The Long term capital gain tax is an essential aspect of taxation that investors and taxpayers need to understand to manage their finances efficiently. In this guide, we will explore what long term capital gain tax is, how it works, applicable tax rates, and strategies to minimize your tax liability in India.
What is Long Term Capital Gain Tax?
India taxes long-term capital gains on profits from selling a capital asset held for more than a specified period. You pay this tax on assets like stocks, bonds, real estate, and mutual funds when you sell them after holding for over one year (for listed securities) or two years (for real estate and certain other assets).
Long Term vs. Short-Term Capital Gains
The taxation of capital gains depends on the holding period of the asset:
- Short-term capital gains: Profits from assets held for one year or less (for equities and equity-oriented mutual funds) or two years or less (for real estate) are taxed at higher rates.
- Long term capital gains: Profits from assets held for more than the specified period benefit from lower tax rates.
Short Term Capital Gain on Shares Latest Update
Long Term Capital Gains Tax Rates in India (Updated for 2025)
The long term capital gains tax rates in India have been updated as per the latest Union Budget:
| Asset Type | Holding Period | Tax Rate |
|---|---|---|
| Listed Equity Shares & Equity Mutual Funds | More than 12 months | 12.5% (on gains above ₹1.25 lakh) |
| Listed Bonds, Debentures, and Preference Shares | More than 12 months | 12.5% |
| Real Estate | More than 24 months | 20% (with indexation) |
| Unlisted Shares | More than 24 months | 20% (with indexation) |
The exemption threshold for listed equity shares and mutual funds has increased from ₹1 lakh to ₹1.25 lakh, with the tax rate adjusted to 12.5%.
Exemptions and Special Considerations
- Section 54 (Real Estate): Capital gains from the sale of residential property can be exempt if reinvested in another residential property.
- Section 54EC (Bonds Investment): Gains from real estate can be exempt if reinvested in specific bonds (up to ₹50 lakh limit).
- Agricultural Land Exemption: Sale of certain agricultural lands may be exempt from capital gains tax.
How to Minimize Long Term Capital Gain Tax
Investors can reduce their tax liability through several strategies:
- Tax-Loss Harvesting: Offset capital gains by selling underperforming investments to realize losses.
- Holding Investments Longer: Keeping assets beyond the required period qualifies for lower tax rates.
- Utilizing Tax-Saving Bonds: Investing in government-approved bonds under Section 54EC can help defer tax.
- Gifting Appreciated Assets: Gifting assets to family members in lower tax brackets may help reduce overall tax liability.
- Charitable Donations: Donating appreciated assets to a charity can provide a tax deduction while avoiding capital gains tax.
FAQ – Long Term Capital Gain (LTCG) Tax
LTCG tax on shares is 12.5% on profits exceeding ₹1.25 lakh in a financial year, without indexation, if the shares are held for over one year.
LTCG on mutual funds is taxed at 12.5% on profits exceeding ₹1.25 lakh in a year, if the units are held for more than three years.
Yes, the first ₹1.25 lakh of LTCG from listed shares and equity mutual funds is exempt, and further exemptions are available under Sections like 54 and 54EC for property reinvestment.
The LTCG period is one year for shares/equity mutual funds, three years for other mutual funds, and two years for real estate.
India taxes LTCG on property at 20% with indexation if you hold the property for over two years. You may get exemptions under Section 54 for reinvesting in another residential property.
Conclusion
Understanding and planning for long term capital gain tax is crucial for optimizing investments and minimizing tax burdens. Staying informed about the latest tax regulations ensures compliance and maximizes profitability.
For more tax-related insights, stay tuned to GST INDIA NEWS.
