What is Capital Gains Tax in India?
Capital Gains Tax is a tax levied on the profit earned from selling capital assets such as stocks, mutual funds, real estate, gold, and cryptocurrency. In India, capital gains are classified into two categories based on the holding period: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). Understanding this classification is crucial for tax planning and investment decisions.
The Indian Income Tax Act provides specific tax rates for different asset classes and holding periods. Our Capital Gains Tax Calculator helps you accurately estimate your tax liability, taking into account the latest tax rates announced in the Union Budget 2024-25, indexation benefits, and available exemptions.
Short-Term vs Long-Term Capital Gains: Key Differences
The classification of capital gains depends on the holding period of the asset. Different assets have different holding period thresholds to qualify as long-term:
- Equity Shares and Equity Mutual Funds: More than 12 months = LTCG
- Debt Mutual Funds and Bonds: More than 36 months = LTCG
- Real Estate Property: More than 24 months = LTCG
- Gold, Gold ETFs, Sovereign Gold Bonds: More than 36 months = LTCG
- Cryptocurrency (VDA): Flat 30% tax irrespective of holding period
Capital Gains Tax Rates 2024-25
The following tax rates apply to capital gains in India for the financial year 2024-25:
Equity and Equity Mutual Funds
- STCG (held less than 12 months): 15% flat rate
- LTCG (held more than 12 months): 10% on gains exceeding Rs 1,00,000
- No indexation benefit available for equity
Debt Mutual Funds (Post April 2023)
- All gains taxed as per income tax slab (indexation benefit removed)
- For units purchased before April 1, 2023: Old rules with indexation may apply
Real Estate Property
- STCG: Taxed as per your income tax slab
- LTCG: 20% with indexation benefit OR 12.5% without indexation
- Section 54 exemption available on reinvestment in residential property
Gold and Gold ETFs
- STCG: Taxed as per income tax slab
- LTCG: 20% with indexation benefit
- Sovereign Gold Bonds: No LTCG tax if held till maturity (8 years)
Cryptocurrency (Virtual Digital Assets)
- Flat 30% tax on all gains (no LTCG benefit)
- 1% TDS on transactions above Rs 10,000
- No deduction allowed except cost of acquisition
- Losses cannot be set off against other income
Understanding Indexation Benefit
Indexation is a method to adjust the purchase price of an asset for inflation using the Cost Inflation Index (CII) published by the government. This reduces your taxable capital gains and consequently lowers your tax liability. The formula is:
Indexed Cost = Purchase Price x (CII of Sale Year / CII of Purchase Year)
Cost Inflation Index (CII) Values
The CII values for recent years (base year 2001-02 = 100):
- FY 2024-25: 363 (estimated)
- FY 2023-24: 348
- FY 2022-23: 331
- FY 2021-22: 317
- FY 2020-21: 301
- FY 2019-20: 289
Example: Indexation Benefit Calculation
Suppose you bought a property in FY 2015-16 for Rs 50,00,000 and sold it in FY 2024-25 for Rs 1,00,00,000:
- CII for FY 2015-16 = 254
- CII for FY 2024-25 = 363
- Indexed Cost = 50,00,000 x (363/254) = Rs 71,45,669
- Capital Gain without indexation = Rs 50,00,000
- Capital Gain with indexation = Rs 28,54,331
- Tax Saved: (50L - 28.54L) x 20% = Rs 4,29,133
How to Calculate Capital Gains Tax
Follow these steps to calculate your capital gains tax liability:
- Determine the Asset Type: Different assets have different holding periods and tax rates
- Calculate Holding Period: Count the time between purchase and sale date
- Classify as STCG or LTCG: Based on the holding period threshold for that asset
- Compute Capital Gains: Sale Price - Purchase Price (or Indexed Cost for LTCG)
- Apply Exemptions: LTCG exemption of Rs 1L for equity, Section 54 for property, etc.
- Calculate Base Tax: Apply the applicable tax rate
- Add Surcharge: If gains exceed Rs 50 lakhs (10%) or Rs 1 crore (15%)
- Add Cess: 4% Health and Education Cess on total tax
Capital Gains Tax Formula
For STCG: Tax = (Sale Price - Purchase Price - Expenses) x STCG Rate
For LTCG: Tax = (Sale Price - Indexed Cost - Expenses - Exemptions) x LTCG Rate
Tax Saving Strategies for Capital Gains
Here are proven strategies to minimize your capital gains tax liability legally:
1. Hold Assets for Long Term
Long-term capital gains generally attract lower tax rates than short-term gains. For equity, holding for more than 12 months reduces tax from 15% to 10% (with Rs 1L exemption).
2. Utilize Indexation Benefit
For property and gold, indexation can significantly reduce taxable gains. The longer you hold, the greater the indexation benefit due to compounding CII values.
3. Harvest Tax Losses
Sell loss-making investments to offset gains. Short-term losses can be set off against both STCG and LTCG. Long-term losses can only offset LTCG.
4. Use Section 54 Exemptions
For property sales, reinvest LTCG in another residential property within specified time limits to claim exemption under Section 54 (individuals) or 54F (other assets).
5. Invest in Capital Gains Bonds
Under Section 54EC, invest LTCG from property in specified bonds (NHAI, REC) within 6 months to claim exemption up to Rs 50 lakhs.
6. Systematic Profit Booking
For equity investments, book profits up to Rs 1 lakh per year to utilize the LTCG exemption limit effectively across multiple financial years.
Important Changes in Budget 2024
The Union Budget 2024-25 introduced several significant changes to capital gains taxation:
- LTCG exemption limit increased from Rs 1,00,000 to Rs 1,25,000 for equity and equity mutual funds
- Property LTCG rate reduced to 12.5% without indexation (option available)
- Short-term capital gains on equity increased from 15% to 20%
- Debt fund taxation continues as per slab rates without indexation benefit
- Angel tax abolished for startups meeting specific criteria