Long Term Capital Gain (LTCG) in India refers to the profit earned from the sale of assets like stocks or real estate held for more than 36 months (24 months for real estate). This gain is taxed at a lower rate than short-term capital gains.
Table of contents
- What Is Long Term Capital Gain?
- Long Term Capital Gain Example
- How To Calculate Long Term Capital Gain?
- Difference Between Short Term And Long Term Capital Gain
- New Long Term Capital Gains Tax Regime After Budget 2024
- Long Term Capital Gain Tax On Mutual Funds
- Long Term Capital Gain Tax On Shares
- Long Term Capital Gain – Quick Summary
- Long Term Capital Gain Meaning – FAQs
What Is Long Term Capital Gain?
What Is Long Term Capital Gain? It is the profit made from selling an asset like stocks, property, or mutual funds held for more than a specific period, typically over 12 or 24 months. This gain is taxed at a lower rate than short-term capital gains, making it favorable for long-term investors.
Long Term Capital Gain (LTCG) is an important concept in Indian taxation, where the holding period determines the tax treatment. For assets like listed shares and equity mutual funds, gains are considered long-term if held for more than 12 months. For real estate and unlisted shares, the holding period must exceed 24 months. The rate of tax on LTCG varies, with listed shares and equity-oriented mutual funds taxed at 12.5% for gains above ₹1.25 lakh, while other assets may attract tax on other assets has been reduced from 20% to 12.5% with effect from 23rd July 2024.
Long Term Capital Gain Example
A Long Term Capital Gain Example is when you sell an asset, like shares or property, after holding it for more than a specific period, usually over 12 or 24 months. The profit earned from this sale is considered a long-term capital gain and is taxed at a lower rate than short-term gains.
For instance, imagine you bought 100 shares of a company at ₹200 per share and held them for two years. If the share price increases to ₹400 per share and you decide to sell, your total profit would be ₹20,000 (100 shares x ₹200 gain per share). Since you held the shares for more than 12 months, this profit qualifies as a long-term capital gain. In India, gains exceeding ₹1.25 lakh in a financial year from listed shares are now taxed at 12.5%, with no indexation benefits. This example illustrates how holding assets for a longer period can still offer advantageous tax rates on the profits earned, despite the recent changes in tax regulations.
How To Calculate Long Term Capital Gain?
To calculate long-term capital gains (LTCG) accurately, you need to determine the sale consideration, deduct transfer-related expenses, adjust the acquisition cost (if applicable), and apply eligible exemptions. Recent budget changes have modified tax rates and removed indexation benefits for transfers made after 23rd July 2024.
Here are the steps to calculate long term capital gain :
- Determine the full value of consideration: Calculate the total amount received from the sale of the capital asset, including any fair market value adjustments in specific circumstances.
- Calculate the net value of consideration: Deduct expenses related to the transfer, such as brokerage fees or commissions, from the full value of consideration.
- Determine the cost of acquisition: Calculate the original purchase price. For assets eligible for indexation (prior to the recent changes), adjust the acquisition cost using the Cost Inflation Index. Note that indexation benefits are no longer available for transfers made after 23rd July 2024.
- Apply exemptions under relevant sections: Consider exemptions under Sections 54, 54F, etc., based on reinvestment in specified assets.
- Compute the LTCG chargeable to tax: Subtract the adjusted cost of acquisition, cost of improvement, and applicable exemptions from the net sale consideration to determine the taxable LTCG.
In India, suppose you sold a real estate property in 2025 for ₹50 lakhs. The original purchase price was ₹20 lakhs, and you spent ₹5 lakhs on improvements. After deducting ₹1 lakh in brokerage fees, the net sale consideration is ₹49 lakhs. Since indexation is no longer applicable, subtract the original cost of acquisition and improvement costs directly from the net sale consideration. If your LTCG amounts to ₹24 lakhs, and you reinvest ₹20 lakhs in a new property, you can claim an exemption under Section 54, reducing your taxable LTCG to ₹4 lakhs.
Difference Between Short Term And Long Term Capital Gain
The main difference between short-term and long-term capital gains lies in the holding period of the asset. Short-term capital gains occur when an asset is sold within a shorter period, typically within 12 or 24 months, depending on the asset type. Long-term capital gains apply when the asset is held for a longer period, exceeding this threshold.
| Parameter | Short Term Capital Gain (STCG) | Long Term Capital Gain (LTCG) |
| Holding Period | Less than 12 months (equity) or 24 months (debt, real estate) | More than 12 months (equity) or 24 months (debt, real estate) |
| Tax Rate | 20% (for equity assets) | 12.5% (for equity assets) |
| Indexation Benefit | Not applicable | – Before 23rd July 2024: Applicable for certain assets (e.g., real estate) using the Cost Inflation Index (CII).- On or After 23rd July 2024: Not applicable |
| Example Assets | Equity mutual funds, shares (held less than 12 months) | Real estate, gold, debt mutual funds (held more than 24 months) |
New Long Term Capital Gains Tax Regime After Budget 2024
The new Long Term Capital Gains tax regime After Budget 2024 introduces significant changes in the taxation of long-term capital gains. The tax rate on long-term gains has increased from 10% to 12.5% for assets like equity shares and mutual funds. This shift aims to increase government revenue while still encouraging long-term investments.
After the 2024 Budget, several other changes were also made, such as the removal of the indexation benefit for specific assets like debt mutual funds, making them less tax-efficient. The exemption limit for long-term capital gains has been raised from ₹1 lakh to ₹1.25 lakh per year, offering some relief to small investors.
These changes are designed to streamline the tax structure but have led to mixed reactions from investors. The higher tax rate and the removal of indexation benefits may discourage long-term investments in certain assets, while the increased exemption limit could eliminate the impact for smaller investors.
Long Term Capital Gain Tax On Mutual Funds
Long Term Capital Gain tax on mutual funds is the tax applied to profits from selling mutual fund units held for more than 12 months. Before the 2024 Budget, this tax rate was 10% on gains over ₹1 lakh, and it primarily applied to equity mutual funds.
After the 2024 Budget, the tax rate increased to 12.5%. The holding period for debt mutual funds to qualify as long-term was reduced from 36 to 24 months. Additionally, the indexation benefit, which allowed the cost of investment to be adjusted for inflation, was removed for debt funds purchased after April 1, 2023.
However, the exemption limit for long-term capital gains was raised from ₹1 lakh to ₹1.25 lakh per year, giving some relief to smaller investors. These changes mean that investors may now pay slightly higher taxes on long-term gains from mutual funds, especially those investing in debt funds.
Long Term Capital Gain Tax On Shares
Long Term Capital Gain tax on shares is the tax charged on profits from selling shares held for more than 12 months. Before the 2024 Budget, this tax was at 10% on gains exceeding ₹1 lakh, and it did not include any indexation benefits, making it straightforward but relatively low.
After the 2024 Budget, the tax rate for long-term capital gains on shares was increased to 12.5%. The exemption limit for gains has also been raised from ₹1 lakh to ₹1.25 lakh per year. This change means that while the tax rate has gone up, small investors get a bit more relief with the higher exemption limit. However, the overall impact is that investors will now pay more tax on their long-term gains from shares, especially those with higher profits.
To understand the topic and get more information, please read the related stock market articles below.
Long Term Capital Gain – Quick Summary
- Long-term capital gain in India refers to the profit from selling an asset held for more than 12 or 24 months, depending on the asset type.
- It is the profit made from selling assets like shares or property after holding them for a specified period, with lower tax rates compared to short-term gains.
- An example includes selling shares after two years at a profit, which qualifies as a long-term capital gain and is taxed at a lower rate.
- Long-term capital gain is calculated by subtracting the purchase cost and associated expenses from the selling price, with possible adjustments for inflation.
- The main difference between short-term and long-term capital gains lies in the holding period and the tax rates, with long-term gains generally being taxed at lower rates.
- After the 2024 Budget, the long-term capital gains tax rate increased to 12.5%, with the removal of indexation benefits for some assets, impacting investor strategies.
- The tax on long-term gains from mutual funds has increased from 10% to 12.5%, with changes in holding periods and removal of indexation benefits for debt funds.
- For shares, the long-term capital gains tax rate was raised from 10% to 12.5%, with a higher exemption limit of ₹1.25 lakh per year.
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Long Term Capital Gain Meaning – FAQs
Long Term Capital Gain (LTCG) is the profit earned from selling an asset held for more than 12 months or 24 months. This gain is taxed at a lower rate than short-term capital gains, incentivizing long-term investments.
In India, long-term capital gains up to ₹1.25 lakh per year are tax-free under the new tax regime, effective from the 2024 Budget. This exemption applies to gains from assets like shares and mutual funds, providing relief to investors.
LTCG in the new tax regime refers to profits from selling long-term assets, now taxed at 12.5% for gains above ₹1.25 lakh annually. This change, introduced in the 2024 Budget, aims to increase government revenue while maintaining incentives for long-term investments.
To calculate short-term capital gain, subtract the purchase cost and any related expenses from the selling price of an asset held for less than 12 months or 24 months. The resulting profit is then taxed at applicable rates.
To calculate capital gain on property, subtract the property’s purchase cost, including any improvements or related expenses, from its selling price. For long-term gains, the cost can be adjusted for inflation using the Cost Inflation Index, reducing taxable gains.
Long-term capital gains tax on shares is now 12.5% on profits exceeding ₹1.25 lakh annually, according to the 2024 Budget. This rate applies to shares held for more than 12 months, with no indexation benefits for equity investments.
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