Long-Term Capital Gains Tax (LTCG): Definition, Calculation, Tax Rates, and Exemptions

Introduction

Long-Term Capital Gains Tax (LTCG) is an important component of income tax, levied on profits earned from the sale of capital assets such as real estate, shares, mutual funds, bonds, and vehicles. Assets are categorized as short-term or long-term based on their holding period, with LTCG referring to gains from assets held for a longer duration—typically more than one year. Until the Union Budget 2024, long-term capital gains on equity shares and equity mutual funds exceeding ₹1 lakh in a financial year were taxed at 10%, plus applicable surcharge and cess. However, the latest budget has revised these rates, increasing the LTCG tax on equity-linked investments while reducing it for several other asset classes.

Budget 2024 Updates on Long-Term Capital Gains

The Union Budget 2024 has introduced significant changes to the long-term capital gains (LTCG) tax framework, aiming to simplify the system and offer relief to individual taxpayers. Key updates include:

1. Unified Tax Rate

All long-term capital gains—across both financial and non-financial assets—will now be taxed at a flat rate of 12.5%.

2. Higher Exemption Limit

To support lower and middle-income investors, the exemption limit on long-term capital gains from specified listed financial assets has been increased from ₹1 lakh to ₹1.25 lakh per year.

3. Updated Holding Period Criteria

Listed Financial Assets:
Gains will be considered long-term if the asset is held for more than one year.
Unlisted Financial Assets & All Non-Financial Assets:
These must be held for at least two years to qualify as long-term.
Unlisted Bonds & Debentures:
Capital gains from unlisted bonds, debentures, debt mutual funds, and market-linked debentures will be taxed at applicable rates regardless of the holding period.

What Are Long-Term Capital Gains (LTCG)?

Long-Term Capital Gains (LTCG) are the profits earned from selling a capital asset that has been held for a specified minimum duration—typically more than one year. Because these gains encourage long-term investing, they are generally taxed at rates lower than short-term capital gains.

The applicable LTCG tax rate depends on the type of asset, such as real estate, equities, mutual funds, or bonds. For example, equity shares and equity-oriented mutual funds often attract a 10% LTCG tax on gains exceeding a certain threshold.

Understanding how LTCG works is essential for effective tax planning and for maximizing after-tax returns, especially for investors focused on long-term wealth creation.

What Is the Long-Term Capital Gains Tax Rate (LTCG Tax Rate)?

Long-Term Capital Gains (LTCG) represent the profit earned from the sale of assets held for a specified duration. In India, the tax rate on LTCG depends on the type of asset and the date on which the transfer takes place. Below are the updated LTCG tax rates across different asset categories:

1. Listed Equity Shares & Equity-Oriented Mutual Funds

Transfers on or after 23 July 2024:
LTCG exceeding ₹1.25 lakh in a financial year is taxed at 12.5%.
Transfers up to 22 July 2024:
LTCG is taxed at 10%.

2. Other Assets (Real Estate, Land, Unlisted Shares, etc.)

Transfers on or after 23 July 2024:
- Except land and building: LTCG is taxed at 12.5%, without indexation benefits.
- Land and building: Taxpayers may choose between:
  - 12.5% without indexation, or
  - 20% with indexation benefits
Transfers on or before 22 July 2024:
LTCG is taxed at 20%, with indexation benefits.

Long-Term Capital Gains Tax on Property

Long-term capital gains (LTCG) on property arise when a real estate asset—such as land or a building—is sold after being held for more than 24 months. The Union Budget 2024 has introduced revised tax rates for such gains.

Transfers made on or before 22 July 2024:
LTCG is taxed at 20% with indexation benefits.
Transfers made on or after 23 July 2024:
The LTCG tax rate is 12.5%, but without indexation benefits.

To ease the transition, individuals selling land or buildings acquired before 23 July 2024 may choose between:

20% tax with indexation, or
12.5% tax without indexation

This flexibility helps taxpayers optimize their tax liability based on the asset’s acquisition cost, inflation adjustment, and expected capital gains.

Long-Term Capital Gain (LTCG) Tax on Shares

A long-term capital gain arises when shares are sold at a profit after being held for more than the prescribed holding period. The gain is calculated as the difference between the selling price and the original purchase price.

Listed Equity Shares: A holding period of at least 12 months qualifies as long-term.
Unlisted Equity Shares: A holding period of 24 months or more is required for classification as long-term.

Long-Term Capital Gain (LTCG) Tax on Mutual Funds

For equity mutual funds, units held for more than one year qualify for LTCG. The tax rules are as follows:
- The first ₹1.25 lakh of LTCG in a financial year is exempt from tax.
- LTCG exceeding ₹1.25 lakh is taxed at a flat rate of 12.5%.
- No indexation benefit is available for equity mutual funds; tax is calculated on the full gain.

How to Calculate Long-Term Capital Gains Tax

Follow these steps to compute LTCG:

1. Determine the Full Value of Consideration

This is the total amount received on the sale of the asset, including:

Cash consideration
Fair market value of assets received
Any other non-monetary benefits

2. Calculate the Net Sale Consideration

Deduct transfer-related expenses such as:

Brokerage
Commission
Advertising or legal costs

3. Determine the Cost of Acquisition

Use the original purchase price of the asset.
For assets eligible for indexation, apply the Cost Inflation Index (CII):
Indexed Cost of Acquisition = Cost of Acquisition × (CII of year of transfer / CII of year of acquisition)

Note: Indexation benefits are not available for transfers made after July 23, 2024.

4. Deduct Applicable Exemptions

Certain LTCG may be exempt when reinvested under Sections 54, 54B, 54D, 54EC, or 54F, subject to conditions.

5. Compute LTCG Chargeable to Tax

LTCG = Net Sale Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement) – Applicable Exemptions

Example

Sale price: ₹1,00,00,000
Transfer expenses: ₹1,00,000
Indexed cost of acquisition: ₹50,00,000

Taxable LTCG = 1,00,00,000 – 50,00,000 – 1,00,000 = ₹49,00,000

Factors Influencing Long-Term Capital Gains Calculation

Several elements impact how LTCG is computed:

1. Type of Asset

Equity-Oriented Assets: Listed shares, equity mutual funds, ELSS
- Taxed at 10% on gains exceeding ₹1.25 lakh
- No indexation benefit
Non-Equity Assets: Debt funds, real estate, gold
- Taxed at 12.5%, with indexation allowed
- Indexed cost reduces the taxable gain

2. Holding Period

Equity-oriented assets: More than 1 year
Non-equity assets: More than 3 years
- Longer holding may enhance indexation benefits

3. Cost Inflation Index (CII)

Relevant for non-equity assets to adjust purchase cost for inflation
CII changes yearly based on inflation levels

4. Exemption Limits

Equity LTCG up to ₹1.25 lakh is tax-free
No exemption limit for non-equity LTCG

5. Date of Acquisition and Sale

Determines:
- Holding period
- Applicable CII (for non-equity assets)
- Eligibility for LTCG taxation
Grandfathering Rule (for equity assets):
For shares/mutual funds purchased before 31 January 2018, the cost of acquisition is considered as the higher of:
- Actual purchase price
- Fair Market Value as on 31 January 2018

Long-Term Capital Gains Exemptions

The Income Tax Act, 1961 provides several avenues to reduce or eliminate LTCG tax liability:

Section 54

Exemption on LTCG arising from sale of a residential property if reinvested in another residential property within the specified timeline.

Section 54EC

Exemption up to ₹50 lakh when LTCG from land or building is invested in specified bonds (e.g., NHAI, REC) within six months. These bonds must be held for the required lock-in period.

Equity Shares & Equity Mutual Funds

LTCG up to ₹1.25 lakh per financial year is exempt.
Gains above this limit attract 12.5% tax.

About the Author

Ravi

Ravi is an experienced legal writer who breaks down complex legal concepts into simple, practical insights. He helps entrepreneurs understand their legal obligations and build confident, compliant, and sustainable businesses.

February 1, 2026