets only the 12.5% flat rate.
- Section 54, 54F, and 54EC exemptions still apply, but the maximum exemption under Sections 54 and 54F is capped at Rs 10 crore per taxpayer.
- Crypto and VDA gains are outside this framework. They are taxed at flat 30% under Section 115BBH with no loss set-off. See our Crypto / VDA tax guide.
ITR filing for AY 2026-27 (FY 2025-26) is the first full year that the Finance Act 2024 capital gains overhaul applies from start to finish. Equity taxes are higher than in AY 2024-25. Property taxes depend on when you bought. The indexation debate has real money riding on it. This guide walks through every asset class, the current rates, Schedule CG practical tips, and the exemptions that still matter.
The LTCG vs STCG Framework
An asset is long-term or short-term based on how long you held it before selling.
| Asset Class | Long-Term Threshold |
|---|---|
| Listed equity shares, equity-oriented mutual funds, units of business trust | More than 12 months |
| Unlisted shares, bonds, debt mutual funds, gold, silver, other unlisted assets | More than 24 months |
| Land and building (immovable property) | More than 24 months (reduced from 36 months by Finance Act 2024) |
Short-term capital gains (STCG) = sale value minus cost of acquisition minus related expenses, where the asset was sold before the long-term threshold.
Long-term capital gains (LTCG) = sale value minus indexed or actual cost of acquisition (depending on asset and purchase date), where the asset was held beyond the long-term threshold.
Current Capital Gains Tax Rates
Equity and Equity-Oriented Mutual Funds (STT Paid)
| Type | Rate | Applicable From |
|---|---|---|
| LTCG (Section 112A) | 12.5% on gains above Rs 1.25 lakh per financial year | Gains on transfers on or after 23 July 2024 |
| STCG (Section 111A) | 20% | Transfers on or after 23 July 2024 |
Before 23 July 2024, LTCG on equity was 10% and STCG was 15%. The rate applicable depends on date of transfer, not date of purchase.
Non-Equity Assets (Land, Building, Gold, Debt MFs, Unlisted Shares, etc.)
| Type | Rate | Notes |
|---|---|---|
| LTCG, assets other than equity and property | 12.5% flat (no indexation) | Applies to gold, silver, debt mutual funds (where acquired on or after 01 April 2023), unlisted shares, bonds |
| LTCG, land and building | 12.5% flat (no indexation), default | Purchase on or after 23 July 2024 gets only this option |
| LTCG, land and building (pre-23 July 2024 purchase) | Individuals and HUFs can choose 12.5% without indexation or 20% with indexation, whichever is lower | One-time choice per asset |
| STCG, non-equity assets | Added to total income and taxed at the individual's slab rate | No special rate |
Debt mutual funds acquired on or after 01 April 2023 have no long-term benefit at all. All gains are short-term, added to slab income under Section 50AA.
Specialised Sections (Unchanged in FY 2025-26)
| Section | Applies To | Rate |
|---|---|---|
| 111A | Equity STCG with STT | 20% |
| 112 | Non-equity LTCG | 12.5% |
| 112A | Equity LTCG with STT | 12.5% above Rs 1.25 lakh |
| 115BBH | Virtual Digital Assets (crypto, NFTs) | 30% flat, no set-off of losses |
The Property Indexation Choice: Worked Example
You bought a flat in Hyderabad in April 2015 for Rs 40 lakh (including stamp duty). You sell it on 15 January 2026 for Rs 1.10 crore.
Option A, 12.5% flat without indexation:
- LTCG = Rs 1,10,00,000 minus Rs 40,00,000 = Rs 70,00,000
- Tax = 12.5% × Rs 70,00,000 = Rs 8,75,000
Option B, 20% with indexation:
- Cost Inflation Index (CII): FY 2015-16 = 254, FY 2025-26 = (approx) 363 (use the exact value notified for FY 2025-26)
- Indexed cost = Rs 40,00,000 × 363 / 254 = Rs 57,16,535
- LTCG = Rs 1,10,00,000 minus Rs 57,16,535 = Rs 52,83,465
- Tax = 20% × Rs 52,83,465 = Rs 10,56,693
Option A is cheaper by Rs 1,81,693 for this property. For an older property with a very low cost base and high appreciation, Option B (with indexation) is often better. Always compute both before deciding.
This choice is available only for land and building held by individuals or HUFs where purchase was on or before 22 July 2024. HUFs, companies, LLPs, firms, and any non-individual cannot use the 20% + indexation route.
Section 54, 54F, and 54EC Exemptions
The three major LTCG exemptions remain available for AY 2026-27, subject to one big change: the maximum exemption under Sections 54 and 54F is now capped at Rs 10 crore per taxpayer (inserted by Finance Act 2023, effective AY 2024-25).
Section 54: Residential Property to Residential Property
Who qualifies: Individuals or HUFs selling a residential house held as a long-term asset.
What is exempt: LTCG reinvested in another residential house in India. If the LTCG is up to Rs 2 crore, the taxpayer can invest in two residential houses (one-time option, once in a lifetime). Above Rs 2 crore, only one house qualifies.
Time limits:
- Purchase: within 1 year before or 2 years after the sale
- Construction: within 3 years after the sale
Cap: Maximum exemption Rs 10 crore.
Capital Gains Account Scheme (CGAS): If the gains are not used by the ITR filing due date, deposit them in a specified bank account (Capital Gains Account Scheme) to preserve the exemption.
Section 54F: Any Long-Term Asset to Residential Property
Who qualifies: Individuals or HUFs selling any long-term capital asset (other than a residential house) where the taxpayer owns not more than one residential house on the date of transfer.
What is exempt: Proportionate exemption when net sale consideration (not just gains) is reinvested in a residential house in India.
Formula: Exempt LTCG = LTCG × (amount invested / net sale consideration)
Time limits: Same as Section 54 (1 year before or 2 years after for purchase, 3 years for construction).
Cap: Maximum exemption Rs 10 crore.
Section 54EC: Capital Gains Bonds
Who qualifies: Any taxpayer (individual, HUF, company, LLP, firm) selling long-term land or building.
What is exempt: LTCG invested in specified bonds (NHAI, REC, PFC, IRFC) within 6 months of sale.
Cap: Rs 50 lakh per financial year across all taxpayers.
Bond lock-in: 5 years from date of investment. Sale or conversion within 5 years reverses the exemption and taxes the amount as LTCG in the year of sale.
How to File Capital Gains in ITR-2 and ITR-3
Capital gains are reported in Schedule CG of the ITR form.
| ITR Form | Who Uses It | When It's Needed |
|---|---|---|
| ITR-2 | Individuals and HUFs with no business income | Used by most taxpayers with capital gains |
| ITR-3 | Individuals and HUFs with business or professional income | Required if you also have income from a business / profession |
Schedule CG structure (ITR-2 and ITR-3 for AY 2026-27):
- Section A, Short-term capital gains (by asset type)
- Section B, Long-term capital gains (by asset type)
- Section C, Income from virtual digital assets (reported in Schedule VDA and summarised here)
- Section D, Information about exemptions claimed under Sections 54, 54B, 54D, 54EC, 54F, 54GA
- Section E, Set-off of current year losses
Practical tips:
- Pull transaction statements from each broker or AMC by 31 May of the AY. Early-year SEBI cut-off delays are a common source of ITR filing delay.
- Equity STCG and LTCG are automatically pre-filled in AIS and the ITR portal from broker reporting. Verify every entry against your broker's Profit and Loss statement before submitting.
- Property sale triggers a 1% TDS deduction under Section 194-IA if the sale consideration is Rs 50 lakh or more. The deduction appears in your 26AS. Do not forget to claim it.
- Intraday equity profits and F&O gains are business income, not capital gains. They go in Schedule BP, not Schedule CG.
Common Mistakes Taxpayers Make
1. Using the 20% + indexation route on property bought after July 23, 2024. The choice is not available for post-July 23 purchases. Only the 12.5% flat rate applies. Attempting to claim indexation triggers a notice under Section 143(1)(a).
2. Missing the Section 112A Rs 1.25 lakh exemption. Equity LTCG below Rs 1.25 lakh in a financial year is fully exempt. Claim the exemption in Schedule CG; do not skip it.
3. Treating debt MF gains as LTCG. Debt mutual funds acquired on or after 01 April 2023 have no long-term classification. All gains are short-term and added to slab income under Section 50AA.
4. Forgetting the 6-month window for Section 54EC bonds. Investment must be within 6 months of transfer, not financial year-end. Missing the window forfeits the exemption entirely.
5. Not opening a Capital Gains Account Scheme (CGAS) deposit. If you plan to use Section 54 or 54F but cannot complete the reinvestment by the ITR due date (usually July 31), park the gains in CGAS. Without CGAS, the exemption is lost even if you reinvest later within the 2 or 3 year window.
6. Ignoring advance tax on large capital gains. Capital gains on transactions before March 15 trigger advance tax instalment obligations. A sizeable property sale in December without advance tax triggers interest under Section 234C.
7. Double-counting brokerage on STCG. Brokerage and STT are deductible from sale consideration for computing STCG and LTCG (STT deduction only up to the STCG 20%/LTCG 12.5% rate). Cross-check against your broker's contract note for accuracy.
Quick Reference Card (FY 2025-26, AY 2026-27)
| Scenario | Tax Rate | Notes |
|---|---|---|
| Listed equity held 12+ months, sold post-23 July 2024 | 12.5% on gain above Rs 1.25 lakh | Section 112A |
| Listed equity held under 12 months, sold post-23 July 2024 | 20% | Section 111A |
| Residential property held 24+ months, bought pre-23 July 2024 | Lower of 12.5% flat OR 20% with indexation | Section 112 (individual/HUF only) |
| Residential property held 24+ months, bought post-23 July 2024 | 12.5% flat | Section 112 |
| Gold, silver, unlisted shares held 24+ months | 12.5% flat | Section 112 |
| Debt mutual funds acquired post-01 April 2023 | Slab rate (always STCG) | Section 50AA |
| Crypto / VDA | 30% flat under Section 115BBH | 1% TDS under 194S. No set-off |
Let Tax Garden Handle Your Capital Gains Return
Capital gains get complicated fast when a single ITR involves equity, mutual funds, one property, a handful of Section 54EC bonds, and a TDS credit on property sale. Tax Garden pulls your broker + AMC statements, computes every asset class, picks the lower of 12.5% / 20% for qualifying property, files Schedule CG and Schedule VDA correctly, and claims every eligible exemption. See our ITR plans or talk to our team.
