Capital Gains Tax in India: Equity, Debt, Real Estate, and SGBs

Capital gains tax is where most Indian investors get confused — because the rates vary dramatically depending on what you sold, how long you held it, and which date you sold it on. The Union Budget 2024 changed several rates effective July 23, 2024, adding another layer of complexity.

Here's the complete picture, organized by asset type.

---

The Basic Framework

Capital asset: Any property — movable or immovable, tangible or intangible — held for investment. Excludes: stock in trade, rural agricultural land, and Gold Deposit Bonds.

Capital gain = Sale price minus cost of acquisition minus cost of improvement minus transfer expenses.

Two categories:

• Short-term capital gains (STCG): Asset held for less than the threshold period — generally taxed at higher rates
• Long-term capital gains (LTCG): Asset held for longer — generally taxed at lower rates (or with indexation benefits)

The threshold for "long-term" differs by asset. Don't assume it's always 1 year — it's not.

---

Equity Shares and Equity Mutual Funds

Holding Period

• Listed equity shares, equity-oriented MF units: LTCG if held more than 12 months
• Unlisted equity shares: LTCG if held more than 24 months

Tax Rates (with STT paid on listed equity — the normal case for stock exchange trades)

LTCG exemption on equity: The first ₹1.25 lakh of LTCG on listed equity and equity MFs is tax-free each financial year. Gains beyond that are taxed at 12.5% (increased from 10% in Budget 2024).

Grandfathering (for pre-2018 holdings)

For equity held before January 31, 2018, the cost of acquisition is deemed to be the higher of:

• Actual purchase price
• Fair Market Value as of January 31, 2018 (or sale price, whichever is lower)

This means gains made before January 31, 2018 are effectively tax-free. If you bought shares at ₹100, they were worth ₹600 on January 31, 2018, and you sold them at ₹900 — your taxable gain is only ₹300 (900 − 600), not ₹800 (900 − 100).

Bonus and Rights Shares

• Bonus shares issued after April 1, 2001: Cost of acquisition = zero. Taxed on full sale price.
• Rights shares: Cost = price paid for rights. Holding period starts from date of allotment.
• If you sell shares of a company that issued both original and bonus shares: First-In-First-Out (FIFO) applies.

---

Debt Securities and Debt Mutual Funds

This area changed significantly in recent years:

Listed Bonds/Debentures

• LTCG threshold: More than 12 months
• STCG: Slab rate
• LTCG: 12.5% without indexation (post July 23, 2024)

Unlisted Bonds/Debentures

• LTCG threshold: More than 24 months
• STCG: Slab rate
• LTCG: 12.5% without indexation (post July 23, 2024)

Debt Mutual Funds

This is the big change from April 1, 2023:

• Debt MFs purchased on or after April 1, 2023: All gains (regardless of holding period) taxed at slab rate. No LTCG benefit, no indexation. These are now effectively treated like FD interest for tax purposes.
• Debt MFs purchased before April 1, 2023: Pre-July 2024: LTCG at 20% with indexation (after 36 months). Post-July 2024 if sold: 12.5% without indexation.

Hybrid Mutual Funds (35–65% equity)

• LTCG threshold: 24 months
• LTCG: 12.5% without indexation (post July 23, 2024)

Sovereign Gold Bonds

• Interest (2.5% p.a.): Taxable at slab rate as Income from Other Sources
• Capital gain on maturity (8 years): Tax-free
• Capital gain if sold in secondary market after 12 months: 12.5% flat (post July 23, 2024)
• STCG (≤12 months): Slab rate

---

Real Estate / Immovable Property

Holding Period

• 24 months for immovable property to qualify as long-term

Tax Rates (post July 23, 2024)

• STCG (≤24 months): Slab rate
• LTCG (>24 months): 12.5% without indexation (indexation benefit removed in Budget 2024 for post July 23, 2024 sales)

Note: Before July 23, 2024, LTCG on property was 20% with indexation. The Budget 2024 removed indexation and dropped the rate to 12.5%. For some properties, this is a net positive; for others (held long with high inflation), it may result in higher tax. Always calculate both and choose the favorable option for properties acquired before July 23, 2024 (a one-time option was available).

Stamp Duty Valuation (Section 50C)

If you sell property and the stamp duty value (circle rate) is higher than your actual sale price, the stamp duty value is treated as the sale price for computing capital gains. You can't simply report a lower price to reduce gains.

---

Capital Gains Exemptions (Reinvestment Benefits)

If you reinvest capital gains in specified assets within specified time limits, you can avoid or reduce the tax. The key sections:

Section 54: Selling a Residential House

• Who: Individual or HUF
• What triggers it: Long-term capital gains on selling a residential house property
• Exemption: Reinvest in one residential house in India
• Timeline: Purchase within 1 year before or 2 years after transfer; construction within 3 years
• Cap: Exemption capped at ₹10 crore (from April 1, 2023)
• Lock-in: New property cannot be sold within 3 years of purchase — if sold, the exemption is revoked

Section 54F: Selling Any Long-Term Capital Asset (Other Than House)

• Who: Individual or HUF
• What triggers it: LTCG on selling any long-term asset other than residential property (e.g., equity, gold, commercial property)
• Exemption: Proportional — (amount invested in new house ÷ net sale consideration) × capital gain
• Timeline: Same as Section 54
• Conditions: At the time of transfer, you cannot own more than one residential property (other than the new one being purchased)
• Cap: ₹10 crore from April 1, 2023

Section 54EC: Investing in Specified Bonds

• Who: Any taxpayer
• What triggers it: LTCG on immovable property (land or building)
• Exemption: Invest in NHAI, REC, PFC, IRFC bonds within 6 months of transfer
• Cap: ₹50 lakh per financial year
• Lock-in: 5 years (bonds cannot be transferred or pledged)

Capital Gain Deposit Account Scheme

If you've decided to claim Section 54/54F exemption but haven't yet purchased/constructed the new property before filing your ITR, you must deposit the unutilized capital gains in a Capital Gain Account Scheme (offered by nationalized banks) before the ITR filing date. This preserves the exemption while you finalize the property.

---

Loss Set-off and Carry Forward

Long-term capital loss: Can only be set off against long-term capital gains. Cannot be set off against STCG or any other income.

Short-term capital loss: Can be set off against either short-term or long-term capital gains.

Both can be carried forward for 8 assessment years if not fully utilized in the current year — but only if you file your ITR before the due date.

---

The Share Buyback Change (From October 2024)

Before October 2024, companies paid a 20% tax on buybacks (buyback tax). Shareholders received buyback proceeds tax-free.

From October 1, 2024, the buyback amount is now treated as dividend income in the shareholder's hands, taxed at slab rate. The company deducts TDS at 10% for resident shareholders. Shareholders can treat the original cost of those shares as a capital loss, which can be carried forward for 8 years.

---

Summary Table

Capital gains tax planning has only gotten more important as rates and rules keep changing. The broad direction from recent budgets: simplification (fewer rates, removal of indexation), but also some adverse changes for specific assets. Keep records of purchase dates and prices — you'll need them.