Have you recently sold a property, shares, mutual funds, gold or another investment at a profit? If yes, the profit may be taxable as capital gains under the Income-tax Act. Capital gains tax often appears complicated because the applicable tax rate depends on several factors. You must identify the type of asset, calculate how long you held it and check whether any exemption is available.
The Union Budget 2024 significantly simplified India’s capital gains tax structure. It introduced more uniform holding periods, revised tax rates and removed indexation benefits for most assets. These rules continue to affect capital gains calculations in the subsequent financial years. In this step-by-step guide, we explain how to calculate capital gains tax in India in simple language. Whether you sell a property in Greater Noida, redeem mutual funds or transfer unlisted shares, this guide will help you understand the basic calculation.
Important: This article explains the general capital gains provisions applicable to transactions taking place during FY 2026–27, corresponding to AY 2027–28. The final tax treatment may vary depending on the date of purchase, date of sale, residential status and type of asset.
What Is Capital Gain?
A capital gain arises when you sell or transfer a capital asset for more than its eligible cost.
Capital assets generally include:
- Land and buildings
- Residential and commercial properties
- Listed and unlisted shares
- Mutual fund units
- Gold, jewellery and bullion
- Bonds and debentures
- Business trust units such as REITs and InvITs
- Certain other investments and rights
For example, suppose you purchased a plot in Greater Noida for ₹40 lakh and later sold it for ₹65 lakh. The difference does not automatically become your taxable capital gain. You may deduct eligible purchase costs, improvement expenses and transfer-related expenses before calculating the final taxable gain.
Basic Formula for Calculating Capital Gain
The general formula is:
Capital Gain = Sale Consideration − Transfer Expenses − Cost of Acquisition − Cost of Improvement
However, the actual calculation depends on whether the gain is:
- Short-Term Capital Gain, or STCG; or
- Long-Term Capital Gain, or LTCG.
Therefore, your first step is to identify the holding period.
Step 1: Identify the Capital Asset
First, determine which asset you have sold.
This step matters because different rules apply to different assets. For example, listed equity shares may become long-term after 12 months, while immovable property generally becomes long-term after 24 months.
Similarly, certain debt-oriented investments fall under special rules and may be treated as short-term even when you hold them for several years.
Therefore, correctly identifying the asset is essential before calculating the tax.
Step 2: Calculate the Holding Period
The holding period means the period between the date on which you acquired the asset and the date on which you transferred it.
The capital gains framework now mainly follows two holding-period limits: 12 months and 24 months.
Assets Covered by the 12-Month Holding Period
The following assets generally qualify as long-term capital assets when you hold them for more than 12 months:
- Listed equity shares
- Units of equity-oriented mutual funds
- Listed securities
- Units of listed business trusts, including REITs and InvITs
If you hold these assets for 12 months or less, the gain will generally be treated as short-term.
Assets Covered by the 24-Month Holding Period
The following assets generally qualify as long-term capital assets when you hold them for more than 24 months:
- Land and buildings
- Residential and commercial properties
- Unlisted equity shares
- Physical gold
- Jewellery and bullion
- Other capital assets not covered by the 12-month limit
If you hold these assets for 24 months or less, the gain will generally be treated as short-term.
The revised framework generally treats listed securities as long-term after 12 months and most other assets as long-term after 24 months.
Special Rule for Debt Mutual Funds, Unlisted Bonds and Debentures
You must take extra care while calculating gains from certain debt investments.
Capital gains arising from specified mutual funds covered by Section 50AA may be treated as short-term capital gains irrespective of the actual holding period. This treatment mainly applies to specified debt-oriented mutual funds acquired on or after the relevant statutory date.
Similarly, gains from unlisted bonds and unlisted debentures transferred, redeemed or matured on or after 23 July 2024 are generally treated as short-term capital gains under Section 50AA.
Therefore, you should not assume that every debt investment becomes long-term after 24 months.
These gains are generally taxed at the taxpayer’s applicable slab rate.
Step 3: Determine Whether the Gain Is Short-Term or Long-Term
After calculating the holding period, classify the gain.
Short-Term Capital Gain
A gain is treated as short-term when you sell the asset within the prescribed holding period.
For example:
- Listed shares held for 10 months: Short-term
- Property held for 20 months: Short-term
- Unlisted shares held for 18 months: Short-term
Long-Term Capital Gain
A gain is treated as long-term when you hold the asset for more than the prescribed period.
For example:
- Listed shares held for 15 months: Long-term
- Property held for 30 months: Long-term
- Unlisted shares held for 38 months: Long-term
This classification determines the applicable tax rate and whether you can claim any capital gains exemption.
Step 4: Calculate the Full Value of Consideration
The full value of consideration generally means the amount you receive or are entitled to receive from the sale or transfer of the asset.
For example, if you sell unlisted shares for ₹12 lakh, your full value of consideration will normally be ₹12 lakh.
However, special valuation rules may apply in certain cases.
For example, when you sell land or a building for less than its applicable stamp duty value, Section 50C may require you to consider the stamp duty value, subject to the permitted tolerance limit and other conditions.
Therefore, in the case of a property sale in Greater Noida, you should compare the actual sale price with the stamp duty value before calculating the capital gain.
Step 5: Deduct Transfer Expenses
You may deduct expenses incurred wholly and exclusively in connection with the transfer.
Eligible transfer expenses may include:
- Brokerage
- Commission
- Legal charges relating to the sale
- Advertising expenses for finding a buyer
- Stamp or documentation expenses borne by the seller
- Other direct transfer-related expenses
However, you cannot deduct personal expenses or expenses that do not directly relate to the transfer.
Example
Suppose you sold an asset for ₹12 lakh and paid brokerage of ₹20,000.
Net Sale Consideration = ₹12,00,000 − ₹20,000 = ₹11,80,000
Step 6: Determine the Cost of Acquisition
The cost of acquisition generally means the amount you paid to acquire the asset.
It may include:
- Basic purchase price
- Stamp duty paid at the time of purchase
- Registration charges
- Brokerage paid on purchase
- Other eligible expenses directly connected with the acquisition
Example for Property
Suppose you purchased a flat in Greater Noida for ₹60 lakh and paid:
- Stamp duty: ₹4.20 lakh
- Registration charges: ₹60,000
- Brokerage: ₹50,000
Your total cost of acquisition may be:
₹60,00,000 + ₹4,20,000 + ₹60,000 + ₹50,000 = ₹65,30,000
You should preserve the purchase deed, payment records, stamp duty receipt and brokerage invoice to support the cost claimed in your income tax return.
Step 7: Add the Eligible Cost of Improvement
The cost of improvement means capital expenditure incurred to make major additions or improvements to an asset.
For property, eligible improvement expenses may include:
- Construction of an additional floor
- Major structural renovation
- Permanent extension of the building
- Installation of permanent fixtures
- Significant civil work
Routine repair and maintenance expenses generally do not qualify as the cost of improvement.
You should maintain invoices, bank statements, contractor bills and other supporting records.
Step 8: Apply the Correct Capital Gains Tax Rate
The applicable tax rate depends on the type of asset and whether the gain is short-term or long-term.
Capital Gains Tax Rates for FY 2026–27
| Asset category | Short-term capital gains | Long-term capital gains | Important point |
|---|---|---|---|
| Listed equity shares, equity-oriented mutual funds and eligible business trust units where applicable transaction-tax conditions are satisfied | 20% | 12.5% | LTCG under Section 112A is taxable only to the extent it exceeds ₹1.25 lakh in a financial year |
| Immovable property | Normal slab rate | Generally 12.5% | Special relief applies to certain properties acquired before 23 July 2024 |
| Physical gold and jewellery | Normal slab rate | Generally 12.5% | No general indexation benefit under the revised method |
| Unlisted shares | Normal slab rate | Generally 12.5% | Special rules may apply to non-residents |
| Specified debt mutual funds | Normal slab rate | Generally treated as short-term under Section 50AA where applicable | Check the acquisition date and nature of the fund |
| Unlisted bonds and unlisted debentures covered by Section 50AA | Normal slab rate | Treated as short-term | Applicable to specified transfers, redemptions or maturity |
The revised rates generally provide a 20% tax rate for qualifying short-term gains under Section 111A and a 12.5% rate for qualifying long-term gains under Sections 112 and 112A for transfers occurring on or after 23 July 2024.
A 4% Health and Education Cess applies to the calculated income tax. Surcharge may also apply where the taxpayer’s total income crosses the prescribed limits.
Long-Term Capital Gains on Listed Shares and Equity Mutual Funds
Long-term capital gains from qualifying listed equity shares, equity-oriented mutual funds and business trust units are taxable at 12.5% under Section 112A.
However, the first ₹1.25 lakh of eligible LTCG in a financial year is exempt.
Example
Suppose your total eligible LTCG from listed equity shares during the year is ₹3 lakh.
Taxable LTCG = ₹3,00,000 − ₹1,25,000 = ₹1,75,000
Tax at 12.5% = ₹21,875
Cess at 4% = ₹875
Total tax = ₹22,750
The ₹1.25 lakh threshold applies to the aggregate eligible LTCG for the entire financial year, not separately to each share or mutual fund.
Special Property Rule for Assets Acquired Before 23 July 2024
A special relief applies to certain long-term capital gains arising from land or buildings acquired before 23 July 2024.
For a resident individual or resident Hindu Undivided Family, the tax payable under the new 12.5% method without indexation is compared with the tax that would have been payable under the earlier 20% method with indexation.
Where the tax calculated under the new method is higher, the excess may be disregarded in accordance with the statutory relief. In practical terms, this protects eligible resident individuals and HUFs from paying more solely because indexation was removed.
Therefore, the benefit is not a general choice available to every taxpayer or every type of asset. It applies subject to the prescribed conditions.
Method 1: 12.5% Without Indexation
Under this method:
LTCG = Sale Consideration − Transfer Expenses − Actual Cost of Acquisition − Actual Cost of Improvement
Method 2: 20% With Indexation
For comparison under the special property relief:
LTCG = Sale Consideration − Transfer Expenses − Indexed Cost of Acquisition − Indexed Cost of Improvement
The indexed cost is calculated using the Cost Inflation Index, or CII.
Indexed Cost of Acquisition = Cost of Acquisition × CII of the Year of Sale ÷ CII of the Year of Acquisition
This protection applies to eligible land or buildings acquired before 23 July 2024 and transferred on or after that date, subject to the taxpayer and transaction satisfying the legal requirements introduced through the Finance Act, 2024.
Step 9: Calculate the Capital Gain
Once you have collected all the information, use the applicable formula.
Formula Without Indexation
Capital Gain = Full Value of Consideration − Transfer Expenses − Cost of Acquisition − Cost of Improvement
Formula With Indexation
Where indexation is legally permitted for comparison or under a specific provision:
Capital Gain = Full Value of Consideration − Transfer Expenses − Indexed Cost of Acquisition − Indexed Cost of Improvement
Step 10: Calculate the Tax and Cess
After calculating the taxable capital gain:
- Apply the relevant tax rate.
- Add the applicable surcharge, if any.
- Add 4% Health and Education Cess.
- Reduce eligible TDS, advance tax or other available tax credits.
- Pay the balance as advance tax or self-assessment tax, as applicable.
Practical Example: Sale of Unlisted Shares
Let us understand the calculation through a simple example.
Facts of the Case
An investor purchased unlisted shares in April 2023 for ₹5,00,000.
The investor sold them in June 2026 for ₹12,00,000 and paid ₹20,000 as transfer expenses.
Step 1: Determine the Holding Period
The investor held the shares from April 2023 to June 2026, which is approximately 38 months.
Since unlisted shares generally become long-term after more than 24 months, the gain qualifies as a long-term capital gain.
Step 2: Calculate Net Sale Consideration
Sale consideration: ₹12,00,000
Less: Transfer expenses: ₹20,000
Net sale consideration: ₹11,80,000
Step 3: Determine the Cost of Acquisition
The actual cost of acquisition is ₹5,00,000.
Since the revised tax treatment generally applies a 12.5% LTCG rate without indexation to such a transfer, the calculation uses the actual cost.
Step 4: Calculate the Long-Term Capital Gain
LTCG = ₹11,80,000 − ₹5,00,000
LTCG = ₹6,80,000
Step 5: Calculate the Tax
Tax at 12.5% on ₹6,80,000 = ₹85,000
Health and Education Cess at 4% = ₹3,400
Total Tax Payable
₹85,000 + ₹3,400 = ₹88,400
Therefore, the total tax liability on the long-term capital gain will be ₹88,400, assuming no surcharge, exemption, loss adjustment or other relief applies.
Practical Example: Sale of Property in Greater Noida
Suppose a resident individual purchased a flat in Greater Noida in August 2024 for ₹70 lakh and sold it in December 2026 for ₹95 lakh.
The person also incurred:
- Stamp duty and registration at purchase: ₹5 lakh
- Brokerage on sale: ₹1 lakh
- Eligible improvement cost: ₹4 lakh
Step 1: Determine the Holding Period
The person held the flat for more than 24 months. Therefore, the gain is long-term.
Step 2: Calculate the Total Cost
Purchase price: ₹70,00,000
Add: Stamp duty and registration: ₹5,00,000
Add: Eligible improvement cost: ₹4,00,000
Total eligible cost: ₹79,00,000
Step 3: Calculate Net Sale Consideration
Sale price: ₹95,00,000
Less: Brokerage: ₹1,00,000
Net sale consideration: ₹94,00,000
Step 4: Calculate LTCG
LTCG = ₹94,00,000 − ₹79,00,000
LTCG = ₹15,00,000
Step 5: Calculate Tax
Tax at 12.5% = ₹1,87,500
Cess at 4% = ₹7,500
Total tax = ₹1,95,000
The property was purchased after 23 July 2024. Therefore, the special comparison involving 20% tax with indexation does not apply.
However, the taxpayer may still examine exemptions under Sections 54, 54EC or 54F, depending on the nature of the asset sold and how the sale proceeds are reinvested.
Capital Gains Exemptions That Can Reduce Your Tax
Calculating the gain is only one part of the process. You should also check whether you can claim a legal exemption.
Section 54: Reinvestment in a Residential House
An individual or HUF may claim an exemption when:
- The taxpayer earns LTCG from the sale of a residential house; and
- The taxpayer purchases or constructs another eligible residential house within the prescribed period.
The exemption is generally restricted to the lower of:
- The amount of capital gain; or
- The eligible amount invested in the new house.
Section 54F: Sale of an Asset Other Than a Residential House
An individual or HUF may claim an exemption when:
- The taxpayer earns LTCG from an eligible capital asset other than a residential house; and
- The taxpayer invests the net sale consideration in an eligible residential house.
Additional conditions apply, including restrictions concerning ownership of other residential houses.
Section 54EC: Investment in Specified Bonds
A taxpayer may claim an exemption by investing eligible LTCG from land or buildings in specified bonds within six months from the date of transfer.
The maximum qualifying investment is subject to the statutory limit.
Capital Gains Account Scheme
If you cannot use the capital gain or net sale consideration before the income tax return due date, you may have to deposit the required amount in the Capital Gains Account Scheme within the permitted time to preserve the exemption.
Can Capital Losses Reduce Capital Gains?
Yes. You may adjust eligible capital losses against capital gains.
Short-Term Capital Loss
A short-term capital loss can generally be adjusted against:
- Short-term capital gains; and
- Long-term capital gains.
Long-Term Capital Loss
A long-term capital loss can generally be adjusted only against long-term capital gains.
If you cannot fully adjust the loss in the same year, you may carry it forward for up to eight assessment years, provided you file the income tax return within the applicable due date.
Section 87A Rebate and Capital Gains
The Section 87A rebate under the new tax regime may reduce tax on income taxable at normal rates when the prescribed conditions are satisfied.
However, under the applicable amended provisions, the rebate cannot be used to eliminate tax calculated at certain special rates under Chapter XII. Therefore, income such as qualifying capital gains taxable under special-rate provisions may continue to generate a tax liability even when the taxpayer’s total income falls within the general rebate threshold.
Consequently, you should not assume that total income below ₹12 lakh automatically makes every type of capital gain tax-free.
The exact impact depends on:
- The taxpayer’s residential status
- The applicable tax regime
- The type of capital gain
- Whether the income is taxable at a special rate
- The relevant assessment year
Which ITR Form Should You Use for Capital Gains?
Individuals and HUFs who have capital gains generally use ITR-2, provided they do not have income from business or profession.
Taxpayers who have capital gains along with business or professional income generally use ITR-3.
You must report both short-term and long-term capital gains in the appropriate schedules of the income tax return. The Income Tax Department’s ITR-2 instructions require taxpayers to report capital gains and losses in Schedule Capital Gains.
ITR-1 and ITR-4 generally cannot be used where the taxpayer has taxable capital gains, except to the limited extent specifically permitted by the applicable return form and instructions.
Common Capital Gains Calculation Mistakes
Taxpayers commonly make the following mistakes:
Applying the Wrong Holding Period
Do not apply a 24-month holding period to every asset. Listed shares and certain listed assets generally follow the 12-month rule.
Claiming Indexation on Every Long-Term Asset
The revised provisions removed indexation for most assets. The special property protection applies only in specified cases.
Ignoring Stamp Duty Value
When you sell property below its stamp duty value, the tax calculation may require an adjustment under Section 50C.
Forgetting Transfer Expenses
Brokerage, commission and eligible legal expenses can reduce the taxable gain.
Treating Every Debt Fund as a Long-Term Asset
Specified debt-oriented mutual funds may remain taxable as short-term capital gains under Section 50AA.
Claiming the ₹1.25 Lakh Exemption on Every LTCG
The ₹1.25 lakh exemption applies to eligible LTCG covered by Section 112A. It does not apply to all long-term capital gains, such as gains from property, gold or unlisted shares.
Assuming the Section 87A Rebate Will Remove All Capital Gains Tax
Capital gains taxable at special rates may not receive the benefit of the rebate in the same manner as normal slab-rate income.
Not Paying Advance Tax
Capital gains can create an advance tax liability. Delayed payment may result in interest under Sections 234B and 234C, subject to the applicable provisions.
Conclusion
Capital gains tax calculation becomes easier when you follow a clear process.
First, identify the asset. Next, calculate the holding period and classify the gain as short-term or long-term. After that, deduct the eligible acquisition cost, improvement cost and transfer expenses. Finally, apply the correct tax rate and check whether you can claim an exemption or adjust a capital loss.
The revised capital gains framework has simplified the holding periods and tax rates. However, special provisions for property, debt mutual funds, unlisted bonds, exemptions and the Section 87A rebate still require careful attention.
Therefore, before filing your income tax return, verify the purchase date, sale date, cost records and applicable tax provisions. For high-value property transactions in Greater Noida or complicated investments, professional review can help you calculate the correct tax and avoid future notices.
Frequently Asked Questions
1. What is capital gains tax in simple words?
Capital gains tax is the tax payable on the profit earned from selling or transferring a capital asset such as property, shares, mutual funds, gold or jewellery.
2. How do I calculate capital gain on a property?
You can generally calculate it as follows:
Sale Consideration − Transfer Expenses − Cost of Acquisition − Cost of Improvement
You must also check the property’s stamp duty value, holding period and eligibility for exemptions.
3. When does a property become a long-term capital asset?
Land or a building generally becomes a long-term capital asset when you hold it for more than 24 months before selling it.
4. What is the LTCG tax rate on property?
Long-term capital gains on property transferred under the revised provisions are generally taxable at 12.5% without indexation. However, special tax protection may apply to eligible resident individuals and HUFs for land or buildings acquired before 23 July 2024.
5. Can I still claim indexation on property?
A general indexation deduction is no longer available under the revised 12.5% method. However, eligible resident individuals and HUFs may receive special tax protection for certain land or buildings acquired before 23 July 2024 by comparing the tax with the earlier 20% indexed method.
6. What is the tax rate on short-term gains from listed shares?
Qualifying short-term capital gains covered by Section 111A are generally taxable at 20%, plus applicable surcharge and 4% cess.
7. What is the tax rate on long-term gains from listed shares?
Qualifying long-term capital gains under Section 112A are generally taxable at 12.5% to the extent the aggregate eligible gains exceed ₹1.25 lakh in a financial year.
8. Is the ₹1.25 lakh exemption available on property gains?
No. The ₹1.25 lakh threshold applies only to eligible long-term capital gains covered by Section 112A. It does not apply to long-term gains from property, physical gold or unlisted shares.
9. Are debt mutual fund gains always taxed at slab rates?
Specified debt-oriented mutual funds covered by Section 50AA may be treated as short-term capital assets and taxed at the applicable slab rate, irrespective of the holding period. The acquisition date and fund composition must be checked.
10. Can I save capital gains tax by purchasing another property?
You may claim an exemption under Section 54 or Section 54F if you satisfy the prescribed conditions and invest within the specified period.
11. Can I claim both property purchase expenses and renovation expenses?
You may include eligible acquisition expenses, such as stamp duty and registration charges. You may also claim qualifying capital improvement expenses. However, routine repairs and personal expenses generally do not qualify.
12. Can a short-term capital loss be adjusted against LTCG?
Yes. A short-term capital loss can generally be adjusted against both short-term and long-term capital gains.
13. Can a long-term capital loss be adjusted against STCG?
No. A long-term capital loss can generally be adjusted only against long-term capital gains.
14. Is capital gains tax payable if my total income is below ₹12 lakh?
It may still be payable. Capital gains taxable at special rates may not receive the full benefit of the Section 87A rebate. The result depends on the nature of the gain, tax regime and relevant assessment year.
15. Which ITR form should I use for reporting capital gains?
An individual without business or professional income generally files ITR-2. An individual with business or professional income generally files ITR-3.
16. Is brokerage deductible while calculating capital gains?
Yes. Brokerage directly related to the purchase may form part of the acquisition cost, while brokerage directly related to the sale may be deducted as a transfer expense, subject to the applicable conditions.
17. Do I need to report capital losses in my income tax return?
Yes. You should report capital losses in the relevant schedule. To carry forward eligible losses, you generally need to file the return within the prescribed due date.
18. Should I calculate capital gains using AIS alone?
No. AIS can help you identify reported transactions, but it may not contain the complete acquisition cost, improvement expenses, grandfathered value or exemption details. You should reconcile AIS with broker statements, mutual fund statements, property documents and bank records.
19. Can I deduct home loan interest while calculating property capital gains?
Home loan interest is not automatically deductible as a transfer expense or cost of acquisition. Its treatment depends on the facts, applicable provisions and whether the same amount has already been claimed elsewhere.
20. Should I consult a Chartered Accountant for capital gains calculation?
Professional assistance is advisable when the transaction involves property, inherited assets, jointly owned assets, old purchase records, non-resident taxation, multiple share transactions, foreign assets or capital gains exemptions.