When you sell a capital asset and make a profit, you may have to pay capital gains tax. If the asset was held for a longer period, the profit is classified as long-term capital gains (LTCG), which usually enjoys more favourable tax treatment than short-term gains. This blog explains everything you need to know about LTCG—definition, tax rates, exemptions, and the key updates introduced in Budget 2025. Whether you are selling property, investing in stocks, or holding mutual funds, this guide will help you understand capital gains tax, optimise your returns, and make smarter financial decisions.
What is long-term capital gains (LTCG)?
Long-term capital gains or LTCG is the profit you earn from selling a capital asset held for a specified “minimum holding period”. This period and the applicable LTCG tax rate differ depending on the asset type.
Capital Asset | LTCG, if held for | Tax Rates |
---|---|---|
|
>12 months | 12.5% on LTCG exceeding ₹1,25,000 |
|
>24 months | 12.5% on LTCG without indexation benefit |
Regardless of the holding period, the following are always taxed as short-term capital gains:
- Units of a specified mutual fund acquired on or after April 1, 2023,
- Market linked debentures,
- Unlisted bond and unlisted debenture which is transferred or redeemed or matures on or after July 23, 2024.
LTCG tax rates at a glance
Here’s how LTCG is taxed across different asset classes:
LTCG on mutual funds
When it comes to mutual funds, the tax treatment of LTCG depends on the type of fund and the date of acquisition. Equity mutual funds are taxed the same way as listed equity shares, where gains above ₹1,25,000 are taxed at 12.5%.
For debt mutual funds acquired before April 1, 2023, the rate is 12.5% without indexation. Debt mutual funds acquired on or after April 1, 2023 are taxed according to the investor’s income tax slab, with no LTCG benefit.
Hybrid mutual funds with less than 35% of investments in domestic equity shares are taxed like debt mutual funds, whereas those with over 65% in domestic equity shares are treated as equity mutual funds for tax purposes.
LTCG on property
For property transactions, LTCG tax depends on the purchase and sale dates. If a land or building is acquired before July 23, 2024 and sold after that date, the LTCG is taxed at the lower of 12.5% without indexation or 20% with indexation. The Income Tax Act offers various exemptions to reduce this burden. You may invest in residential property under Section 54 or 54F or invest in specified bonds under Section 54EC to save on LTCG tax. These provisions offer significant opportunities for property sellers to retain more of their profits. Refer https://1finance.co.in/blog for blog on Capital Gain Exemption.
LTCG on Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) provide tax-efficient investment options. If the bonds are held until maturity (8 years), the LTCG on redemption is completely exempt from tax. However, if the bonds are sold in the secondary market before maturity, the gains are taxed similarly to unlisted equity shares, which means 12.5% without indexation.
LTCG for NRIs (Non-Resident Indians)
Non-Resident Indians (NRIs) are also liable to pay LTCG tax on the sale of capital assets in India. There is a mandatory TDS on the sale of property and shares. NRIs are taxed at the same LTCG rates as resident Indians. Additionally, they can benefit from the Double Taxation Avoidance Agreement (DTAA) to prevent being taxed twice on the same income. It is also crucial for NRIs to comply with FEMA (Foreign Exchange Management Act) guidelines when repatriating the proceeds from such sales.
Cost Inflation Index (CII) & Indexation Benefit
Indexation helps to reduce your taxable capital gains by adjusting the purchase price of your asset for inflation. This is done using the Cost Inflation Index (CII), which increases the original cost based on inflation over the years, resulting in lower taxable profits.
However, it’s important to note that this benefit is no longer available for any asset except property. For these investments, gains are now taxed based on the actual purchase price without any inflation adjustment.
How to calculate LTCG tax
Let’s understand LTCG with an example:
Ms Dhwani bought a property in December 2019 for ₹33,00,000. She spent an additional ₹5,00,000 on renovation in May 2021. Later, she sold the property in September 2024 for ₹53,00,000. The Cost Inflation Index (CII) values for the relevant years are: 289 for 2019–20, 317 for 2021–22, and 363 for 2024–25.
LTCG = Sale Value – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)
Particulars | Amount (without indexation) | Amount (with indexation) |
---|---|---|
Sale consideration | ₹53,00,000 | ₹53,00,000 |
Less: Indexed cost of acquisition | ₹33,00,000 | ₹41,82,664 [₹33,00,000 × 363/289] |
Less: Indexed cost of improvement | ₹5,00,000 | ₹5,72,555 [₹5,00,000 × 363/317] |
Long-term capital gain | ₹15,00,000 | ₹5,44,780 |
This example clearly shows how the indexation benefit can significantly reduce your taxable long-term capital gains. Without applying indexation, Ms Dhwani would have to pay tax on a gain of ₹15,00,000. However, by adjusting the purchase and improvement costs using the Cost Inflation Index (CII), her taxable gain drops to just ₹5,44,780. This means indexation helped her save tax on nearly ₹9.5 lakh of capital gains. For investors selling long-term assets like property, taking advantage of indexation can lead to substantial tax savings.How to save long-term capital gains tax
There are smart ways to reduce or even avoid paying long-term capital gains (LTCG) tax. One effective method is to invest your gains in Section 54EC bonds—issued by government-backed entities like REC or NHAI—within six months of selling the property. Another option is to reinvest the sale proceeds into a new residential property under Section 54 or 54F, which also qualifies for tax exemption. Equity investors can strategically time their sales to ensure gains stay within the ₹1,25,000 tax-free limit.
With evolving tax laws, including changes introduced in Budget 2025, understanding Long-Term Capital Gains is more important than ever. Whether you’re investing in equity, property, or gold, it’s critical to plan your transactions smartly to optimise tax outflows.
Stay updated and consult a tax advisor for complex or high-value transactions.