Long-Term Capital Gain In India

What counts as long-term?

Not all investments follow the same timeline. The holding period that makes your gains eligible for ‘long-term’ depends on what you are selling.

• For equity shares and equity mutual funds listed on stock exchanges, you need to hold them for more than 12 months for your gains to qualify for LTCG.
• For property and unlisted shares, the timeline is longer, you need to hold them for more than 24 months (two years) to come under the LTCG category
• For debt mutual funds purchased before April 1, 2023, the holding period is 36 months. However, for debt funds bought on or after April 1, 2023, the gains are taxed at your income tax slab rates regardless of the holding period.

If you sell before ‘long-term’, your gains will be counted as short-term and taxed accordingly.

Indexation and Its Impact on Taxation

Indexation means adjusting the purchase price of an asset for inflation. So if prices have risen over time, your taxable gain becomes smaller and you pay less tax.

Earlier, this benefit was available for assets like property, gold and debt funds. But from July 2024, the government has removed indexation for most assets under the new 12.5% tax system.

However, there’s good news for property owners; if you bought your land or building before July 23, 2024, you can choose between

• 12.5% tax (without indexation) under the new regime

OR

• 20% tax (with indexation) under the old regime.

You can calculate both and pick the one that saves you more.

Prevalent Tax Rate

The ULIP Taxation

For Unit Linked Insurance Plans (ULIPs) before the budget 2025, the gains were tax-free. Post budget, starting April 2026, if the annual premium exceeds ₹2.5 lakh, the maturity amount will be taxed just like equity mutual funds. So now ULIPs attract 12.5% tax on gains above ₹1.25 lakh.

Why Understanding LTCG is Important

If you are investing, capital gains tax is something that you cannot avoid, but understanding it helps you save more of your hard-earned money. The 12.5% long-term rate is relatively pocket-friendly compared to what short-term traders incur. Also, the ₹1.25 lakh annual exemption for equity is truly helpful for most retail investors.

Before you sell anything significant, shares, mutual funds, or property, take time to calculate your tax liability. Look at what exemptions might apply. Also, if you are stuck or have limited knowledge in case of complex calculations, consulting a tax advisor is beneficial.