LTCG on Shares & Mutual Funds

The exemption is the part people misuse. It is ₹1,25,000 of gain, not of sale proceeds, and it is per person per financial year across all your equity holdings combined. It is not per fund, not per broker and not per demat account.

How is each asset class taxed?

As of 17 August 2026, from the Income Tax Department’s capital gains guidance. Surcharge and the 4% health and education cess apply on top of every rate above.

How does the ₹1.25 lakh exemption actually work?

Add up all your long-term gains under Section 112A for the financial year. That includes listed shares, equity mutual fund units and units of business trusts, on which securities transaction tax has been paid. Subtract ₹1,25,000 from the total. Tax the remainder at 12.5%.

Two consequences follow. If your total long-term equity gain for the year is ₹1,10,000, you pay nothing. If it is ₹3,00,000, you pay 12.5% on ₹1,75,000. Selling through three different brokers does not give you three exemptions.

The exemption is per person, so a family can use more than one. But the gain must genuinely belong to the person claiming it. Money gifted to a spouse and invested by them is caught by the clubbing provisions, and the gain comes back to you. Read how capital gains tax works for the general rules.

What counts as long-term, and what does not

Twelve months for listed equity and equity mutual funds. Twenty-four months for property, gold and unlisted shares. Count from the date of acquisition, and count carefully, because selling a day early converts a 12.5% liability into a 20% one on the same gain.

Debt mutual funds bought on or after 1 April 2023 have no long-term category at all. Gains are taxed at your slab rate however long you hold them. So a 30% slab taxpayer holding a debt fund is paying a materially higher rate than on an equity fund, which is worth knowing before you park money there. See mutual fund taxation.

Hybrid funds are decided by their equity holding, and the threshold is set in the scheme document, not by the fund’s name. Check the scheme information document rather than assuming from the category label.

Should you sell every year to use the exemption?

Only if the sale is nearly free, and often it is not. Selling and rebuying to realise ₹1,25,000 of gain each year is called harvesting, and it works because the exemption does not carry forward. Use it or lose it.

But count the costs before you do it. Securities transaction tax on the sale, brokerage on both legs, and the days your money is out of the market. On a small portfolio those costs can exceed the tax saved. On a large one, harvesting is usually worth the trouble. Our brokerage charges page has the transaction costs.

Also mind the sequencing. Selling units bought at different times uses a first-in first-out order, so the units that leave are your oldest and cheapest, which carry the largest gain. That is the opposite of what most people assume they are selling. The capital gains calculator shows the effect on your own holdings.

Losses, and the one rule that saves money

A long-term capital loss can be set off against long-term capital gains. A short-term capital loss can be set off against either short-term or long-term gains, which makes it the more flexible of the two. Unabsorbed capital losses can be carried forward for eight assessment years.

The condition attached to that carry-forward is where people lose the benefit. You must file your return by the original due date. File late and the loss cannot be carried forward, even if the return is otherwise accurate. Check the deadline on our ITR due dates page.

Shares bought long ago have a separate cost rule under Section 112A, which protects gains that had accrued by early 2018. If you are computing a gain on a holding that old, read the section text before you do the arithmetic, because using the plain purchase price will overstate your tax.