Listed shares and equity funds held over 12 months: LTCG at 12.5% on gains above ₹1.25 lakh a year. Property held over 24 months: LTCG at 12.5% without indexation — or 20% with indexation for property bought before 23 July 2024, if lower (resident individuals and HUFs only). Three legal ways to cut the bill: Section 54 (house into house), Section 54F (any asset into a house), and Section 54EC bonds (up to ₹50 lakh).
What counts as a capital gain?
A capital gain is the profit you make when you sell a capital asset for more than it cost you. Capital assets include listed shares, mutual fund units, land, buildings, gold, and unlisted shares.
The gain is the sale price minus the cost of buying the asset, improvement costs, and sale expenses such as brokerage and registration charges. Two things decide the tax: holding period and asset type. Hold it past the threshold and the gain is long-term, taxed at a lower flat rate. Sell early and it is short-term, taxed higher.
Holding periods: when does a gain become long-term?
| Asset | Short-term (up to) | Long-term (over) |
|---|---|---|
| Listed equity shares and equity-oriented mutual funds (STT paid) | 12 months | 12 months |
| Immovable property (land or building) | 24 months | 24 months |
| Physical gold and jewellery | 24 months | 24 months |
| Debt mutual fund units bought on or after 1 April 2023 | Always taxed at slab rate, any holding period | |
| Debt mutual fund units bought before 1 April 2023 | 24 months | 24 months |
| Unlisted shares | 24 months | 24 months |
One day can matter: a property sold at 23 months and 29 days is short-term and taxed at your slab rate; two days later it is long-term and taxed at 12.5%.
Capital gains tax rates for FY 2026-27
| Asset | STCG rate | LTCG rate | Notes |
|---|---|---|---|
| Listed equity shares / equity-oriented mutual funds (STT paid) | 20% (old Sec 111A, new Sec 196) | 12.5% on gains above ₹1.25 lakh (old Sec 112A, new Sec 198) | ₹1.25 lakh exemption is aggregate |
| Immovable property bought on or after 23 July 2024 | Slab rate | 12.5%, no indexation (old Sec 112, new Sec 197) | Section 54 / 54EC can still apply |
| Immovable property bought before 23 July 2024 | Slab rate | Lower of 12.5% without indexation or 20% with indexation (old Sec 112, new Sec 197) | Resident individuals and HUFs only |
| Physical gold / jewellery | Slab rate | 12.5%, no indexation | 54F can apply; 54EC cannot |
| Debt mutual fund units bought on or after 1 April 2023 | Slab rate (always) | — | Old Sec 50AA, new Sec 76 |
| Debt mutual fund units bought before 1 April 2023 | Slab rate | 12.5%, no indexation | 24-month threshold |
| Unlisted shares | Slab rate | 12.5%, no indexation | 24-month threshold |
Add health and education cess of 4% on the tax. Surcharge applies at higher incomes, but for gains under Sections 111A, 112 and 112A it is capped at 15%. The charging provision is old Section 45, now Section 67 of the Income-tax Act, 2025; the computation rule is old Section 48, now Section 72.
One more rule for property sellers: if the stamp duty value is more than 10% above the sale price, the stamp duty value is treated as the sale price (old Section 50C, now Section 78).
Worked example 1: equity mutual fund gain
Say you redeem equity fund units in FY 2026-27 for a gain of ₹3,00,000, with no other equity gains that year.
- Taxable LTCG = ₹3,00,000 − ₹1,25,000 exemption = ₹1,75,000
- Tax at 12.5% = ₹1,75,000 × 12.5% = ₹21,875
- Cess at 4% = ₹21,875 × 4% = ₹875
- Total tax payable = ₹21,875 + ₹875 = ₹22,750
On a ₹3 lakh gain, the tax is ₹22,750. Gains up to the ₹1.25 lakh exemption across all your equity holdings are fully exempt.
Worked example 2: selling a house bought in 2015
Bought 10 March 2015 for ₹40,00,000, sold 15 January 2027 for ₹1,10,00,000, sale expenses ₹2,00,000. Bought before 23 July 2024, so both options apply.
Option A: 12.5% without indexation
- Capital gain = ₹1,10,00,000 − ₹40,00,000 − ₹2,00,000 = ₹68,00,000
- Tax at 12.5% = ₹68,00,000 × 12.5% = ₹8,50,000
- Cess at 4% = ₹34,000
- Total tax = ₹8,84,000
Option B: 20% with indexation
- Cost Inflation Index (CII): 2015-16 = 254, 2026-27 = 384 (CBDT-notified)
- Indexed cost = ₹40,00,000 × (384 ÷ 254) = ₹60,47,244
- Capital gain = ₹1,10,00,000 − ₹60,47,244 − ₹2,00,000 = ₹47,52,756
- Tax at 20% = ₹47,52,756 × 20% = ₹9,50,551
- Cess at 4% = ₹38,022
- Total tax = ₹9,88,573
Here the 12.5% flat rate wins: ₹8.84 lakh against ₹9.89 lakh. For a property bought long ago, indexation often wins instead, because inflation lifts the indexed cost. Always compute both options before you file. NRIs should also read our guide on TDS on sale of property by an NRI.
What changed, and what stayed the same
Changed in July 2024: LTCG became a flat 12.5% for most assets, STCG on equity rose to 20%, and indexation was removed except for the pre-23-July-2024 property choice above. Debt funds bought after 1 April 2023 lost LTCG treatment entirely.
Changed in April 2026: the Income-tax Act, 2025 took over and the section numbers changed. Section 45→67, 48→72, 50C→78, 54→82, 54EC→85, 54F→86, 111A→196, 112→197, 112A→198. The rules did not change, only the addresses.
Stayed the same: the ₹1.25 lakh equity exemption, the ₹50 lakh 54EC cap, the ₹10 crore cap on Section 54 and 54F, the 24-month property threshold, and the 6-month bond window. Budget 2026 made no change to these rates or rules.
Section 54: sell a house, buy a house (new Act Section 82)
Section 54 is for an individual or HUF selling a residential house held long-term. Reinvest the long-term gain in another residential house in India and the reinvested gain is exempt.
Time limits: buy the new house up to 1 year before the sale or within 2 years after it, or construct one within 3 years of the sale.
How much is exempt: the lower of the gain or the cost of the new house. Gain of ₹68 lakh, new house ₹60 lakh: ₹60 lakh is exempt, ₹8 lakh stays taxable.
Cap: the exemption cannot exceed ₹10 crore, a limit in force since FY 2023-24. If you cannot finish reinvesting before your ITR due date, deposit the unutilised gain in a Capital Gains Account Scheme (CGAS) account before that date — see below — or the exemption is lost.
Section 54F: sell any asset, buy a house (new Act Section 86)
Section 54F is for an individual or HUF who sells any long-term capital asset other than a residential house — a plot of land, gold, unlisted shares, or a commercial property — and buys a residential house in India.
The catch: you must reinvest the net sale consideration (sale price minus expenses), not just the gain. The exemption is proportionate: Exempted gain = Total LTCG × (Amount reinvested ÷ Net sale consideration). Example: sell land for ₹80 lakh, gain ₹30 lakh, reinvest ₹40 lakh in a house. Exempt part = ₹30 lakh × (40 ÷ 80) = ₹15 lakh. The remaining ₹15 lakh is taxable.
Conditions: on the date of sale, you must not own more than one residential house other than the new one. If you buy another house (other than the new one) within 2 years of the sale, or construct one within 3 years, the exemption is withdrawn. The same ₹10 crore cap applies.
Section 54EC: capital gains bonds (new Act Section 85)
Section 54EC lets you invest the gain in bonds issued by NHAI, REC, PFC, or IRFC. Two points people often get wrong:
- Only land and building gains qualify. Gains from shares, mutual funds, or gold cannot go into 54EC bonds.
- The ₹50 lakh cap applies per transfer. If your 6-month window crosses into the next financial year, the cap is still ₹50 lakh in total for that sale, not ₹50 lakh per year.
Rules: invest within 6 months of the transfer date. Lock-in is 5 years. The bonds pay around 5.25% a year, taxable as other income. They cannot be transferred, sold, or pledged during the lock-in; breaking that rule withdraws the exemption. The Capital Gains Account Scheme does not extend the 54EC deadline.
Capital Gains Account Scheme (CGAS)
If you claim Section 54 or 54F but have not finished reinvesting by your ITR filing due date (31 July for most individuals), deposit the unutilised gain in a CGAS account before that date. Unused amounts become taxable when the time limit runs out. Open the account at a notified bank branch; a regular savings account does not count.
Common mistakes to avoid
| Mistake | Why it matters | How to avoid it |
|---|---|---|
| Not paying advance tax | Interest applies on short payment. | Include the gain in the instalment for the quarter in which it arises; after 15 March, pay by 31 March. See our advance tax guide. |
| Selling before the 24-month mark | The gain becomes STCG at your slab rate, often far above 12.5%. | Hold past the long-term threshold before selling. |
| Missing the 6-month window for 54EC bonds | The bond exemption is lost, and CGAS cannot extend it. | Apply soon after the sale; allotment takes weeks. |
| Forgetting the ₹10 crore cap on Section 54 / 54F | Gains above the cap stay taxable. | Cap the exemption at ₹10 crore. |
Frequently asked questions
How is capital gains tax calculated on a property sale?
Gain = sale price minus cost of acquisition (indexed if you qualify) minus sale expenses. Held over 24 months: long-term, taxed at 12.5% without indexation, or 20% with indexation for pre-23-July-2024 purchases by resident individuals and HUFs, whichever is lower, plus 4% cess. Held 24 months or less: the gain is added to your other income and taxed at slab rates.
What is the Section 54 exemption and how much tax can it save?
Section 54 (new Act Section 82) exempts the long-term gain when you reinvest it in another residential house in India in time. The exemption is the lower of the gain or the new house cost, capped at ₹10 crore. The tax saved equals the tax on that exempted part — 12.5% plus cess on a ₹40 lakh gain saves about ₹5.2 lakh.
What is the tax on mutual fund gains in FY 2026-27?
Equity-oriented funds (STT paid): LTCG at 12.5% on gains above ₹1.25 lakh a year; STCG at 20%. Debt funds bought on or after 1 April 2023: slab rate, any holding period. Debt funds bought before 1 April 2023: LTCG at 12.5% after 24 months, no indexation.
Do I need to pay advance tax on capital gains?
Yes. Include the gain in the advance tax instalment for the quarter in which it arises. If it arises after 15 March, pay by 31 March of the same financial year, or interest applies.
Can I save capital gains tax by investing in bonds?
Yes, but only for gains from land or building. Under Section 54EC (new Act Section 85), invest up to ₹50 lakh of that gain in NHAI, REC, PFC, or IRFC bonds within 6 months of the sale. The invested amount is exempt; the interest (around 5.25% a year) is taxable. Gains from shares or funds cannot use this route.
Does the Section 87A rebate apply to capital gains?
No. The rebate covers only income taxed at slab rates. Capital gains at the special rates of 20% or 12.5% do not get it — even if your total income is below ₹12 lakh. Your slab-rate income (like salary) can still get the rebate; the capital gains part cannot.
Official sources
- Income Tax Department — e-filing portal (incometax.gov.in)
- Income Tax Department — CBDT (incometaxindia.gov.in): notifications, including the Cost Inflation Index
- India Code (indiacode.nic.in): full text of the Income-tax Act, 2025
Last updated: 16 October 2026
Disclaimer: This article gives general information only. It is not personal tax advice. Tax rules depend on your facts, so check with a qualified tax professional before acting on them.
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Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.