Long-Term Capital Gains Tax (LTCG) in India: Rates, Rules and Exemptions

If you are investing in the financial markets through stocks, bonds, mutual funds, or any other capital assets, then long-term capital gains tax (LTCG tax) is one of the important factors you need to consider before investing. When you sell any capital asset at a profit after holding it for a prescribed period, your income on investment is eligible for LTCG.

However, it is important to note that the tax rate depends on the type of asset, the holding period, and whether the sale proceeds are reinvested in eligible assets. In this article, we will understand what LTCG is, the LTCG tax rates in India, the available exemptions, and more.

What is the Long-Term Capital Gains Tax?

Long-term capital gains refer to the gains made from the sale of a capital asset that has been held for a certain period of time. The holding period depends upon the nature of the asset.

Suppose you bought some shares at ₹1,00,000 and sold them later at ₹1,60,000; your capital gain would be ₹60,000 without considering any eligible deductions or tax laws.

Not all gains are taxed in the same way. There are different holding periods and tax rates for listed shares, equity mutual fund units, property, and other assets.

LTCG Tax Rates in India

As per the amendments made in the Union Budget 2024, the LTCG tax rates on most assets have been reduced to 12.5% without indexation. Such tax rates continue to be available as per the guidelines issued by the Income Tax Department for the current tax regime.

In the case of listed equity shares and eligible equity-oriented mutual funds, the exemption of ₹1.25 lakh is applicable to the aggregate of qualifying gains in the financial year as per Section 112A. The conditions that need to be satisfied include STT, etc. The above LTCG tax rates do not include the surcharge and health and education cess. There may be certain exceptions and special cases as well.

LTCG Holding Period

The holding period is the key factor in deciding whether the gain is short-term or long-term. In the case of listed equity shares and equity mutual funds, investments held for more than 12 months generally qualify as long-term. In the case of immovable properties and other specified assets, the holding period is generally more than 24 months. There are certain exceptions to this rule. Investors need to consider these provisions while computing taxes.

Major LTCG Tax Exemptions in India

The Income Tax Act provides several exemptions that can reduce or eliminate eligible capital gains when specific conditions are met.

Section 112A: Exemption for Eligible Equity Gains

Eligible long-term gains from listed equity shares, equity-oriented mutual funds and specified business trust units are taxed at 12.5% only on the aggregate amount exceeding ₹1.25 lakh in a financial year, subject to the applicable conditions.

Section 54: Reinvestment in a Residential House

Individuals and Hindu Undivided Families (HUFs) may claim an exemption on LTCG arising from the sale of a residential house by investing the eligible capital gains in another residential house in India. Generally, the new property must be purchased within one year before or two years after the sale, or constructed within three years after the sale. The exemption is subject to the applicable statutory conditions and a maximum eligible investment limit of ₹10 crore.

Section 54F: Sale of Assets Other Than a Residential House

Section 54F may help eligible individuals and HUFs who sell a long-term capital asset other than a residential house, such as shares or land that qualify under the applicable provisions, and invest the net sale consideration in a qualifying residential house in India. A full exemption may be available if the entire eligible net consideration is invested. If only part is invested, the exemption is generally proportionate to the amount invested. Other residential-property ownership and investment conditions apply, and the eligible investment is subject to a cap of ₹10 crore.

Section 54EC: Investment in Specified Bonds

Taxpayers selling eligible long-term land or buildings may claim an exemption by investing the qualifying capital gains in specified bonds, subject to prescribed conditions under the applicable law. The investment must generally be made within six months of the transfer. The maximum eligible investment is ₹50 lakh, and the bonds are subject to a five-year lock-in period.

Capital Gains Account Scheme

Sometimes, a taxpayer cannot reinvest the required amount before the income tax return filing deadline. Where the relevant exemption provisions permit it, the unutilised amount may be deposited in a Capital Gains Account Scheme with an authorised bank. The deposit must follow the applicable deadlines and rules. The money must subsequently be used within the prescribed period to purchase or construct the qualifying property. Otherwise, the unutilised amount may become taxable.

How to Calculate LTCG Tax

A basic capital gains calculation starts with the sale price, deducts eligible transfer expenses and the applicable cost of acquisition, and then applies the relevant capital gains tax provisions.

For example, assume you sell eligible listed equity shares and earn a long-term gain of ₹2,00,000. If the full gain qualifies under Section 112A, ₹1,25,000 falls within the annual exemption threshold, leaving ₹75,000 taxable at 12.5%. The basic tax would be ₹9,375, excluding any applicable surcharge and cess. Actual calculations can differ where losses, special provisions, or other adjustments apply.