Capital Gains Tax - Types of Capital Gains Taxation
Think of a Capital Asset as something big you own like a piece of land in your village, some gold jewellery, or even shares of a company like Motilal Oswal. Now, if you sell any of these for a price higher than what you paid, you have made a Capital Gain. It is basically the profit you earned from the increase in the value of your property or investment.
However, the Indian government views this profit as a form of income. Just like you pay tax on your salary, you must pay a part of this profit to the government. This is called Capital Gains Tax. The logic is simple: if you made money because your asset became more valuable, the taxman wants a share of that success. In 2026, the rules for this have been simplified quite a bit to make it easier for regular people to understand, but the rates and holding periods (how long you kept the asset) are very important to get right so you don't end up with a surprise notice from the Income Tax department.
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Two Types of Capital Gains
In India, how much tax you pay depends entirely on how long you held the asset before selling it.
1. Short-Term Capital Gains (STCG)
If you buy an asset and sell it very quickly, it is considered a short-term gain. For the taxman, this looks more like trading or business rather than long-term investing.
- For Shares & Equity Funds: If you sell within 12 months.
- For House Property & Gold: If you sell within 24 months.
- Tax Rate (2026): 20% for listed shares/mutual funds; otherwise, it is added to your total income and taxed at your Slab Rate.
2. Long-Term Capital Gains (LTCG)
If you are a patient investor and keep your assets for a long time, the government rewards you with a lower tax rate.
- For Shares & Equity Funds: If you sell after 12 months.
- For House Property & Gold: If you sell after 24 months.
- Tax Rate (2026): A flat 12.5% for almost all assets.
Latest Capital Gains Tax Rates (2026)
The rules were significantly updated in the recent budgets leading up to 2026. Here is the simplified table for your reference:
Asset Type
Short-Term (STCG)
Long-Term (LTCG)
Holding Period for LTCG
Listed Shares / Equity Mutual Funds
20%
12.5%
> 12 Months
Real Estate (House/Land)
As per your Slab Rate
12.5%
> 24 Months
Gold & Silver
As per your Slab Rate
12.5%
> 24 Months
Unlisted Shares
As per your Slab Rate
12.5%
> 24 Months
Debt Mutual Funds
As per your Slab Rate
As per your Slab Rate
Always Short-term
Important Note on Exemption: For your equity investments (shares and mutual funds), the first ₹1.25 Lakh of your total profit in a year is completely tax-free. You only pay 12.5% on the amount above this limit.
How to Calculate Capital Gains?
You can calculate your taxable profit using this simple Basics formula:
The Basic Formula:
Capital Gain = Final Sale Price - (Purchase Price + Transfer Expenses + Improvement Costs)
- Final Sale Price: What you received from the buyer.
- Transfer Expenses: Money spent on brokerage, registry charges, or sales commission.
- Improvement Costs: Money spent on fixing the house (renovations) or adding a new floor.
Simple Example:
Let's say you bought Gold in 2023 for ₹5,00,000 and sold it in January 2026 for ₹7,00,000.
- Holding Period: Over 24 months (Long-Term).
- Total Profit: ₹7,00,000 - ₹5,00,000 = ₹2,00,000.
- Tax Rate: 12.5%.
- Tax Amount: ₹2,00,000 × 12.5% = ₹25,000.
What is Indexation? (The 2026 Reality)
In the old days, the government allowed Indexation, which helped you increase your purchase price on paper to adjust for inflation. As of 2026, indexation has been mostly removed. Now, the government has moved to a simpler Flat 12.5% rate without indexation for most assets. However, for property bought before July 23, 2024, you might still have the option to choose between the old 20% (with indexation) or the new 12.5% (without indexation) whichever saves you more money.