This guide is general information. If you would rather a chartered accountant handled it, see ITR Filing Online.
Selling an asset at a profit creates capital gains. The tax depends on what you sold and how long you held it. The rates below apply to transfers on or after 23 July 2024; check the current Budget for later changes.
Holding periods
| Asset | Long-term if held for more than |
|---|---|
| Listed equity shares and equity mutual funds | 12 months |
| Land and buildings | 24 months |
| Most other assets | 24 months |
Tax rates
| Type of gain | Rate |
|---|---|
| Short-term gain on listed equity where STT is paid | 20% |
| Long-term gain on listed equity where STT is paid | 12.5% on gains above ₹1.25 lakh a year |
| Long-term gain on other assets, including property | 12.5% without indexation |
| Other short-term gains | At your slab rate |
For land or buildings acquired before 23 July 2024, resident individuals and HUFs can choose between 12.5% without indexation and 20% with indexation, whichever is lower, subject to the conditions in the law.
Exemptions that can reduce tax
- Section 54: long-term gain on a residential house reinvested in another residential house
- Section 54F: long-term gain on other assets reinvested in a residential house
- Section 54EC: long-term gain on land or buildings invested in specified bonds within the time limit
Practical points
- Equity bought before 1 February 2018 has a grandfathered cost for long-term gains
- Gains and losses can be set off against each other as per the rules, and certain losses can be carried forward only if the return is filed on time
- Report capital gains in ITR-2 or ITR-3, not ITR-1 beyond the limited exceptions
- Keep contract notes, deeds and cost records
Before you sell
Check the holding period. Selling a few days earlier or later can change the rate. For property, plan reinvestment before the sale so that exemption conditions are met.
A worked example on listed shares
You bought listed shares for ₹2,00,000 and sold them after 18 months for ₹3,50,000. The gain is ₹1,50,000. It is long-term. Gains up to ₹1,25,000 in a year are exempt, so only ₹25,000 is taxed at 12.5%, which is ₹3,125 plus cess. If you had sold after 10 months, the gain would have been short-term and taxed at 20% on the full ₹1,50,000.
How to compute cost and gain
- Cost of acquisition: the price you paid, plus brokerage and expenses of purchase.
- Cost of improvement: for property, the cost of capital improvements, with proofs.
- Expenses on transfer: brokerage and costs of sale are deducted from the sale price.
- Gain: sale price less expenses of sale less the cost of acquisition and improvement.
Reinvestment exemptions need planning
To claim exemption on a long-term gain from a house, you must buy or construct a residential house within the time limits, or deposit the money in a capital gains account scheme before the return due date if you have not yet reinvested. Missing the conditions makes the gain taxable. Plan before the sale, not after.
Common mistakes
- Forgetting to report gains from intraday trading or from selling units of mutual funds.
- Using the wrong cost, such as ignoring brokerage, stamp duty and the cost of improvements.
- Selling a property just before it becomes long-term.
- Not setting aside money for tax after a large sale.
- Missing the deadline to invest in specified bonds or to deposit in a capital gains account scheme.
Records to keep
Keep contract notes, demat statements and fund account statements for shares and funds. For property keep the purchase deed, stamp duty and registration receipts, receipts for improvements, and the sale agreement. These records decide your cost and holding period, and tax authorities may ask for them years later.
Planning a large sale
Before a large sale, work out the expected gain and the tax. Check which exemptions you can use, how much you must reinvest and by when. Consider advance tax, because a large gain in the middle of the year can create an advance tax liability that attracts interest if not paid in the next instalment.
Official sources and next steps
Sections 45 to 55A and 111A, 112 and 112A of the Income-tax Act deal with capital gains, and the Finance Act each year changes the rates and conditions. Check the current year's rules before a large sale, and speak to a CA if the sale involves property, foreign assets or a gain of a size that affects your advance tax.
Frequently asked questions
Are capital gains taxed separately from my other income?
They are part of your total income, but special rates apply to long-term gains and to short-term gains on listed equity, instead of slab rates.
Can I set off a capital loss?
Yes. Short-term losses can be set off against both short-term and long-term gains. Long-term losses can be set off only against long-term gains. Unabsorbed losses can be carried forward for eight years if the return is filed on time.
How is gain on mutual funds taxed?
It depends on the type of fund, the holding period and the date of purchase. Equity funds are taxed like listed shares. Debt funds follow different rules, so check the type of fund.
Do gifts and inherited assets attract capital gains?
Receiving a gift or inheritance is not a transfer for capital gains. When you later sell, the holding period and cost of the previous owner are generally used.
This content is for general information and does not constitute professional advice. Laws, rates and due dates change; confirm the current position for your case. Section references are to the Income-tax Act, 1961 unless stated; the Income-tax Act, 2025 applies to later periods with renumbered sections.