Long Term Capital Gains Tax: Rates, Calculation & Exemptions 2026

Held equity shares for over a year and made a profit? Sold a flat you bought five years ago? The tax on those profits is called long term capital gains tax, and Budget 2024 changed nearly every rule around it. New rates, removal of indexation for most assets, a grandfathering option for property bought before July 2024, and a higher exemption limit for equity. If you are planning to sell any investment this year, understanding the current LTCG framework before you sell can save you a significant amount.

In my experience working with salaried professionals on tax planning, LTCG on property is the area where I see the most confusion post-Budget 2024. The indexation removal has created two parallel calculation routes for older properties, and choosing the wrong one costs taxpayers lakhs. This guide covers every scenario clearly.

Budget 2025 and Budget 2026 made no changes to LTCG rates or holding periods. Everything below is final and confirmed for FY 2025-26.

What Is Long Term Capital Gain?

A long term capital gain (LTCG) arises when you sell a capital asset at a profit after holding it beyond the threshold period for long-term classification. The threshold depends on the type of asset:

Budget 2024 reduced the holding period for property, gold, and most non-equity assets from 36 months to 24 months, effective July 23, 2024. This applies fully to FY 2025-26.

LTCG Tax Rates for FY 2025-26

Budget 2024 introduced a uniform flat rate of 12.5% for long term capital gains across most asset classes, replacing the earlier tiered structure of 10% for equity and 20% (with indexation) for other assets.

Complete LTCG Rate Table FY 2025-26

Note: The Rs. 1.25 lakh annual exemption applies only to equity LTCG under Section 112A. It does not apply to property, gold, debt funds, or any other asset class.

Section 112A: LTCG on Equity Shares and Equity Mutual Funds

Section 112A governs LTCG on listed equity shares, equity-oriented mutual funds, and units of business trusts where STT has been paid.

Key rules under Section 112A:

• Tax rate: 12.5% on gains exceeding Rs. 1.25 lakh per financial year
• The first Rs. 1.25 lakh of aggregate LTCG under Section 112A in a year is fully exempt
• No indexation benefit is available (indexation was never applicable to equity)
• Surcharge on Section 112A LTCG is capped at 15%, regardless of total income level. This is beneficial for high-income taxpayers who would otherwise attract 25% or 37% surcharge on other income
• Section 87A rebate does not apply against Section 112A LTCG

Budget 2024 change: The exemption limit was increased from Rs. 1 lakh to Rs. 1.25 lakh, and the rate was increased from 10% to 12.5%, effective July 23, 2024.

Grandfathering for pre-2018 equity: For equity shares and mutual fund units acquired before January 31, 2018, the cost of acquisition is deemed to be the higher of the actual purchase price or the Fair Market Value (FMV) as on January 31, 2018. This protects pre-2018 gains from being taxed.

Practical Example:

Rahul holds equity shares purchased in March 2024 for Rs. 4 lakh. He sells them in May 2026 for Rs. 6.5 lakh. Holding period: more than 12 months. STT paid.

Section 112: LTCG on Property, Gold, and Other Assets

Section 112 governs all other long term capital gains: property, gold, unlisted shares, bonds, and debt mutual funds (pre-April 2023 purchases).

Budget 2024 removed indexation for all these assets and set a uniform rate of 12.5% for transfers on or after July 23, 2024. However, a grandfathering option was introduced specifically for immovable property.

Grandfathering Option for Property: The Choice You Must Get Right

For immovable property (land or building) acquired before July 23, 2024 and sold on or after that date, resident individuals and HUFs have a one-time choice between two calculation methods:

Option A: Pay tax at 12.5% without indexation (new rate)

Option B: Pay tax at 20% with indexation (old rate)

You must choose whichever option results in a lower tax. The Income Tax Act does not restrict you to either option: compute both and pick the lower figure.

This grandfathering provision is available only to resident individuals and resident HUFs. NRIs selling Indian property must use Option A (12.5% without indexation) regardless of when the property was acquired.

For property acquired on or after July 23, 2024, only Option A applies. No indexation, no choice.

CII for FY 2025-26: The Cost Inflation Index for FY 2025-26 is 376 (notified by CBDT via Notification No. 70/2025). This is used for indexed cost calculation when opting for the 20% with indexation route.

Practical Example:

Sunita (resident individual) bought a flat in FY 2010-11 for Rs. 35 lakh. She sells it in FY 2025-26 for Rs. 1.40 crore. Transfer expenses: Rs. 2.80 lakh. CII for 2010-11: 167. CII for 2025-26: 376.

Option A: 12.5% without indexation

Option B: 20% with indexation

Option B is lower by approximately Rs. 1.14 lakh. Sunita should file under Option B.

This is exactly the calculation I urge every property seller to run before filing. The difference can be lakhs depending on how long you have held the property and the CII applicable at the time of purchase.

LTCG Tax Exemptions: Sections 54, 54F, and 54EC

These three sections are the most powerful tools to reduce or eliminate LTCG tax on property. They apply regardless of whether you use the 12.5% or 20% route.

Section 54: Reinvestment in Another Residential Property

Available when you sell a residential property and reinvest the capital gains in another residential property.

Section 54F: Reinvestment from Sale of Any Asset (Other Than Residential Property)

Available when you sell any long term capital asset (gold, plot, unlisted shares, etc.) and reinvest the net sale consideration (not just the gains) in a residential property.

Section 54EC: Investment in Specified Bonds

Available for LTCG from land or building only. Reinvest the capital gains in specified government bonds (REC, PFC, IRFC and other notified bonds).

Tip: If you cannot reinvest immediately in property or bonds but the ITR deadline is approaching, deposit the LTCG amount in a Capital Gains Account Scheme (CGAS) with an authorised bank. This preserves your right to claim Section 54 or 54F exemption until the reinvestment deadline, without needing the funds to be already invested at the time of filing.

How to Calculate LTCG: Step by Step

For equity (Section 112A):

LTCG = Sale Price minus Cost of Acquisition (or FMV as on January 31, 2018, whichever is higher for pre-2018 purchases)

Deduct Rs. 1.25 lakh annual exemption. Apply 12.5% on the balance.

For property without indexation (Option A under Section 112):

LTCG = Sale Consideration minus (Actual Cost of Acquisition + Cost of Improvement + Transfer Expenses)

Apply 12.5% on the LTCG. Deduct any Section 54/54EC/54F exemption before computing tax.

For property with indexation (Option B under Section 112):

Indexed Cost = Actual Cost x (CII of year of sale / CII of year of acquisition)

LTCG = Sale Consideration minus (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)

Apply 20% on the LTCG. Deduct any Section 54/54EC/54F exemption before computing tax.

LTCG Tax Harvesting: A Simple Planning Strategy for Equity

Since the first Rs. 1.25 lakh of equity LTCG is exempt every year, a smart planning approach is to deliberately book up to Rs. 1.25 lakh of long term gains each financial year, even if you do not intend to exit the investment permanently.

How it works: Sell enough equity units or shares to book Rs. 1.25 lakh in LTCG. Immediately repurchase the same units at the current market price. Your cost of acquisition resets to the current price, reducing future taxable gains. You pay zero tax on the booked gain (within the exemption limit). Over several years, this systematically reduces your accumulated LTCG liability.

This is a completely legal tax planning strategy that many mutual fund investors and long-term equity holders use effectively.

Section 87A Rebate and LTCG: The Common Mistake

Under the new tax regime, income up to Rs. 12 lakh effectively attracts zero tax due to the Section 87A rebate. However, LTCG taxed under Section 112A and Section 112 at special rates is excluded from the Section 87A rebate.

This means even if your total income including LTCG is below Rs. 12 lakh, you will still pay 12.5% on taxable equity LTCG above Rs. 1.25 lakh.

However, the basic exemption limit (Rs. 2.5 lakh under old regime, Rs. 3 lakh under new regime) can be adjusted against LTCG to reduce taxable gains before applying the flat rate. This benefit is available to resident individuals only.

Advance Tax on LTCG

If you sell a property or equity shares and your total tax liability for the year including LTCG tax exceeds Rs. 10,000, advance tax applies. For salaried employees, employer TDS does not cover LTCG from investments.

Missing advance tax on LTCG attracts interest under Section 234B and 234C. Read the advance tax payment guide to understand the instalment schedule and how to calculate your liability mid-year.

How to Report LTCG in Your ITR

LTCG is reported in Schedule CG (Capital Gains) in your ITR form. You cannot use ITR-1 if you have capital gains. Use ITR-2 (salaried with capital gains, no business income) or ITR-3 (capital gains with business income).

Steps to report LTCG:

Step 1: Log in to the income tax portal and open your ITR form.

Step 2: Navigate to Schedule CG. Under Long Term Capital Gains, select the relevant section: 112A for equity, 112 for property and other assets.

Step 3: Enter transaction details: asset description, date of acquisition, date of sale, sale consideration, cost of acquisition (and indexed cost if using Option B for property).

Step 4: For property sold under the grandfathering option, enter details under both computation methods. The portal will compute tax under both and allow you to choose the lower figure.

Step 5: Enter any Section 54/54F/54EC exemption details in the designated fields. If the reinvestment is incomplete and funds are in CGAS, enter the CGAS deposit details.

Step 6: Claim credit for TDS deducted by buyer (Section 194-IA at 1% for property transactions above Rs. 50 lakh) in Schedule TDS.

The ITR filing last date for FY 2025-26 is July 31, 2026 for individuals. Filing on time is essential if you want to carry forward any capital losses.

For a complete step-by-step portal walkthrough, refer to the ITR filing guide.

LTCG vs STCG: Quick Comparison

You can read the complete guide on short term capital gains tax for a detailed comparison with STCG rates and rules.

LTCG Under the New Income Tax Act 2025

The new Income Tax Act 2025 came into effect from April 1, 2026. For FY 2025-26 returns filed in July 2026, Tab 1 on the portal applies (Act 1961 rules). The LTCG provisions under Sections 112A and 112, including the grandfathering option for property, apply under Tab 1.

The new Act 2025 renumbers these provisions but does not change the tax treatment for Tax Year 2026-27 onward.

Frequently Asked Questions

Q: I bought a flat in 2015 and sold it in April 2026. Should I use 12.5% or 20% with indexation? Since your property was acquired before July 23, 2024, you qualify for the grandfathering option. Calculate LTCG under both methods: 12.5% without indexation and 20% with indexation using CII values. Pay whichever results in a lower tax. In most cases where the property was held for many years, the 20% with indexation route comes out lower.

Q: Is the Rs. 1.25 lakh equity LTCG exemption per person or per family? It is per individual taxpayer, per financial year. In a joint investment, each investor gets their own Rs. 1.25 lakh exemption based on their proportionate share of gains.

Q: I sold gold after 3 years. Is indexation available? No. Indexation for gold was removed by Budget 2024 for transfers on or after July 23, 2024. LTCG on gold sold in FY 2025-26 is taxed at 12.5% without indexation regardless of how long you held it. There is no grandfathering option for gold.

Q: Can I claim Section 54 exemption if I use the 12.5% route for property? Yes. Sections 54, 54F, and 54EC are completely independent of which computation method you choose. You can claim these exemptions whether you file under 12.5% or 20% with indexation.

Q: I have LTCG from equity of Rs. 80,000. Do I need to pay any tax? No. Since Rs. 80,000 is below the Rs. 1.25 lakh annual exemption under Section 112A, there is no tax on this gain. However, you must still report it in Schedule CG of your ITR even if no tax is due.

Q: My total income is Rs. 8 lakh including Rs. 2 lakh in equity LTCG. Will the Section 87A rebate cover my LTCG tax? No. The Section 87A rebate does not apply to Section 112A LTCG. The Rs. 75,000 rebate (new regime) covers tax on your other income (Rs. 6 lakh), but the tax on Rs. 75,000 of taxable equity LTCG (Rs. 2L minus Rs. 1.25L exemption) at 12.5% remains payable. You can review the old vs new tax regime to see which regime is better for your situation.

Q: Can I set off a long term capital loss against short term capital gains? No. A long term capital loss can only be set off against long term capital gains, not against STCG. A short term capital loss, however, can be set off against both STCG and LTCG.

Conclusion

Long term capital gains tax in India is now simpler in structure but more nuanced in execution. A flat 12.5% applies across most assets, but the grandfathering option for older properties, the Rs. 1.25 lakh equity exemption, and the Section 54/54F/54EC reinvestment routes create meaningful planning opportunities that can save significant amounts.

The key decisions to get right for FY 2025-26: run both computation options for property acquired before July 2024 before choosing your filing route; harvest equity LTCG up to Rs. 1.25 lakh annually if you have long-held equity positions; and ensure any reinvestment for Section 54 exemption is either completed or deposited in CGAS before the July 31, 2026 ITR deadline.

Getting these right does not require a CA. It requires knowing the rules and doing the calculation. This guide is designed to give you exactly that.

Written & Reviewed by

Diksha Chawla

Financial Educator & Content Creator | FinLecture.in

Diksha covers Indian income tax, mutual funds, ITR filing, and personal finance. FinLecture content is cross-checked against official government portals and SEBI/AMFI guidelines.

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