If you invest in stocks, mutual funds, or real estate, you have likely come across the term “capital gains.” So, what exactly are capital gains? Think of them as the profits you earn from an investment. When you sell a capital asset for a higher price than what you paid for it, you realise capital gains. Consequently, you are required to pay taxes on these realised gains. Since you have tax obligations related to capital gains, it is vital to understand the different types of capital gains, how they are calculated, the amount of capital gains tax you need to pay, the exemptions available, and strategies for saving on capital gains tax.
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For instance, Amit sold equity shares worth ₹25,00,000, which he had bought for ₹17,00,000. After this transaction, his capital gains will be ₹25,00,000 – ₹17,00,000 = ₹8,00,000. Now he needs to pay capital gains tax on this amount of ₹8,00,000.
Short-term vs. long-term capital gains tax
How much tax you owe on a capital asset will depend on how long you have held it and the nature of the capital asset. Based on these two factors, capital gains tax in India is categorised into two types: short-term capital gains (STCG) tax and long-term capital gains (LTCG) tax. Short-term capital gains are gains on investments you have owned for one year or less, while long-term capital gains are typically gains on investments you have owned for more than one year—typically 12 months or 24 months.
What are the short-term capital gains tax rates for FY 2024-25?
For the financial year 2024-25, there are two rates for short-term capital gains. For transactions completed on or before July 22, 2024, short-term capital gains from selling certain assets, like equity shares or equity-oriented mutual funds, will be taxed at a rate of 15%. However, starting on July 23, 2024, this rate will increase to 20%. Short-term capital gains from other assets, such as real estate, land, and unlisted shares, are taxed at the individual’s regular income tax slab. This means these gains are included in the taxpayer’s total annual income, and the tax rate will depend on the applicable income tax bracket. Higher earners may face a higher tax rate on these assets.
Check STCG rates for FY 2024-25
| Capital assets | STCG rates before July 23, 2024 | STCG rates on or after July 23, 2024 |
| -Any investment listed on a stock exchange, such as shares or business trust units -Unit of equity-oriented fund/unit of UTI -Zero-coupon bond |
<=12 months, tax at 15% on STCG |
<=12 months, tax at 20% on STCG |
| Other capital assets | <=36 months, tax at slab rate |
<=24 months, tax at slab rate |
How to calculate short-term capital gains tax in FY 2024-25
Tulsi bought listed equity shares worth ₹20,00,000 on May 15, 2024. She sold ₹12,00,000 worth of these shares for ₹15,00,000 on July 10, 2025. The remaining ₹8,00,000 was sold for ₹10,00,000 on January 30, 2025. Therefore, she will need to pay short-term capital gains tax for the financial year 2024-25 as follows:
| Particulars | July 10, 2024 | January 30, 2025 |
| Sale Consideration | ₹1,500,000 | ₹1,000,000 |
| Purchase Price | ₹-1,200,000 | ₹-800,000 |
| Short Term Capital Gain | ₹300,000 | ₹200,000 |
| Tax Rate | 15% | 20% |
| Tax Liability | ₹45,000 | ₹40,000 |
Hence total tax liability will be ₹45,000 + ₹40,000 = ₹85,000
What are the long-term capital gains tax rates for FY 2024-25?
Two long-term capital gains tax rates will apply to capital assets sold during the financial year 2024-25. Until July 22, 2024, long-term capital gains on listed shares and equity were taxed at 12.5% on gains exceeding ₹1 lakh, while other assets were taxed at either 20% with indexation or 10% without. Starting July 23, 2024, a uniform tax rate of 12.5% will be applied to long-term capital gains across all asset classes, considering indexation. The basic exemption limit for LTCG tax was ₹1.25 lakh, effective from July 23, 2024.
After the Union Budget 2024, the indexation benefit was removed for all asset classes except real estate.
Check LTCG rates for FY 2024-25
| Capital Asset | LTCG rates before July 23, 2024 | LTCG rates on or after July 23, 2024 |
| -Any investment listed on a stock exchange, such as shares or business trust units -Unit of equity-oriented fund/unit of UTI -Zero-coupon bond |
>12 months, tax at 10% on LTCG exceeding ₹1,00,000* |
>12 months, tax at 12.5% on LTCG exceeding ₹1,25,000 |
| Other capital assets | >36 months Tax at 20% on LTCG with indexation benefit |
>24 months Tax at 12.5% on LTCG without indexation benefit |
*The limit to apply capital gains tax will be ₹1,25,000 for the whole financial year.
How to calculate long-term capital gains tax in FY 2024-25
Shubham purchased listed equity shares worth ₹10,00,000 on September 9, 2021. Out of this investment, he sold ₹8,00,000 worth of shares for ₹12,00,000 on July 20, 2024, and the remaining ₹2,00,000 worth of shares for ₹3,00,000 on July 26, 2024. In this case, he will be liable to pay long-term capital gains tax for the financial year 2024-25 as follows:
| Particulars | July 20, 2024 | July 26, 2024 |
| Sale Consideration | ₹1,200,000 | ₹300,000 |
| Purchase Cost | ₹-800,000 | ₹-200,000 |
| Long Term Capital Gain | ₹400,000 | ₹100,000 |
| Exemption u/s 112A | ₹-25,000 | ₹-100,000 |
| Taxable Capital Gain | ₹375,000 | 0 |
| Tax Rate | 10% | 12.50% |
| Tax Liability | ₹37,500 | 0 |
Note: The exemption of ₹1,25,000 will be utilised firstly for transfer done on or after July 23, 2024.
For land and buildings acquired before July 23, 2024, individuals can pay tax by choosing an option lower of—20% with indexation or 12.5% without indexation, if transferred on or after July 23, 2024.
How to claim capital gains tax exemption for FY 2024-25
When you sell a capital asset and earn a profit, you typically have to pay tax on that gain. However, the Income Tax Department allows certain exemptions that can help you avoid or reduce this tax if you use the sale proceeds in specific ways, such as buying a new house, investing in certain bonds, or purchasing agricultural land within a set timeframe. The rules differ based on what type of asset you sell and how you use the proceeds. Here are some types of exemptions that can help you minimise or avoid capital gains tax:
Section 54: Sale of residential house property
If you sell a residential house property and realise a long-term capital gain, you can claim an exemption under Section 54. To qualify, you must reinvest the gain in buying or constructing another residential house in India within one year before or two years after the sale, or complete construction within three years. This exemption is available only to individuals and Hindu Undivided Families (HUFs).
Section 54EC: Investment in specified bonds
If you sell land or a building classified as a long-term asset, you can save on taxes by reinvesting the capital gain into specified bonds (like NHAI or REC) within six months of the sale. These bonds must have a five-year lock-in period, and you can claim an exemption of up to ₹50,00,000.
Section 54F: Sale of any asset other than a residential house property
If an individual or HUF sells a long-term capital asset other than a residential house and invests the proceeds in one residential house in India, they can claim an exemption of up to ₹10 crores. If the entire sale amount is not reinvested, the exemption is given proportionally. The property must be purchased within one year before or two years after the sale, or constructed within three years from the date of sale.
Section 54B: Sale of agricultural land
If you sell urban agricultural land and use the gain to buy another urban or rural agricultural land within two years of the sale, you can claim an exemption. This applies only to individuals and HUFs, and the land must have been used for agriculture by you or your parents for at least two years prior to the sale. Reinvestment should occur within one year before or two years after the sale, or construction should be completed within three years.
