Capital Gains Tax in India — Computation, Exemptions & Planning Guide

Capital Gains Tax is one of the most commonly misunderstood areas of Indian income tax — and getting it wrong can mean paying significantly more tax than necessary, or facing demands for tax not paid. Whether you're selling a property, shares, mutual funds, gold, or business assets, the tax treatment depends on what you sold, how long you held it, and what reinvestment you make. This guide explains capital gains tax in India comprehensively — computation, exemptions, and planning strategies.

1. Short-Term vs Long-Term Capital Gains

The holding period determines whether a gain is short-term (STCG) or long-term (LTCG) — and the applicable tax rate differs significantly:

Asset Type	Short-Term (STCG)	Long-Term (LTCG)	STCG Rate	LTCG Rate
Listed equity shares / equity MF	Held ≤ 12 months	Held > 12 months	20% (Section 111A)	12.5% above ₹1.25 lakh (Section 112A)
Immovable property (land/building)	Held ≤ 24 months	Held > 24 months	Slab rates	12.5% (no indexation from FY 2024-25)
Unlisted shares	Held ≤ 24 months	Held > 24 months	Slab rates	12.5%
Debt mutual funds (post Apr 2023)	All holding periods	—	Slab rates	—
Gold / jewellery	Held ≤ 24 months	Held > 24 months	Slab rates	12.5%

2. How Capital Gains Are Computed

Capital Gain = Sale Consideration − Cost of Acquisition − Cost of Improvement − Transfer Expenses

• Sale Consideration: The price received — but for property sold below stamp duty value (circle rate), the stamp duty value is treated as sale consideration (Section 50C)
• Cost of Acquisition: Original purchase price — for inherited assets, the fair market value as on the date of inheritance (or April 1, 2001 if earlier) is used
• Cost of Improvement: Any capital expenditure incurred on improvement after April 1, 2001
• Transfer Expenses: Brokerage, stamp duty on sale, legal fees directly related to the transfer
• STT Paid: For equity shares sold on exchange, STT paid is not deductible but LTCG tax is lower as a result

3. Key Capital Gains Exemptions — Save Lakhs in Tax

• Section 54 — Sale of Residential House: LTCG from sale of a residential property is exempt if reinvested in ONE new residential house in India within 1 year before or 2 years after sale (or construction within 3 years). Exemption up to ₹10 crore.
• Section 54F — Sale of Any Asset (not residential house): LTCG from sale of any long-term asset (gold, shares, commercial property) is exempt if the entire net sale consideration (not just gains) is invested in a new residential house within prescribed timelines. One residential house must be owned at time of sale.
• Section 54EC — Investment in Bonds: LTCG (any long-term asset) up to ₹50 lakh exempt if invested in NHAI / REC / RECL bonds within 6 months of sale. Lock-in of 5 years.
• Section 54B — Agricultural Land: LTCG from sale of agricultural land exempt if reinvested in new agricultural land within 2 years.
• Section 112A LTCG Exemption: First ₹1.25 lakh of LTCG from listed equity shares/equity MF per year is exempt.

4. Advance Tax on Capital Gains

Capital gains are included in total income for advance tax computation. If you have significant capital gains during the year, you must pay advance tax by the due dates (15th June, 15th September, 15th December, 15th March) — otherwise interest under Section 234B and 234C applies. However, if capital gains arise after 15th March, the entire tax can be paid by 31st March without 234C interest.

5. Reporting Capital Gains in ITR

Capital gains must be reported in ITR-2 (for individuals with capital gains income) — not ITR-1 (Sahaj). Pre-filled ITR data from AIS includes capital gains from shares and mutual funds (auto-populated from broker/depositories). However, property capital gains, gold sales, and unlisted share transactions must be manually entered. Errors in capital gains reporting are a leading cause of IT department notices.