Short Term vs Long Term Capital Gains – Tax Rules, Rates & Examples (2025)

Capital Gains Tax is applicable when you earn profit by selling assets like shares, property, or mutual funds. In this post, we explain the key difference between Short-Term Capital Gain (STCG) and Long-Term Capital Gain (LTCG), how they are taxed in 2025, and when exemptions apply.

Comprehensive Guide to Short-Term and Long-Term Capital Gains in Income Tax

In India, the sale of capital assets such as real estate, shares, mutual funds, or gold generates profits known as capital gains, which are taxable under the Income Tax Act, 1961. These gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the duration for which the asset was held before its sale. This comprehensive guide, tailored for the Assessment Year (AY) 2025-26, dives deep into the nuances of STCG and LTCG, covering tax rates, exemptions, thresholds, ITR reporting, and recent changes introduced in the Union Budget 2024. With practical examples, tables, and tips, this article aims to simplify the complex world of capital gains taxation for taxpayers, investors, and financial planners.

1. What Are Capital Gains?

Capital gains are the profits earned when you sell or transfer a capital asset at a price higher than its acquisition cost. A capital asset includes tangible and intangible assets like:

• Immovable property (land, house, commercial buildings)
• Movable property (vehicles, jewelry, artwork)
• Financial assets (shares, mutual funds, bonds, debentures)
• Intangible assets (patents, trademarks, goodwill)

Under the Income Tax Act, capital gains are taxed under the head “Income from Capital Gains.” The tax treatment depends on whether the gain is short-term or long-term, determined by the holding period of the asset.

1.1. Short-Term Capital Gains (STCG)

STCG arises when you sell a capital asset within a specific period, which varies by asset type:

Asset Type	Holding Period for STCG
Listed equity shares, equity-oriented mutual funds, units of business trusts (STT paid)	Less than 12 months
Immovable property (land, house), unlisted shares	Less than 24 months
Debt mutual funds, bonds, gold (acquired before April 1, 2023)	Less than 36 months
Debt mutual funds, market-linked debentures (acquired on or after April 1, 2023)	Any period (always STCG)

STCG is taxed at higher rates compared to LTCG, reflecting the government’s intent to encourage long-term investments.

1.2. Long-Term Capital Gains (LTCG)

LTCG occurs when an asset is held beyond the specified period:

Asset Type	Holding Period for LTCG
Listed equity shares, equity-oriented mutual funds, units of business trusts (STT paid)	More than 12 months
Immovable property, unlisted shares	More than 24 months
Debt mutual funds, bonds, gold (acquired before April 1, 2023)	More than 36 months

LTCG benefits from lower tax rates and exemptions, making it advantageous to hold assets longer. The Union Budget 2024 significantly altered LTCG taxation, which we’ll explore later.

Note: The holding period is the key determinant for classifying gains as STCG or LTCG. Always check the asset-specific period to ensure accurate tax computation.

2. Tax Rates for STCG and LTCG (AY 2025-26)

The tax rates for capital gains depend on the asset type, holding period, and whether Securities Transaction Tax (STT) is applicable. The Union Budget 2024, announced on July 23, 2024, introduced changes that impact tax rates and exemptions for AY 2025-26. Below is a detailed breakdown.

2.1. Short-Term Capital Gains Tax Rates

Asset Type	Holding Period	Tax Rate (AY 2025-26)
Listed equity shares, equity-oriented mutual funds, units of business trusts (STT paid)	Less than 12 months	20% (15% before July 23, 2024) + surcharge and 4% cess
Unlisted shares, immovable property, jewelry, etc.	Less than 24 months	As per individual’s income tax slab rate
Debt mutual funds, unlisted bonds, market-linked debentures (acquired after April 1, 2023)	Any period	As per individual’s income tax slab rate

Budget 2024 Change: The STCG tax rate for listed equity shares and equity-oriented mutual funds increased from 15% to 20% under Section 111A, effective for transactions on or after July 23, 2024.

2.2. Long-Term Capital Gains Tax Rates

Asset Type	Holding Period	Tax Rate (AY 2025-26)
Listed equity shares, equity-oriented mutual funds, units of business trusts (STT paid)	More than 12 months	12.5% (10% before July 23, 2024) on gains above ₹1.25 lakh + surcharge and 4% cess
Immovable property, unlisted shares	More than 24 months	12.5% (20% with indexation before July 23, 2024) + surcharge and 4% cess
Listed bonds	More than 12 months	10% + surcharge and 4% cess
Unlisted bonds, debt mutual funds (acquired before April 1, 2023)	More than 36 months	20% with indexation + surcharge and 4% cess

Budget 2024 Change: The LTCG tax rate for most assets was reduced from 20% (with indexation) to 12.5% (without indexation). The exemption limit for LTCG on listed equity shares and mutual funds increased from ₹1 lakh to ₹1.25 lakh per financial year under Section 112A.

2.3. Surcharge and Cess

In addition to the base tax rate, a surcharge applies based on total income:

• 10% for income between ₹50 lakh and ₹1 crore
• 15% for income between ₹1 crore and ₹2 crore
• 25% for income between ₹2 crore and ₹5 crore
• 37% for income above ₹5 crore (capped at 15% for LTCG under Section 112A)

A 4% health and education cess is applied on the total tax (base tax + surcharge).

Example: Mr. Sharma, with a total income of ₹1.5 crore, has ₹10 lakh LTCG from equity shares in FY 2024-25. After the ₹1.25 lakh exemption, taxable LTCG is ₹8.75 lakh. Tax = ₹8.75 lakh × 12.5% = ₹1,09,375. Surcharge (15%) = ₹16,406. Cess (4%) = ₹5,031. Total tax = ₹1,30,812.

3. Income Tax Slabs for STCG (AY 2025-26)

For STCG on assets like real estate, unlisted shares, or debt mutual funds (post-April 1, 2023), the tax is calculated as per the individual’s income tax slab rate. The new tax regime (default for AY 2025-26) slabs are:

Income Range	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 to ₹7,00,000	5%
₹7,00,001 to ₹10,00,000	10%
₹10,00,001 to ₹12,00,000	15%
₹12,00,001 to ₹15,00,000	20%
Above ₹15,00,000	30%

Exemption Limits:

• Resident individuals: ₹3,00,000
• Senior citizens (60–80 years): ₹3,00,000
• Super-senior citizens (above 80 years): ₹5,00,000

The old tax regime has different slabs and allows deductions under Sections 80C, 80D, etc., which are unavailable in the new regime unless opted for.

4. How to Calculate Capital Gains

Calculating capital gains involves determining the profit from the sale of a capital asset. The process differs for STCG and LTCG, especially due to indexation benefits (applicable before July 23, 2024, for certain assets).

4.1. STCG Calculation

The formula for STCG is straightforward:

STCG = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Transfer Expenses)

• Full Value of Consideration: The sale price or amount received (net of brokerage, if any).
• Cost of Acquisition: The purchase price of the asset.
• Cost of Improvement: Expenses incurred to enhance the asset’s value (e.g., renovation costs for property).
• Transfer Expenses: Costs like brokerage, legal fees, or stamp duty incurred during the sale.

Example: Ms. Priya buys 500 listed equity shares at ₹300 each in June 2024 and sells them at ₹400 each in November 2024, incurring ₹1,500 brokerage.

• Full Value of Consideration: ₹400 × 500 = ₹2,00,000
• Cost of Acquisition: ₹300 × 500 = ₹1,50,000
• Transfer Expenses: ₹1,500
• STCG: ₹2,00,000 – ₹1,50,000 – ₹1,500 = ₹48,500
• Tax (post-July 23, 2024): ₹48,500 × 20% = ₹9,700 + surcharge and 4% cess

4.2. LTCG Calculation

For assets sold before July 23, 2024, indexation was available for assets like real estate and debt mutual funds to adjust the cost for inflation using the Cost Inflation Index (CII). The formula was:

LTCG = Full Value of Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)

Indexed Cost = Original Cost × (CII of Sale Year / CII of Purchase Year)

Post-July 23, 2024, indexation is removed for most assets, so the formula is:

LTCG = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Transfer Expenses)

Example: Mr. Rao buys a house in 2010 for ₹30,00,000 and sells it in August 2024 for ₹80,00,000, with ₹2,00,000 in transfer expenses.

Post-July 23, 2024 (No Indexation):

• Full Value of Consideration: ₹80,00,000
• Cost of Acquisition: ₹30,00,000
• Transfer Expenses: ₹2,00,000
• LTCG: ₹80,00,000 – ₹30,00,000 – ₹2,00,000 = ₹48,00,000
• Tax: ₹48,00,000 × 12.5% = ₹6,00,000 + surcharge and cess

Pre-July 23, 2024 (With Indexation): Assuming CII for 2010-11 is 167 and for 2024-25 is 363:

• Indexed Cost of Acquisition: ₹30,00,000 × (363/167) = ₹65,20,958
• Transfer Expenses: ₹2,00,000
• LTCG: ₹80,00,000 – ₹65,20,958 – ₹2,00,000 = ₹12,79,042
• Tax: ₹12,79,042 × 20% = ₹2,55,808 + surcharge and cess

Grandfathering Rule: For equity shares or mutual funds acquired before January 31, 2018, the cost of acquisition for LTCG under Section 112A is the higher of the actual cost or the fair market value as of January 31, 2018, capped at the sale price.

5. Exemptions on Capital Gains

The Income Tax Act offers exemptions to reduce or eliminate capital gains tax, provided specific conditions are met. These exemptions encourage reinvestment in specified assets or sectors.

5.1. Section 54: Exemption on Sale of Residential Property

Eligibility: Individuals or Hindu Undivided Families (HUFs) selling a residential house held for more than 24 months.

Conditions:

• Invest the capital gain in purchasing or constructing a residential house within 2 years (purchase) or 3 years (construction).
• The new property must not be sold within 3 years to retain the exemption.
• The invested amount must equal or exceed the capital gain.
• Deposit uninvested gains in a Capital Gains Account Scheme (CGAS) before the ITR filing deadline to defer tax.

Limit: Exemption is limited to the capital gain amount. For properties sold after July 23, 2024, the exemption is capped at ₹10 crore for LTCG reinvested in a residential house.

Example: Mr. Patel sells a house for ₹1 crore, with a ₹40 lakh LTCG. He invests ₹40 lakh in a new house within 2 years. The entire ₹40 lakh LTCG is exempt under Section 54.

5.2. Section 54B: Exemption on Sale of Agricultural Land

Eligibility: Individuals or HUFs selling agricultural land used for agriculture for at least 2 years by themselves or their parents.

Conditions:

• Invest the capital gain in another agricultural land within 2 years.
• The new land must not be sold within 3 years.
• Uninvested gains can be deposited in CGAS.

5.3. Section 54EC: Exemption by Investing in Specified Bonds

Eligibility: Any taxpayer selling a long-term capital asset.

Conditions:

• Invest the capital gain in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) within 6 months.
• Maximum investment: ₹50,00,000 in a financial year.
• Bonds must not be sold or pledged as collateral for 5 years.

Example: Ms. Jain sells land for ₹60 lakh LTCG and invests ₹50 lakh in REC bonds within 6 months. ₹50 lakh LTCG is exempt; the remaining ₹10 lakh is taxable at 12.5%.

5.4. Section 54F: Exemption on Sale of Non-Residential Assets

Eligibility: Individuals or HUFs selling any long-term capital asset other than a residential house (e.g., shares, gold, commercial property).

Conditions:

• Invest the entire net sale consideration (not just the gain) in a residential house within 2 years (purchase) or 3 years (construction).
• The taxpayer must not own more than one residential house (other than the new one) on the date of sale.
• The new property must not be sold within 3 years.
• Deposit uninvested amounts in CGAS.

Note: If only part of the sale consideration is invested, the exemption is proportional: (Gain × Amount Invested / Net Sale Consideration).

5.5. Other Exemptions and Reliefs

• LTCG Exemption Limit (Section 112A): ₹1.25 lakh per year for listed equity shares and equity-oriented mutual funds.
• Sovereign Gold Bonds: Capital gains on redemption at maturity are exempt for individuals.
• Inherited Assets: No capital gains tax if sold immediately, as the cost basis is the fair market value at the time of inheritance.
• Rural Agricultural Land: Sale of agricultural land in rural areas (as defined under the Income Tax Act) is exempt from capital gains tax.

Tip: Use the Capital Gains Account Scheme (CGAS) offered by banks to park uninvested gains before the ITR filing deadline (typically July 31 or December 31 with late fees) to claim exemptions under Sections 54, 54B, or 54F.

6. Reporting Capital Gains in ITR

Capital gains must be reported in the Income Tax Return under Schedule CG. The choice of ITR form depends on your income sources, the nature of gains, and whether you have business income.

6.1. Choosing the Right ITR Form

ITR Form	Applicability
ITR-1 (Sahaj)	Residents with total income up to ₹50 lakh, including exempt LTCG up to ₹1.25 lakh from equity shares/mutual funds (no carried-forward losses).
ITR-2	Individuals/HUFs with capital gains but no business/profession income.
ITR-3	Individuals/HUFs with capital gains and business/profession income.
ITR-4 (Sugam)	Presumptive business income with exempt LTCG up to ₹1.25 lakh from equity shares/mutual funds.
ITR-7	Trusts, NGOs, or entities under Section 139(4A/4B/4C/4D) with capital gains.

6.2. Step-by-Step Guide to Report Capital Gains in ITR-2

ITR-2 is commonly used for capital gains reporting. Here’s how to report gains:

1. Access the e-Filing Portal: Log in to www.incometax.gov.in using your PAN and password.
2. Select ITR-2: Go to “e-File” > “Income Tax Returns” > “File Income Tax Return” and choose ITR-2 for AY 2025-26.
3. Fill Schedule CG: In the Capital Gains section:
   • Specify the asset type (e.g., equity shares, immovable property).
   • Enter details: Full value of consideration, cost of acquisition, cost of improvement, and transfer expenses.
   • For equity shares/mutual funds, confirm STT payment for eligibility under Sections 111A (STCG) or 112A (LTCG).
   • For transactions before and after July 23, 2024, report separately due to tax rate changes (20% vs. 15% for STCG, 12.5% vs. 10% for LTCG).
   • Claim exemptions under Sections 54, 54B, 54EC, or 54F, providing investment details.
4. Reconcile with AIS: Cross-check your capital gains with the Annual Information Statement (AIS) available on the e-filing portal, which includes data from depositories (CDSL/NSDL) and registrars for property transactions.
5. Compute Tax: The ITR software calculates tax based on applicable rates and exemptions.
6. Preview and Submit: Review the form, generate ITR-V, e-verify using Aadhaar OTP, net banking, or DSC, or send the signed ITR-V to CPC Bangalore within 120 days.

Example: Mr. Kumar has ₹1,50,000 LTCG from equity shares (STT paid) and ₹20,00,000 LTCG from a house sale in FY 2024-25. He invests ₹20,00,000 in a new house under Section 54. In ITR-2:

• Equity LTCG: ₹1,50,000 – ₹1,25,000 exemption = ₹25,000 taxable at 12.5% = ₹3,125 tax.
• House LTCG: ₹20,00,000 fully exempt under Section 54.
• Total tax: ₹3,125 + cess.

7. Strategies to Minimize Capital Gains Tax

Effective tax planning can significantly reduce your capital gains tax liability. Here are detailed strategies:

• Extend Holding Period: Hold assets beyond the short-term period to benefit from lower LTCG rates (e.g., 12.5% vs. 20% for equity shares).
• Maximize Exemptions: Reinvest gains in residential property (Sections 54/54F) or specified bonds (Section 54EC). Use CGAS to park funds temporarily.
• Set Off Losses: Offset Short-Term Capital Losses (STCL) against STCG or LTCG, and Long-Term Capital Losses (LTCL) against LTCG. Carry forward unadjusted losses for up to 8 assessment years.
• Spread Sales Across Years: For equity shares, keep LTCG below ₹1.25 lakh per year to utilize the exemption limit fully.
• Invest in Tax-Saving Instruments: Use Section 80C investments (ELSS, PPF) to reduce taxable income under the old regime, though not applicable to STCG under Section 111A.
• Timing of Sale: For real estate, selling after July 23, 2024, reduces the tax rate to 12.5%, but weigh the loss of indexation benefits.

Example: Ms. Gupta has ₹2 lakh STCL from shares and ₹3 lakh STCG from property. She sets off the ₹2 lakh loss against the STCG, reducing taxable STCG to ₹1 lakh, taxed at her slab rate (e.g., 30% = ₹30,000).

8. Budget 2024 Changes in Detail

The Union Budget 2024, presented on July 23, 2024, introduced several changes to capital gains taxation, effective for FY 2024-25 (AY 2025-26):

• STCG Rate Increase: For listed equity shares and equity-oriented mutual funds, the tax rate increased from 15% to 20% under Section 111A.
• LTCG Rate Reduction: For most assets (e.g., property, unlisted shares), the rate dropped from 20% (with indexation) to 12.5% (without indexation).
• LTCG Exemption Limit: Increased from ₹1 lakh to ₹1.25 lakh for listed equity shares and mutual funds under Section 112A.
• Debt Mutual Funds: Gains from units acquired after April 1, 2023, are treated as STCG and taxed at slab rates, regardless of holding period.
• Buyback Proceeds: From October 1, 2024, buyback proceeds are treated as deemed dividends under “Income from Other Sources,” taxed at slab rates.
• Indexation Removal: For real estate and other assets, indexation benefits were removed, potentially increasing tax liability for high-value sales.

Impact of Indexation Removal: For properties with significant appreciation, the tax liability may increase post-July 23, 2024, despite the lower rate, as the cost basis is no longer adjusted for inflation.

9. Common Mistakes and How to Avoid Them

Avoiding errors in capital gains reporting ensures compliance and prevents tax notices:

• Incorrect Holding Period: Misclassifying STCG as LTCG (or vice versa) leads to wrong tax rates. Verify the holding period for each asset type.
• Non-Reconciliation with AIS: Always cross-check your calculations with the Annual Information Statement (AIS) to avoid discrepancies.
• Missing Exemptions: Failing to claim exemptions like Section 54 or 54EC due to lack of awareness or improper documentation.
• Incomplete Reporting: Report all transactions, including exempt LTCG (e.g., ₹1.25 lakh exemption under Section 112A), in Schedule CG.
• Ignoring STT: For equity shares/mutual funds, ensure STT was paid to qualify for concessional rates under Sections 111A/112A.
• Improper Loss Set-Off: STCL can be set off against both STCG and LTCG, but LTCL only against LTCG. Understand the rules to maximize benefits.

10. FAQs on Capital Gains

Q1: Can I claim both Section 54 and Section 54EC exemptions for the same property sale?

Answer: Yes, but only if the LTCG is large enough. For example, if you have ₹60 lakh LTCG, you can invest ₹50 lakh in REC bonds (Section 54EC) and the remaining ₹10 lakh in a new house (Section 54), subject to respective conditions.

Q2: What happens if I sell the new property bought under Section 54 within 3 years?

Answer: The exemption claimed is reversed, and the original LTCG becomes taxable in the year of sale. The new property’s gain is treated as STCG if sold within 24 months.

Q3: How do I report capital gains from shares held in a demat account?

Answer: Obtain a capital gains statement from your depository (CDSL/NSDL) or broker, which details purchase/sale prices and STT. Report these in Schedule CG, ensuring STT is mentioned for Sections 111A/112A.

Q4: Are capital gains from inherited assets taxable?

Answer: The cost of acquisition is the fair market value at the time of inheritance or the original owner’s cost (indexed, if applicable). No tax applies if sold immediately at the inherited value.

Q5: How does indexation removal affect real estate sellers?

Answer: Post-July 23, 2024, the tax rate is lower (12.5% vs. 20%), but without indexation, the taxable gain is higher, potentially increasing tax liability for properties held for long periods.

11. Conclusion

Navigating Short-Term Capital Gains and Long-Term Capital Gains taxation in India requires a clear understanding of holding periods, tax rates, exemptions, and ITR reporting. The Union Budget 2024 changes, such as the STCG rate hike to 20%, LTCG rate reduction to 12.5%, and removal of indexation, have reshaped tax planning strategies. By leveraging exemptions like Sections 54, 54B, 54EC, and 54F, setting off losses, and timing sales strategically, taxpayers can minimize their tax burden. Accurate reporting in the correct ITR form, reconciliation with AIS, and awareness of compliance requirements are crucial to avoid penalties or notices. Whether you’re an investor in shares, a property owner, or a mutual fund holder, this guide equips you with the knowledge to manage capital gains effectively. For complex cases, consult a chartered accountant or tax professional to optimize your tax strategy.

📌 Also read: How to File TDS Return – Complete Step-by-Step

Plan smart, invest wisely, and file accurately to make the most of your capital gains!