If you sold shares, redeemed mutual funds, or sold a property during FY 2025-26, you have capital gains to report in your ITR for AY 2026-27. Many taxpayers assume the tax on these gains is simple. It is not. The rate of tax depends on what you sold, how long you held it, and when exactly you sold it. Budget 2024, effective from 23rd July 2024, brought significant changes to how capital gains are taxed across different asset classes. Some rates went up, some came down, indexation was removed for most assets, and a special transitional rule applies to property sold after 23rd July 2024 but purchased before that date. This article explains all of it in simplelanguage so you know exactly where you stand before you file your return this season.
What Are Capital Gains and When Do They Arise
A capital gain arises when you sell a capital asset for more than what you paid for it. The profit, meaning the sale price minus the purchase price and any eligible costs, is your capital gain. This gain is then classified as either short-term or long-term depending on how long you held the asset before selling it. The holding period that separates short-term from long-term is different for different types of assets, and the tax rates are also different. Both the holding period rules and the tax rates changed significantly from 23rd July 2024 onwards, so FY 2025-26 is the first full year in which the new rates apply from the very beginning.
Short-Term vs Long-Term: Understanding the Holding Period
The first question to answer for any capital gain is whether it is short-term or long-term, since the answer determines the tax rate.
For listed equity shares, equity mutual funds, ETFs, REITs, and InvITs, the asset is considered long-term if held for more than 12 months. If held for 12 months or less, it is short-term.
For debt mutual funds bought on or after 1st April 2023, the concept of long-term does not apply in the traditional sense. These funds are taxed at slab rates regardless of how long they are held, meaning neither short-term nor long-term classification changes the outcome.
For debt mutual funds bought before 1st April 2023, physical gold, gold mutual funds, overseas mutual funds, fund of funds, real estate, and unlisted securities, the asset is considered long-term only if held for more than 24 months. Less than 24 months is short-term.
Tax Rates After Budget 2024: The New Framework
Budget 2024, effective from 23rd July 2024, replaced the earlier patchwork of different rates with a more uniform structure. Here is how each major asset class is now taxed.
Equity Shares, Equity Mutual Funds, and ETFs
These are the most commonly held investment assets among retail investors, and the changes here affect the largest number of taxpayers.
For short-term capital gains on listed equity shares, equity mutual funds, and equity ETFs where Securities Transaction Tax has been paid, the tax rate is now 20 percent. Before 23rd July 2024 it was 15 percent. This increase of 5 percentage points is significant for active traders and investors who frequently buy and sell within 12 months.
For long-term capital gains on the same assets, the tax rate is 12.5 percent on gains exceeding Rs 1.25 lakh in a financial year. Gains up to Rs 1.25 lakh in total across all equity investments in the year remain tax-free. This exemption threshold was increased from Rs 1 lakh to Rs 1.25 lakh in Budget 2024. The rate itself increased from 10 percent to 12.5 percent, but the higher exemption limit partially offsets this for investors with modest long-term gains.
Indexation benefit is not available on equity assets. This was already the case before Budget 2024, so no change here.
Gold ETFs, REITs, and InvITs
Gold ETFs, REITs (Real Estate Investment Trusts), and InvITs (Infrastructure Investment Trusts) are now aligned with equity ETFs for holding period purposes. If held for more than 12 months, they qualify as long-term and are taxed at 12.5 percent. If held for 12 months or less, short-term gains are taxed at 20 percent where STT applies, or at slab rates where STT is not paid.
Before Budget 2024, gold ETFs were treated like debt funds and required a 24-month holding period for long-term classification, with a 20 percent LTCG rate with indexation. The shift to a 12-month holding period and 12.5 percent rate is actually a favourable change for gold ETF investors who hold for over a year.
Listed Bonds
Listed bonds have a 12-month holding period for long-term classification. Long-term gains on listed bonds are taxed at 12.5 percent. Short-term gains are taxed at the applicable slab rate, since STT is not paid on bond transactions.
Debt Mutual Funds
This is one of the more complex areas and requires careful attention depending on when the units were purchased.
For debt mutual funds purchased on or after 1st April 2023, there is no LTCG or STCG distinction. All gains, regardless of holding period, are added to total income and taxed at the investor’s applicable slab rate. This change was introduced in an earlier amendment and has not been reversed by Budget 2024. For an investor in the 30 percent bracket, this means debt fund gains are taxed at 30 percent plus surcharge and cess, regardless of whether the fund was held for 1 month or 10 years.
For debt mutual funds purchased before 1st April 2023, the position changed with Budget 2024. If these older units are sold after 23rd July 2024 and have been held for more than 24 months, the long-term capital gain is now taxed at 12.5 percent without indexation. Whether the new rate is better or worse depends on the specific investment and the inflation adjustment that indexation would have provided.
Short-term gains on pre-April 2023 debt funds, meaning units held for 24 months or less, continue to be taxed at slab rates.
Real Estate: The Special Transitional Rule
Property taxation under capital gains has the most nuance this year, because Budget 2024 introduced a transitional provision specifically for real estate.
For property sold after 23rd July 2024, where the property was purchased after 23rd July 2024, the long-term capital gain is taxed at 12.5 percent without indexation, provided the property has been held for more than 24 months.
For property sold after 23rd July 2024, but purchased before 23rd July 2024, a special choice is available to resident individuals and HUFs. They can choose whichever of the following two calculations results in lower tax: 12.5 percent on gains without indexation, or 20 percent on gains with indexation. This grandfathering provision was introduced specifically because removing indexation on property purchased years or decades ago could have resulted in a significantly higher tax burden for long-term property owners.
Short-term capital gains on property, meaning property sold within 24 months of purchase, continue to be taxed at the applicable slab rate, with no special flat rate.
This choice between the two options is available only to resident individuals and HUFs, and not to companies or non-residents. For sellers of older properties, particularly those purchased many years ago at much lower prices, running the calculation under both options before filing is essential, since the difference in tax payable can be very significant.
Physical Gold, Gold Mutual Funds,and Fund of Funds
Before Budget 2024, these assets required a 36-month holding period for long-term classification and were taxed at 20 percent with indexation. Budget 2024 simplified this significantly. The holding period is now 24 months for long-term classification, and the tax rate is 12.5 percent without indexation. Short-term gains continue to be taxed at slab rates.
This is particularly relevant for investors in gold mutual funds and overseas funds, who now have both a shorter qualifying holding period and a lower LTCG rate than before, though the removal of indexation means the taxable gain may be higher in absolute terms depending on the purchase price and the inflation adjustment that would have applied under the old rules.
The Exemption Under Section 54 and Related Provisions
Capital gains on property are not always fully taxable. Where a residential property is sold and the gain is reinvested in another residential property within the specified time limits, an exemption under Section 54 is available. Similarly, capital gains can be reinvested in specified bonds under Section 54EC within six months of the sale, subject to a cap of Rs 50 lakh per financial year. These exemption provisions remain available under the new capital gains framework and are an important planning tool for anyone selling property.
For equity and mutual fund gains, no such reinvestment exemption exists. The Rs 1.25 lakh annual exemption for LTCG on equity is the only relief available.
How Capital Gains Are Reported in the ITR
Capital gains must be reported in Schedule CG of the ITR. For AY 2026-27, this schedule has been updated to remove the transitional split between pre and post 23rd July 2024 gains that was required in last year’s return, since the new rates now apply uniformly for the full year of FY 2025-26. However, for property sold after 23rd July 2024 but purchased before that date, the transitional choice between 12.5 percent without indexation and 20 percent with indexation must still be calculated and the lower figure reported.
Equity investors are required to report scrip-level details in Schedule 112A for long-term gains on listed shares and equity mutual funds. This means every sale transaction, with the name of the share or fund, the number of units, the purchase date and price, the sale date and price, and the resulting gain or loss, must be entered individually. Obtaining a consolidated capital gains statement from your broker and from CAMS or KFintech for mutual funds before filing is essential.
For investors who have both gains and losses during the year, set-off rules allow short-term losses to be set off against both short-term and long-term gains, while long-term losses can only be set off against long-term gains. Any unabsorbed loss can be carried forward for up to eight assessment years, but only if the return is filed on or before the original due date.
A Common Source of Confusion This Season
Many taxpayers in Gurgaon and across Delhi NCR who are active in the stock market or who hold mutual funds across multiple platforms receive capital gains statements from several different sources, including brokers, mutual fund houses, and portfolio management services. Reconciling all of these against the AIS before filing is an important step, since the AIS sometimes contains entries that are duplicated, priced incorrectly, or misclassified between short-term and long-term. Filing the return based on an unchecked AIS and discovering a mismatch after filing is a far more disruptive experience than checking first.
Given the number of moving parts in capital gains taxation this year, particularly around debt funds, the property transitional rule, and scrip-level reporting, many investors find it useful to have a tax consultant review their capital gains schedule before submission, particularly where the gains or losses involved are significant.
Frequently Asked Questions
1. What is the tax rate on long-term capital gains from shares in FY 2025-26?
Long-term capital gains on listed equity shares and equity mutual funds are taxed at 12.5 percent on gains exceeding Rs 1.25 lakh in the financial year. Gains up to Rs 1.25 lakh per year remain tax-free. The holding period for long-term classification is more than 12 months.
2. What is the short-term capital gains tax rate on equity shares?
Short-term capital gains on listed equity shares, equity mutual funds, and equity ETFs where STT has been paid are taxed at 20 percent. This rate increased from 15 percent effective 23rd July 2024.
3. How is real estate taxed for capital gains in FY 2025-26?
For property held for more than 24 months and sold after 23rd July 2024, the long-term capital gain is taxed at 12.5 percent without indexation. If the property was purchased before 23rd July 2024, resident individuals and HUFs can choose the lower of 12.5 percent without indexation or 20 percent with indexation. Short-term gains on property are taxed at slab rates.
4. How are debt mutual funds taxed?
Debt mutual funds purchased on or after 1st April 2023 are taxed at the applicable slab rate regardless of holding period. Debt funds purchased before 1st April 2023 and held for more than 24 months are taxed at 12.5 percent without indexation if sold after 23rd July 2024.
5. Is there any exemption on long-term capital gains from equity?
Yes. The first Rs 1.25 lakh of long-term capital gains from listed equity shares and equity mutual funds in a financial year is exempt from tax. Gains above this threshold are taxed at 12.5 percent.
6. Can capital losses be set off against capital gains?
Yes. Short-term capital losses can be set off against both short-term and long-term capital gains. Long-term capital losses can only be set off against long-term capital gains. Unabsorbed losses can be carried forward for up to eight years, but only if the return is filed before the original due date.
7. Do I need to report all share transactions individually in the ITR?
Yes. Schedule 112A in the ITR requires scrip-level reporting of all long-term capital gain transactions in listed equity shares and equity mutual funds. A consolidated capital gains statement from your broker and mutual fund registrar is needed before filing.
8. Should I consult a CA before filing if I have capital gains?
If your capital gains involve multiple asset classes, significant amounts, a property sale, or any debt fund transactions, a professional review is advisable. A CA in Gurgaon familiar with the current ITR schedules can ensure your gains and losses are computed correctly, the right set-off rules are applied, and the return is filed accurately within the due date so that any losses can be carried forward.
Disclaimer: The information contained in this article is intended for general informational and educational purposes only and does not constitute legal, tax, accounting, or professional advice. While every effort has been made to ensure the accuracy and completeness of the information, laws, regulations, and judicial interpretations are subject to change and may vary depending on the specific facts and circumstances of each case.
Readers are advised to consult a qualified professional before taking any action based on the contents of this article. Neither the author nor Nitin Bhatia & Associates shall be liable for any loss or damage arising from reliance on the information provided herein.
Suggestions, corrections, and feedback are always welcome. If you believe any update, clarification, or modification is required, your valuable inputs are invited and appreciated.
