LTCG (Long-Term Capital Gains)
LTCG is the profit from selling a capital asset held beyond the long-term holding period, taxed at concessional rates with rules varying by asset class.
LTCG stands for Long-Term Capital Gains. Under the Income Tax Act, 1961, a capital gain is the profit arising from the sale (transfer) of a capital asset. Whether the gain is classified as long-term or short-term depends on how long the asset was held before being sold. Long-term gains are taxed at concessional rates compared to short-term gains in most cases.
Holding Period: What Makes a Gain "Long-Term"?
The minimum holding period for a capital asset to qualify as long-term varies by asset class:
| Asset Class | Minimum Holding Period for LTCG |
|---|---|
| Listed equity shares (on recognised stock exchange) | 12 months |
| Equity-oriented mutual funds | 12 months |
| Bonds and debentures (listed) | 12 months (from Budget 2024; earlier 36 months) |
| Immovable property (land, building, house) | 24 months |
| Unlisted shares of a company | 24 months |
| All other assets (gold, jewellery, art, unlisted debentures, etc.) | 36 months |
If an asset is sold before completing the relevant holding period, the gain is classified as Short-Term Capital Gain (STCG) and taxed differently.
Tax Rates on LTCG (Post Budget 2024)
The Union Budget 2024-25 (effective from 23 July 2024) revised LTCG rates and the exemption threshold:
Listed equity shares and equity mutual funds:
- LTCG is exempt up to ₹1,25,000 per year (increased from ₹1,00,000)
- LTCG above ₹1,25,000 is taxed at 12.5% (increased from 10%) without the benefit of indexation
Immovable property (land, building, residential house):
- Post-23 July 2024: LTCG is taxed at 12.5% without indexation
- For properties acquired before 23 July 2024: Taxpayers can choose either 12.5% without indexation or 20% with indexation (this grandfathering option is available for properties purchased before that date)
All other long-term capital assets (gold, jewellery, unlisted shares, etc.):
- Taxed at 12.5% (from Budget 2024; earlier 20% with indexation)
Important: Surcharge and health & education cess apply on top of the base LTCG rate. The effective rate including cess is approximately 13% at the lowest income bracket (LTCG on equity) for most individual taxpayers.
How to Calculate LTCG
Basic formula: LTCG = Sale Price – Cost of Acquisition – Cost of Improvement – Transfer Expenses
Indexed Cost of Acquisition (where indexation applies): For assets eligible for indexation (pre-July 2024 property, certain other assets), the cost of acquisition is adjusted using the Cost Inflation Index (CII) published by the CBDT each year:
Indexed Cost = Original Cost × (CII of Year of Sale / CII of Year of Purchase)
Indexation increases the effective cost, reducing the taxable gain — beneficial for assets held over many years of inflation.
Grandfathering for equity shares (Section 112A): For equity shares and equity mutual funds, the cost basis for shares held before 31 January 2018 is the fair market value (FMV) as on 31 January 2018 (if FMV is higher than actual cost) or actual cost — whichever is lower. This limits the retrospective application of the 12.5% LTCG tax introduced in Budget 2018.
Exemptions on LTCG
Several exemptions under the Income Tax Act allow taxpayers to avoid LTCG by reinvesting the gains:
Section 54: LTCG on sale of a residential property (house) is exempt if the gains are reinvested in purchasing or constructing another residential house property within specified timelines (2 years for purchase, 3 years for construction). Cap of ₹10 crore per taxpayer per lifetime applies.
Section 54F: LTCG from any long-term capital asset (other than house property) is exempt if the net sale consideration is invested in a residential house property.
Section 54EC: LTCG from immovable property can be exempted up to ₹50 lakh by investing the gains in specified bonds (currently NHAI or REC bonds) within 6 months of the sale. Bonds must be held for 5 years.
Section 54B: LTCG on agricultural land reinvested in agricultural land.
These exemptions come with conditions and time limits. Failing to complete reinvestment in time results in the exemption being withdrawn and the gain becoming taxable with interest.
Set-Off and Carry Forward of Capital Losses
Set-off: Long-term capital losses can only be set off against long-term capital gains in the same year. They cannot be set off against short-term gains or income under any other head.
Carry forward: If LTCG is insufficient to absorb the long-term capital loss in the current year, the balance is carried forward for up to 8 assessment years and can be set off against future LTCG.
To carry forward capital losses, the ITR must be filed by the due date (31 July for non-audit individuals). A belated return loses the right to carry forward losses.
LTCG for NRIs
NRIs are taxed on LTCG from Indian assets at the same rates as residents. However, TDS is deducted at source — the buyer of the asset (e.g., the purchaser of the NRI's property) is required to deduct TDS on the sale consideration and deposit it with the tax department. The NRI can then file an ITR to claim credit for the TDS and obtain a refund if excess has been deducted.