STCG vs LTCG: Capital Gains Tax Rates in India for 2026-27

What Is a Capital Gain?

A capital asset is property held by a taxpayer, whether or not it is connected with a business. Under section 67 of the Income-tax Act, 2025, profit from its transfer is taxed under the head “Capital gains”. Common examples include land, buildings, shares, mutual-fund units, gold, jewellery, trademarks and licences.

Stock-in-trade, consumable stores and raw materials held for business are excluded. Personal-use clothes and furniture are also excluded, but jewellery, paintings, drawings, sculptures, archaeological collections and other works of art remain capital assets. Rural agricultural land is excluded only when it satisfies the location and population tests in section 2(22).

STCG and LTCG Rates for Tax Year 2026-27

Section 2(101) sets a general short-term limit of 24 months. The limit is 12 months for securities listed on a recognised stock exchange in India, units of the Unit Trust of India (UTI), equity-oriented fund units and zero-coupon bonds. An equity-oriented fund is a mutual fund that meets the Income-tax Act’s required investment level in shares of domestic companies. 

In the table, normal rate means the rate under the taxpayer’s applicable slab or entity rules. A market-linked debenture is a debt security whose return depends on other securities or market indices. Indexation adjusts purchase and improvement costs for inflation using the government’s Cost Inflation Index (CII).

The table rates exclude surcharge and 4% Health and Education Cess. 

When the Equity Tax Rates Apply

The equity rates shown in the table apply only when the Securities Transaction Tax (STT) conditions are met. STT must be charged on the sale. For long-term gains from equity shares, STT must generally also have been paid when the shares were purchased, subject to notified exceptions. The ₹1,25,000 threshold applies to the taxpayer’s total eligible long-term equity gains for the tax year, not separately to each sale.

How to Calculate Capital Gains Tax

Section 72 uses this basic calculation:

Capital gain = Sale consideration − transfer expenses − acquisition cost − improvement cost

1. Confirm the sale consideration. If a special valuation rule applies, use the required value, such as the stamp-duty value of property.
2. Subtract the purchase cost, improvement cost and allowable transfer expenses, such as brokerage or commission. Securities Transaction Tax (STT) is not deductible.
3. Subtract available exemptions and adjust eligible capital losses.
4. Apply the relevant tax rate, any surcharge and the 4% Health and Education Cess.

A surcharge is an additional tax that applies when income exceeds specified limits.

Example: LTCG on an Equity-Oriented Fund

An investor buys eligible equity-oriented fund units for ₹4,00,000 and sells them after 18 months for ₹6,00,000. The investor has no other section 198 gain in the tax year.

The example ignores brokerage, capital-loss set-off, surcharge and any adjustment for an unused basic exemption limit.

Special Rules for Property, Debt and Business Assets

Land and Building Indexation Option

Section 197(3) gives a resident individual or HUF a limited indexation option when long-term land, a building or both acquired before 23 July 2024 are sold. The taxpayer pays the lower tax produced by:

• 12.5% on the unindexed gain; or
• 20% on the indexed gain.

However, this comparison does not extend to every asset or taxpayer.

Example: Applying the Indexation Option

A resident individual bought a plot in 2014-15 for ₹30,00,000 and sells it in 2026-27 for ₹70,00,000. Transfer expenses are ignored. 

The government’s Cost Inflation Index chart lists 240 for 2014-15. Notification No. 85/2026, dated 15 July 2026, sets the CII at 384 for 2026-27. 

The lower tax is ₹4,40,000. Cess of ₹17,600 brings the total to ₹4,57,600, assuming no surcharge. Land or a building acquired on or after 23 July 2024 does not qualify for this indexation option.

Debt Investments Treated as Short-Term

Some debt investments are treated as short-term regardless of how long they are held. These include specified mutual-fund units bought on or after 1 April 2023, market-linked debentures, and unlisted bonds or debentures transferred, redeemed or matured on or after 23 July 2024.

A specified mutual fund invests more than 65% of its money directly in debt and money-market instruments, or at least 65% in units of another such fund.

Units bought before 1 April 2023 follow the ordinary holding-period rules. A listed unit becomes long-term after more than 12 months, while an unlisted unit becomes long-term after more than 24 months.

Cost of Equity Investments Bought Before February 2018

For eligible equity investments bought before 1 February 2018, the acquisition cost is recalculated using the actual cost, the market value on 31 January 2018, and the sale value. This statutory formula protects eligible appreciation earned up to 31 January 2018 from ordinary taxation.

Depreciable Business Assets

Tax is calculated for the entire group, or “block,” of depreciable assets rather than for each machine, vehicle or other asset separately. If the total sale value exceeds the block’s opening written-down value, meaning its value after depreciation, plus the cost of assets added during the year and eligible selling expenses, the excess is treated as a short-term capital gain under section 74.

A separate calculation applies when all assets in the block are sold. Businesses should therefore update the asset register and depreciation schedule before calculating the gain.

Capital Gains Exemptions

The Income-tax Act, 2025 renumbered the main reinvestment exemptions. The statutory conditions appear in sections 82, 85 and 86.

Section 85 covers specified bonds issued by the National Highways Authority of India, Rural Electrification Corporation Limited or another notified issuer. Splitting the investment between the tax year of transfer and the next tax year does not create a second ₹50 lakh limit.

Section 86 also restricts how many other residential houses the taxpayer owns and buys or constructs within the specified period. Check those conditions before treating a reinvestment as exempt.

Capital Gains Account Scheme

For sections 82 and 86, if the required amount has not been used before the return is filed, the unspent amount must be deposited under the Capital Gains Account Scheme (CGAS) before filing and no later than the applicable due date. CGAS does not extend the 6-month bond deadline under section 85.

A deposit does not make the exemption permanent. Any amount left unused after the permitted period becomes taxable under the relevant section.

Capital Loss Set-Off and Carry-Forward

Capital losses cannot be adjusted against salary, house-property income, business income or income from other sources.

Any capital loss that cannot be adjusted in the same tax year can be carried forward for up to eight tax years. To preserve this benefit, the taxpayer must file the loss return by the due date under section 263(1). 

Records to Keep

Using BUSY accounting software? Before filing, match each asset purchase, depreciation entry and disposal with the capital-gains calculation. Correct any difference before sharing the records with your Chartered Accountant.

Conclusion

Capital-gains errors usually begin when an asset is classified incorrectly or an exemption deadline is missed. Start by checking the holding period: eligible equity investments use the 12-month test, while most other assets use 24 months. Eligible short-term equity gains are taxed at 20%, eligible long-term equity gains at 12.5% above the total ₹1,25,000 threshold, and other short-term gains at the taxpayer’s normal rate. Before filing, verify exemptions and losses, then reconcile the sale proceeds, costs and supporting records.