Capital-gains tax: How assets are taxed and how is liability calculated

Explainer on capital gains tax across equities, gold, property and mutual funds, covering LTCG, STCG rates, exemptions, loss set-offs and return filing tips

The tax levied on the profits earned through sale of capital assets is known as capital gains tax. Let us look at how different capital assets are taxed and how you can get exemptions.

 

What is capital gains tax?

When capital assets like mutual funds, gold, real estate, bonds and shares are sold for a profit, the owner makes capital gains. Under the Income Tax Act, 1961, the tax levied on these gains is known as capital gains tax. The way and rate at which capital gains differ across asset classes like shares, bonds, equity mutual funds, debt mutual funds, real estate investment trusts (Reits), house property, etc.

 

 

Types of capital gains tax

There are two types of capital gains tax — long-term capital gains (LTCG) tax, and short-term capital gains (STCG) tax. The table below explains the difference: 

Capital gain tax type	Taxed at*	Holding period
LTCG	12.5% on equity, equity mutual funds and gold; 12.5% or 20% with indexation, whichever is lower	Over 12 months on equity and equity mutual funds; Over 24 months on gold and property
STCG	20% on equity and equity mutual funds; rates according to slab on property and gold	Up to 12 months for equity and equity mutual funds; up to 24 months for property and gold
* Surcharge and cess may be charged over these rates of taxation. Note that this table is for resident Indians and only indicative. Consult your financial/taxation advisor for exact tax impact on your actual sale of capital assets.

Long-term capital gains (LTCG) tax

When capital assets are held for more than 12 or 24 months and then sold, then LTCG taxation applies. Gains from equity shares and equity mutual funds up to ₹1,25,000 are exempt from tax in a financial year.

 

Short-term capital gains (STCG) tax

When capital assets are held for a shorter period, then STCG taxation is levied. The time differs across instruments. For equity mutual funds, shares etc, STCG applies if an asset is held for 12 months or less and then sold. For those like real estate, gold etc, STCG taxation applies, if they are sold in under 24 months.

 

Capital assets and non-capital assets

Capital assets are assets like land, house, office space, machines, gold, vehicles, shares, mutual funds, trademarks, etc. Non-capital assets include personal belongings, agricultural land in rural India, National Defence Gold Bonds, 6.5% gold bonds (1977), 7% gold bonds (1980), Gold Deposit Bond issued under the Gold Deposit Scheme (1999), Special bearer bonds (1991).

 

Illustration of capital gains tax on equity shares:

Suppose Raj bought 1,000 shares of a large information-technology company at ₹810 apiece on April 11, 2025, and sold it for ₹1,430 apiece on May 18, 2026. What will be his taxable capital gains and how much will be the tax impact?

Here, Raj makes a gain of ₹620 per share. On 1,000 shares, the capital gains come to ₹6,20,000. Since his holding period is more than 12 months, the gains would be classified as LTCG and will be taxed at 12.5 per cent. But, LTCG from equities up to ₹1,25,000 are exempt from tax. So, Raj would be paying 12.5 per cent tax on ₹4,95,000, which works out to ₹61,875.

 

Setoff of capital losses

Losses arising out of sale of capital assets can be set off against gains from other capital assets in a financial year, subject to some rules. Short-term capital losses can be set off against both short-term and long-term capital gains. On the other hand, long-term capital losses can be set off only against long-term capital gains. If there are unadjusted capital losses in a financial year, they can be carried forward for up to 8 subsequent financial years. Remember, you can set off capital losses only against capital gains, not against income from salary, house property, or business income.

 

Things to remember while filing returns

The first thing you need to do is to make your own calculations and reconcile them against system-generated reports that your demat or mutual fund company would be providing. Choose the correct ITR form in case of an instance of capital gains in your overall income. Make sure to clearly distinguish short-term and long-term capital gains. Remember to check the previous year’s carried-forward losses, if any, which can potentially reduce your tax liability this year. Be aware of the deadlines, so that if you realise there is a mistake in your original filing, you can make a revised tax filing.

Tax filing can feel complex and overwhelming, especially for beginners — but there’s no need to feel intimidated. If needed, consider seeking guidance from a professional tax consultant to ensure accuracy and peace of mind.

 

FAQs

How do capital gains from equity, debt, gold, and property differ for tax purposes?

In FY27, the LTCG rate for equity mutual funds is 12.5%, property is 12.5% or 20% (with indexation) and gold is 12.5% (no indexation). The debt mutual fund will be taxed at the slab rate. 

What costs can be deducted while calculating gains?

While calculating capital gains, costs including acquisition cost, improvement cost, and expenses related to the transfer have to be deducted from the sale consideration amount. 

How are losses adjusted against gains?

Setoffs help adjust losses against gains. The negative income and the positive income are set off against each other and this in turn reduces tax liability. The losses can be carried forward for a period of eight years in case they exceed the gains.