India’s capital gains tax structure underwent notable revisions in the Union Budget 2024-2025, especially concerning the taxation of shares and mutual funds. For investors—both seasoned and new—understanding how short-term and long-term capital gains are taxed in FY 2024-25 (AY 2025-26) is crucial for maximizing post-tax returns and planning investment strategies wisely.
In this article, we explain the definitions, applicable tax rates, recent changes, and key tax planning tips. Whether you are trading in equity shares, investing in equity or debt mutual funds, or holding unlisted shares, knowing the latest rules can help you avoid surprises during tax filing.
What Are Capital Gains?
Capital gains arise when you sell a capital asset such as equity shares, mutual fund units, or unlisted shares at a profit. The gain is categorized as either short-term or long-term, depending on how long the asset was held before being sold. This classification determines the applicable tax rate and eligibility for exemptions.
Short-Term Capital Gains (STCG)
What is STCG?
Short-term capital gains apply when assets are sold within a short holding period. The duration varies by asset type:
- Listed equity shares and equity mutual funds: If held for 12 months or less, gains are considered short-term.
- Debt mutual funds and unlisted shares: The holding period for STCG is 24 months or less.
Tax Rate on STCG:
The Union Budget introduced key changes to short-term capital gains tax rates:
- Listed equity shares and equity mutual funds:
- New STCG rate: 20% (previously 15%)
- Effective for gains made on or after July 23, 2024
- Additional surcharge and health & education cess apply
- Debt mutual funds and unlisted shares:
- Taxed as per the individual’s applicable income tax slab rates if held for up to 24 months.
Example:
If you sell listed equity shares within 12 months and make a gain of ₹2,00,000:
- Tax = 20% of ₹2,00,000 = ₹40,000 (plus surcharge and cess)
Long-Term Capital Gains (LTCG)
What is LTCG?
Gains are classified as long-term if the asset is held for a longer duration:
- Listed equity shares and equity-oriented mutual funds: Held for more than 12 months
- Unlisted shares and debt mutual funds: Held for more than 36 months
Tax Rate on LTCG
The 2024 budget has brought significant updates to LTCG taxation:
- Listed equity shares & equity mutual funds:
- Tax rate: 12.5% (previously 10%)
- Exemption limit: ₹1.25 lakh per year (increased from ₹1 lakh)
- No indexation benefit: You cannot adjust the cost of acquisition for inflation.
- Unlisted shares & debt mutual funds:
- Tax rate: 12.5% flat, regardless of the asset type
- No indexation benefit available
- Surcharge and cess apply in addition to the basic tax rate.
Example:
You sell listed mutual funds after holding them for 14 months and earn a profit of ₹2,00,000:
- Exempt LTCG = ₹1,25,000
- Taxable LTCG = ₹75,000
- Tax = 12.5% of ₹75,000 = ₹9,375 (plus surcharge and cess)
Capital Asset Classified as Long Term Capital Asset based on Period of Holding
| Asset Type | Transfer BEFORE July 23, 2024 | Transfer ON or AFTER July 23, 2024 |
| Equity or Preference Shares (Listed) | > 12 months | > 12 months |
| Equity or Preference Shares (Unlisted) | > 24 months | > 24 months |
| Immovable Property (Land or Building or Both) | > 24 months | > 24 months |
| Units of UTI (Listed or Unlisted) | > 12 months | > 12 months |
| Zero Coupon Bonds (Listed or Unlisted) | > 12 months | > 12 months |
| Equity Oriented Mutual Fund Units | > 12 months | > 12 months |
| Debt Oriented Mutual Fund Units | >36 months | >24 months |
| Securities (Listed: Debentures, Bonds, Govt. Sec., etc.) | > 12 months | > 12 months |
| Unlisted Shares | > 24 months | > 24 months |
Final Words
Understanding the revised capital gains tax framework for FY 2024-25 (AY 2025-26) is essential for efficient tax planning and maximizing investment returns. With significant changes such as the increase in STCG tax rate on listed equity shares to 20% and a flat LTCG rate of 12.5% on various assets, investors must reassess their holding strategies. The updated holding period requirements—especially for debt mutual funds, further emphasize the need for careful portfolio management. Additionally, changes in exemption limits and removal of indexation benefits make it critical to calculate gains precisely. Whether you’re dealing with listed shares, mutual funds, or unlisted securities, staying compliant while optimizing your tax burden is now more important than ever. Consulting a tax expert or financial advisor can help you meat your investment goals.
