Capital Gains Tax in India: Equity, Mutual Funds and Property
Every rupee your investments earn on paper is untaxed until the day you sell. On that day, the profit becomes a capital gain, and how much of it you keep depends on three questions: what you sold, how long you held it, and which rules applied. This guide walks through the framework for the assets most Indians actually own — listed equity, mutual funds, and property.
One orientation note before the details: capital gains rules were substantially rewritten by the Finance (No. 2) Act, 2024, which simplified holding periods and changed rates. The figures below reflect that framework as it stood for FY 2025-26. Capital gains rules are among the most frequently amended in the Act — verify current-year rates against the Income Tax Department before acting.
The framework in one table
"Short-term" and "long-term" are defined per asset, and the tax rate follows from that classification:
| Asset | Long-term after | STCG rate | LTCG rate |
|---|---|---|---|
| Listed equity shares / equity mutual funds | 12 months | 20% (Section 111A) | 12.5% on gains above ₹1.25 lakh/yr (Section 112A) |
| Debt mutual funds (bought after 1 Apr 2023) | — | Slab rate | Slab rate (no LTCG treatment) |
| Property (land/building) | 24 months | Slab rate | 12.5% (with transitional indexation rules for older purchases) |
| Gold, ETFs of gold, other listed non-equity | Varies by instrument | Slab rate | 12.5% class |
Three things to notice:
- Equity is privileged. A concessional LTCG rate plus a ₹1.25 lakh annual exemption. Long-term equity investing is the most tax-efficient wealth-building route available to a retail investor.
- Debt fund gains are simply income now for post-April-2023 purchases — taxed at your slab, whatever the holding period. The old indexation advantage is gone for these.
- The exemption is per financial year, not per investment. Which creates the one genuinely useful planning move below.
The ₹1.25 lakh harvest
Because the first ₹1.25 lakh of long-term equity gains each year is tax-free, an investor who never uses it wastes it. Tax harvesting is the practice of redeeming enough long-term equity each year to realise gains up to the exemption, then (if you wish) reinvesting — resetting your purchase cost higher, at zero tax.
A worked shape (rates via the SIP Calculator): a ₹10,000/month SIP at 12% grows to about ₹23.2 lakh in 10 years, of which ≈ ₹11.2 lakh is gains. Realised all at once, roughly ₹10 lakh of that would be taxable after the exemption. Realised progressively across the years using the annual ₹1.25 lakh window, a substantial slice of it escapes tax entirely — legally, by design.
Two cautions: exit loads and the one-year clock restart on reinvested units, and never let a tax tactic override an investment decision.
Mutual funds: the details that surprise people
- Every SIP installment has its own clock. Redeeming after "one year of SIP" doesn't make it all long-term — only installments individually older than 12 months qualify. Funds redeem first-in-first-out.
- Switching counts as selling. Moving from Fund A to Fund B — or regular to direct plan — is a redemption plus a purchase, and triggers gains.
- SWP withdrawals are partial redemptions, each with its own gain calculation. This is why a SWP from long-held equity is remarkably tax-light: most of each withdrawal is your own capital, and the gain portion enjoys the exemption and the LTCG rate.
- ELSS funds (Section 80C) are equity funds: after the 3-year lock-in, normal equity LTCG rules apply.
Property, briefly
Property gains are long-term after 24 months, taxed at the 12.5% class rate, with transitional indexation relief applicable to older acquisitions in some cases. Exemptions under Sections 54 / 54F / 54EC (reinvesting in another home or specified bonds, within time limits) can eliminate the tax entirely — but the conditions are precise and the amounts large. For property, use the framework here to ask the right questions, and a professional for the answers.
Losses are worth money
Capital losses offset capital gains: short-term losses against any gains, long-term losses against long-term gains only. Unused losses carry forward eight years — but only if you file your return by the due date. Booking a genuine loss to offset a taxed gain ("loss harvesting") is legitimate; wash-trading the same asset the same day to manufacture one may be challenged.
Frequently asked questions
How long must I hold equity mutual funds for long-term treatment? More than 12 months per installment. Long-term equity gains above ₹1,25,000 in a financial year are taxed at 12.5%; gains within the exemption are tax-free.
Are debt mutual funds still worth it after the tax change? For post-April-2023 purchases they're taxed at slab like an FD — so the comparison is convenience, liquidity and return, not tax. See FD vs RD vs PPF for the safe-money comparison.
Do I pay capital gains tax if I don't sell? No — the tax event is redemption/transfer. (Dividends/IDCW payouts, however, are taxed as income in the year received, which is one reason growth plans suit most investors.)
Does the ₹1.25 lakh exemption apply to property or debt funds? No. It applies to listed equity and equity-oriented funds under Section 112A only.
Where do capital gains appear in my tax return? In the capital gains schedule of your ITR; your broker/fund house issues a capital gains statement, and much of it is pre-filled from the AIS. Cross-check both — see TDS Explained for how the AIS is built.
Model the growth side with the SIP Calculator, Lumpsum Calculator and CAGR Calculator; then check your overall position in the Income Tax Calculator.
Official sources: Income Tax Department — Sections 111A, 112, 112A, 54–54F; Finance (No. 2) Act, 2024 for the current framework.
Disclaimer: This article is for general information only and is not tax advice. Capital gains rules change frequently and property transactions have precise conditions; verify against official sources or consult a qualified professional before acting.