STCG and LTCG Rules in India: A Complete Capital Gains Guide

A capital gain arises when you sell a capital asset for more than its purchase price. Capital assets include listed equity shares, mutual fund units, real estate, gold, and bonds. The gain is the difference between the sale price and the cost of acquisition. That gain is then classified as short-term or long-term based on how long you held the asset before selling.

The classification matters because STCG and LTCG are taxed at different rates. And critically, the holding period threshold is not the same across all assets.

The most common error: assuming that debt mutual funds still have an LTCG benefit. After the Finance Act 2023, specified mutual funds (those with less than 35% equity exposure) are taxed at slab rate regardless of how long you hold them.

Budget 2024 changed equity capital gains taxation with effect from July 23, 2024. These are the current rates for FY 2026-27:

Short-Term Capital Gains (STCG) on Listed Equity

• Applicable when units are held for less than 12 months

• Tax rate: 20% under Section 111A

• Plus 4% Health and Education Cess, plus surcharge as applicable

• This rate applies regardless of the investor's income slab

Long-Term Capital Gains (LTCG) on Listed Equity

• Applicable when held for 12 months or more

• Tax rate: 12.5% under Section 112A

• Annual exemption: Rs 1.25 lakh per financial year across all equity-oriented gains combined

• Indexation: not available

Pre-Budget 2024 rates: STCG was 15%, LTCG was 10%, and the annual LTCG exemption was Rs 1 lakh. Budget 2026 made no further changes to these rates.

Example 1: LTCG

Investment: Rs 5,00,000. Sale value after 14 months: Rs 6,50,000. Gain: Rs 1,50,000. Annual LTCG exemption: Rs 1,25,000. Taxable LTCG: Rs 25,000. Tax at 12.5%: Rs 3,125 (before cess).

Example 2: Same investment sold after 10 months instead

Gain: Rs 1,50,000. No exemption applies. Tax at 20% STCG: Rs 30,000 (before cess). Holding four additional months in this case reduces tax by nearly Rs 27,000.

For immovable property, the holding period threshold is 24 months. STCG is taxed at the investor's applicable slab rate. LTCG after Budget 2024 is taxed at 12.5% without indexation. However, there is a transitional option: for property purchased before July 23, 2024, investors may choose between 12.5% without indexation or 20% with indexation, whichever results in lower tax. For property purchased on or after July 23, 2024, indexation is no longer available.

Physical gold and most non-equity, non-listed assets use a 24-month threshold. STCG is taxed at slab rate. LTCG is taxed at 12.5% without indexation.

An important distinction: Gold ETFs and Silver ETFs are listed units, so they use the 12-month threshold, not 24 months. This means an investor who sells a gold ETF after 13 months pays LTCG at 12.5%. The same investor selling physical gold after 13 months pays STCG at their applicable slab rate.

Debt-heavy mutual funds classified as specified mutual funds under Section 50AA are now taxed at slab rate with no distinction between short-term and long-term, and with no indexation benefit. This applies to investments made on or after April 1, 2023. The previous 3-year LTCG with indexation benefit no longer applies to new investments in these funds.

Investors should verify the equity allocation of a hybrid fund before assuming equity tax treatment applies.

Short-Term Capital Loss (STCL)

Can be set off against both short-term and long-term capital gains in the same year. Unused losses can be carried forward for up to 8 assessment years.

Long-Term Capital Loss (LTCL)

Can only be set off against long-term capital gains. Cannot be used against STCG. Carried forward for up to 8 assessment years. Returns must be filed within the due date to preserve the carry-forward right.

Practical point: if you are sitting on capital losses in a financial year, realising them before March 31 allows you to set them off against gains in the same year.