What Is Capital Gains Income? Tax Rules & Examples

Most people and organisations selling or transferring assets in India are subject to capital gains tax. Because the economy and rules can change, getting to know capital gains taxation is necessary for good money management. This article explains capital gains tax laws for India in the fiscal year 2025-26, considering recent modifications and important strategies.

Tax Rates For Capital Gains (FY 2025-26)

Understanding how capital gains are taxed helps you plan your investments better and avoid unexpected tax liabilities. Let's break down the applicable rates for both short-term and long-term capital gains in the current financial year.

STCG: Short Term Capital Gains

• Equity Shares and Equity-Oriented Mutual Funds: When you sell Equity Shares or Equity-Oriented Mutual Funds, you pay 20% capital tax plus cess and surcharge, under the rules of Section 111A.

• Other Assets: Taxes are applied using the individual’s income tax slabs.

LTCG: Long Term Capital Gains

• Equity Shares and Equity-Oriented Mutual Funds: For gains beyond ₹1.25 lakh from Equity Shares and Equity-Oriented Mutual Funds, a 12.5% tax, plus surcharge and cess, is applied.

• Other Assets: If a taxpayer uses indexation, tax will be 20%. If not, it will be 12.5% instead.

Rules For Getting Tax Exemptions

Several sections in the Income Tax Act give capital gains exemptions only if a few conditions are met.

• Section 54: If you sell your house and use the gains for another house in a specified time frame, you do not have to pay tax on your LTCG.

• Section 54F: According to Section 54F, you do not have to pay LTCG tax on assets apart from residential property if you spend the entire gain on purchasing a house.

• Section 54EC: You can be exempt from tax on the sale of land or building if you invest your gains in NHAI or REC bonds within six months. The highest amount you can invest is Rs. 50 lakh.

• Section 54GB: If the proceeds from selling a residential property are used to buy equity of an eligible startup within one year, LTCG will not be charged.

• Utilise Exemptions: If you sell your house and use the gains for another house in a specified time frame, you do not have to pay tax on your LTCG.

• Indexation Benefits: According to Section 54F, you do not have to pay LTCG tax on assets apart from residential property if you spend the entire gain on purchasing a house.

• Set-Off and Carry Forward Losses: You can be exempt from tax on the sale of land or building if you invest your gains in NHAI or REC bonds within six months. The highest amount you can invest is Rs. 50 lakh.

• Diversify Investments: If the proceeds from selling a residential property are used to buy equity of an eligible startup within one year, LTCG will not be charged.