The Basics of Capital Gains
Whenever you sell a "capital asset" (like shares, mutual funds, gold, or property) for more than you paid for it, the profit is called a Capital Gain. The income tax department taxes this profit, but the rate depends on what you sold and how long you held it.
Here is a step-by-step guide to calculating your capital gains tax.
Quick reference (rates apply to sales on or after 23 July 2024; Source: Finance (No. 2) Act, 2024):
| Asset | Long-term after | LTCG rate | STCG rate |
|---|---|---|---|
| Listed equity / equity funds | 12 months | 12.5% over Rs 1.25 lakh | 20% |
| Property / land | 24 months | 12.5% (or 20% with indexation, resident option) | Slab rate |
| Debt funds bought after 1 Apr 2023 | No LTCG | Slab rate | Slab rate |
Step 1: Determine the Asset Type and Holding Period
The tax rate changes based on whether the gain is Short-Term (STCG) or Long-Term (LTCG).
- Listed Equity Shares & Equity Mutual Funds:
- - Short-Term: Less than 12 months.
- - Long-Term: More than 12 months.
- Real Estate (Land/Property):
- - Short-Term: Less than 24 months.
- - Long-Term: More than 24 months.
- Debt Mutual Funds (bought after April 1, 2023):
- - Always taxed at slab rates, regardless of holding period.
Step 2: Apply the Formula
The basic formula for capital gains is: Capital Gain = Sale Price - (Purchase Price + Transfer Expenses)
Transfer expenses include brokerage, stamp duty, or legal fees directly related to the sale.
For Short-Term Capital Gains (STCG): Simply use the formula above. - STCG on listed equity is taxed at 20%. - STCG on property is added to your income and taxed at your slab rate.
For Long-Term Capital Gains (LTCG): - **Equity:** Use the basic formula. The first ₹1.25 lakh of total equity LTCG in a year is tax-free. The rest is taxed at 12.5%. - **Property:** You get the benefit of **Indexation**. This means you adjust your purchase price for inflation using the Cost Inflation Index (CII) provided by the government. - *Indexed Cost = Purchase Price × (CII of Sale Year / CII of Purchase Year)* - *LTCG = Sale Price - Indexed Cost* - LTCG on property is typically taxed at 20% (with indexation) or 12.5% (without indexation, under new rules).
Step 3: Check for Exemptions and Set-Offs
Before paying tax, check if you can reduce your liability: 1. Set off past losses: Do you have carried-forward capital losses from previous years? You can use them to reduce this year's gains. 2. Claim exemptions: If you sold a property, can you claim Section 54 by buying a new house?
Step 4: Report in ITR
Capital gains must be reported in ITR-2 or ITR-3 under Schedule CG.
How LastMinute ITR helps Calculating indexation and matching trades can take hours. LastMinute ITR simplifies this. Upload your broker statements, and we will calculate your STCG and LTCG, apply the ₹1.25 lakh equity exemption, and format the data exactly as the incometax.gov.in portal expects it.
Start with LastMinute ITR · import your statements · fix an AIS mismatch.
What you should do
- Classify each asset as short-term or long-term using the holding-period table above.
- Apply the right formula (plain cost for equity, indexed cost only where the old property rules apply).
- Set off any carried-forward losses before computing tax.
- Report everything in Schedule CG of ITR-2 or ITR-3.
Common mistake
Taxing gross sale value instead of the gain. Your AIS shows the full sale proceeds, but tax is only on the profit (sale value minus cost and transfer expenses). Never enter the sale value as your taxable income.