What is Long-Term Capital Gain (LTCG)? Tax Rules & Exemptions

When you sell an asset like shares, mutual funds, gold or real estate, profit is considered a capital gain. In India, these capital gains are classified into short-term and long-term depending on the length of the period you hold the asset before selling. Long-Term Capital Gains (LTCG) have a concessional taxation regime, but a lot has changed following the Union Budget 2024.

In this blog, we will explain the meaning of LTCG, the current LTCG tax rates in India, how to ascertain them, the exemptions available and practical techniques to lessen the taxes you need to pay.

What Are Long-Term Capital Gains?

Long-Term Capital Gains (LTCG) refer to the profits earned from selling a capital asset that has been held for a specified minimum period. Unlike Short-Term Capital Gains (STCG), which apply when assets are sold within shorter timeframes, LTCG benefits from concessional tax rates.

The minimum holding period depends on the type of asset:

• Listed equity shares and equity mutual funds – More than 12 months
• Debt mutual funds, bonds, jewellery, gold, paintings – More than 36 months
• Immovable property (land or building) – More than 24 months

Example:

• If you purchased listed shares worth ₹1,00,000 in April 2022 and sold them in May 2024 for ₹1,80,000, the profit of ₹80,000 would qualify as LTCG because you held the shares for more than one year.
• Similarly, if you bought a flat in June 2021 and sold it in July 2024, the gains would be long-term as the holding exceeded 24 months.

Also Read: What Is Working Capital?

LTCG Tax Rates in India (Post-Budget 2024)

The Union Budget 2024 brought sweeping reforms to simplify capital gains taxation. A uniform LTCG tax rate of 12.5% now applies across asset classes. Earlier, rates varied, for instance, 10% on equities, 20% with indexation on property.

Key highlights:

• Uniform rate: 12.5% for all assets.
• Exemption limit: First ₹1.25 lakh of LTCG in a financial year is tax-free.
• Indexation benefit removed for most assets.
• Transitional provision: For immovable property purchased before 23 July 2024, taxpayers can choose between:
  • 12.5% without indexation, or
  • 20% with indexation

This change has streamlined compliance and created clarity for both investors and institutions.

LTCG Tax Rate Table by Asset Class

How to Calculate Long-Term Capital Gains Tax in India

The calculation of LTCG depends on whether indexation is available.

General Formula:

• LTCG for equity shares, mutual funds = Sale Price – Purchase Price – Expenses incurred on sale
• LTCG for property acquired before 23 July 2024, where indexation is chosen = Sale Price – Indexed Cost of Acquisition – Indexed Cost of Improvement – Expenses on sale

Example 1: Equity Mutual Fund

1. Purchase: ₹2,00,000 in April 2022
2. Sale: ₹3,20,000 in May 2024
3. LTCG: ₹1,20,000
4. Taxable after exemption of ₹1,25,000: Nil, as gain is under the exemption limit.

Example 2: Residential Property (bought before 23 July 2024)

• Purchase Price: ₹50 lakh in June 2015
• Indexed Cost (assuming index rises by 1.7x): ₹85 lakh
• Sale Price: ₹1.2 crore in August 2024
• LTCG with indexation: ₹35 lakh, taxed at 20% = ₹7 lakh
• Without indexation: ₹70 lakh taxed at 12.5% = ₹8.75 lakh
• Taxpayer may opt for indexation route as it results in lower liability.

LTCG Tax on Mutual Funds in India

Equity Mutual Funds

• Holding period: More than 12 months.
• LTCG taxed at 12.5% above ₹1.25 lakh threshold.

Debt Mutual Funds

• Holding period: More than 36 months.
• LTCG taxed at 12.5% without indexation.

Case Example

An investor sells equity mutual funds after two years with a profit of ₹2 lakh. The first ₹1.25 lakh is exempt and the remaining ₹ 75,000 is subject to 12.5% tax, resulting in a tax liability of ₹9,375.

LTCG on Equity Linked Savings Schemes (ELSS)

To qualify for tax deduction under Section 80C (up to ₹1.5 lakh), ELSS funds must have a 3-year lock-in. LTCG sold on or before 23rd July, 2024 resulting from a redemption is taxed at 12.5% over and above the ₹1.25 lakh exemption. ELSS is considered a dual-benefit investment as it has upfront tax savings and enjoys the same concession as LTCG tax.

LTCG Tax on Property in India

For property, the holding period must exceed 24 months for LTCG to apply.

Key points:

• Uniform 12.5% tax rate post-Budget 2024.
• For properties bought before 23 July 2024, taxpayers can still use the older 20% with indexation method if it is more favourable.
• Exemptions available under:
  • Section 54 – Reinvestment in residential property.
  • Section 54F – Reinvestment in residential property when the original asset is not a house.
  • Section 54EC – Investment in bonds issued by NHAI or REC.

Also Read: What is Fixed Capital? Types and Importance

LTCG Tax Rules for NRIs in India

Non-Resident Indians (NRIs) are also taxed on LTCG arising from Indian assets.

• Uniform rate: 12.5% post-Budget 2024, same as residents.
• TDS: Deducted at 12.5% on sale proceeds of property, shares, or mutual funds.
• PAN requirement: Mandatory for filing returns and claiming exemptions.

Example: An NRI selling property in India worth ₹1 crore with indexed cost of ₹70 lakh will have LTCG of ₹30 lakh. TDS of 12.5% (₹3.75 lakh) will apply, but the NRI can claim exemptions under Section 54 or 54EC by filing ITR.

Exemptions on Long-Term Capital Gains Tax in India

Certain exemptions reduce LTCG liability:

• Section 54 – Reinvest in another residential property within 2 years (or construct within 3 years).
• Section 54EC – Invest in NHAI/REC bonds within 6 months (limit ₹50 lakh).
• Section 54F – Available when selling non-residential assets but reinvesting in residential property.
• Section 54B – For sale of agricultural land reinvested in new agricultural land.

How to Save Tax on Long-Term Capital Gains in India

Practical strategies include:

• Invest in ELSS mutual funds for dual benefits.
• Reinvest property gains in residential real estate or specified bonds.
• Stagger asset sales across financial years to maximise the ₹1.25 lakh exemption.
• Use tax-efficient instruments such as Rural Electrification Corporation(RECs) or National Highway Authority of India (NHAI) bonds.
• Seek advice from financial planners to optimise portfolios.

Filing LTCG in Income Tax Returns (ITR-2)

Steps to file:

1. Select ITR-2 form (for individuals with capital gains).
2. Report sale consideration, acquisition cost, and exemptions under Schedule CG.
3. For property sales, disclose buyer details and TDS deducted.
4. Claim exemptions under Section 54/54F/54EC if applicable.
5. Cross-verify tax credit with Form 26AS and AIS.

Timely and accurate filing ensures you avoid penalties and claim exemptions correctly.

Conclusion

The reforms in Budget 2024 have made Long-Term Capital Gains tax in India easier to navigate. With a uniform 12.5% tax rate, higher exemption limit of ₹1.25 lakh, and clearer rules when it comes to the sale of property, tax payers are now better able to plan. Tax payers can now formulate better plans for maximising the available exemptions under the Income Tax Act, and now have clear guidance on how to minimise tax using reinvestment strategies.

If you are investing or planning to sell an asset, take advantage of the Godrej Capital Capital Gains Calculator to estimate your tax liability and explore ways to save. Alongside smart tax planning, you can also consider financial solutions like a Business Loan to manage cash flow, reinvest in growth, or seize new opportunities.

To meet your funding needs seamlessly, you can apply for a loan with Godrej Capital and access quick, reliable financing.

FAQs

Q.1. What is the minimum holding period for LTCG?

• Equity shares & equity mutual funds: 12 months
• Debt mutual funds & gold: 36 months
• Property: 24 months.

Q.2. Are LTCG on equity mutual funds taxable?

A. Yes, above the ₹1.25 lakh exemption, taxed at 12.5%.

Q.3. Can I claim indexation benefit post-Budget 2024?

A. Only for property purchased before 23 July 2024, where you can choose between 20% with indexation or 12.5% without.

Q.4. How much LTCG is exempt from tax?

A. ₹1.25 lakh annually for individuals and HUFs.

Q.5. Is LTCG tax deducted at source automatically?

A. Yes, in case of property sales and NRI transactions. For residents, TDS usually applies on property but not on mutual funds or shares.

Q.6. Are senior citizens exempt from LTCG tax?

A. No separate exemption beyond ₹1.25 lakh, but they can claim benefits under other sections.

Q.7. Can I save LTCG tax by investing in bonds?

A. Yes, specified bonds under Section 54EC provide exemption, up to ₹50 lakh.

Q.8. How does LTCG tax apply on foreign assets for NRIs?

A. India taxes LTCG on Indian assets. Gains from foreign assets are taxed as per the NRI’s country of residence, unless covered by Double Taxation Avoidance Agreements (DTAA).

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