Long-Term Capital Gains (LTCG): A Complete Guide

Introduction

Investing in assets such as shares, mutual funds, real estate, or gold is a common way to grow wealth. However, when you sell these assets at a profit, the government considers that profit as capital gains, which may be taxable. One important category of capital gains is Long-Term Capital Gains (LTCG).
This blog explains everything you need to know about LTCG—meaning, types of assets, holding periods, tax rates, exemptions, calculations, and tax-saving strategies.

What Are Long-Term Capital Gains?

Long-Term Capital Gains (LTCG) refer to the profit earned from selling a capital asset after holding it for a specified long period. The holding period required to classify gains as “long-term” depends on the type of asset.

In simple terms:

If you buy an asset, hold it for a long duration, and sell it at a higher price, the profit is called a Long-Term Capital Gain.

What Is a Capital Asset?

A capital asset is any property or investment held by an individual or business, whether related to business or personal use.

Examples include:

Equity shares
Mutual funds
Real estate (land, building, house property)
Gold and jewellery
Bonds and debentures
Exchange Traded Funds (ETFs)

Holding Period for Long-Term Capital Gains

The holding period determines whether the gain is short-term or long-term.

Asset Type	Holding Period for LTCG
Equity shares & Equity-oriented mutual funds	More than 12 months
Listed bonds & debentures	More than 12 months
Unlisted shares	More than 24 months
Immovable property (land/building)	More than 24 months
Gold, jewellery, other assets	More than 36 months

How Is Long-Term Capital Gain Calculated?

The basic formula for calculating LTCG is:

LTCG = Sale Price – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Expenses on Transfer)

Indexation Benefit

Indexation adjusts the purchase cost of an asset for inflation, reducing taxable gains. It applies mainly to property and certain non-equity assets.

Tax Rates on Long-Term Capital Gains

1. LTCG on Equity Shares & Equity Mutual Funds

Tax Rate: 10%
Exemption: Up to ₹1 lakh per year
Indexation: Not available

2. LTCG on Real Estate

Tax Rate: 20%
Indexation: Available

3. LTCG on Gold and Other Assets

Tax Rate: 20%
Indexation: Available

Exemptions on Long-Term Capital Gains

The Income Tax Act provides several exemptions to reduce LTCG tax liability.

Section 54

Applicable on sale of residential property
Exemption if gains are reinvested in another residential property

Section 54F

Applicable when selling any asset except residential house
Gains must be invested in one residential house

Section 54EC

Investment in specified bonds (NHAI, REC)
Maximum investment: ₹50 lakh
Lock-in period: 5 years

Section 54B

Sale of agricultural land
Reinvestment in another agricultural land

Capital Gains Account Scheme (CGAS)

If you are unable to reinvest capital gains before filing your income tax return, you can deposit the amount in a Capital Gains Account Scheme (CGAS) to claim exemption temporarily.

LTCG vs Short-Term Capital Gains (STCG)

Feature	LTCG	STCG
Holding period	Longer	Shorter
Tax rate	Lower	Higher
Indexation	Available (except equity)	Not available
Exemptions	Many available	Limited

Reporting LTCG in Income Tax Return

LTCG must be reported under Schedule CG in the Income Tax Return
Equity LTCG is reported separately
Failure to report correctly may lead to penalties

Advantages of Long-Term Investing

Lower tax rates
Indexation benefits
Eligibility for exemptions
Encourages wealth creation
Reduces impact of market volatility

Common Mistakes to Avoid

Ignoring holding period rules
Forgetting indexation benefit
Missing exemption deadlines
Not reporting exempt LTCG
Confusing LTCG with STCG

About the Author

Ravi

Ravi is an experienced legal writer who simplifies complex laws into clear, practical guidance. He helps entrepreneurs understand their legal obligations so they can build confident, compliant, and sustainable businesses.