Capital Gain Taxation
Capital gains arise when a capital asset is transferred and the resulting profit or gain becomes chargeable to tax under the applicable provisions of the Income-tax Act.
Capital assets may include shares, securities, mutual funds, land, buildings, gold, jewellery, bonds, debentures and other investments or assets covered by the income-tax provisions.
The Income-tax Act, 2025 provides the capital-gains framework applicable from Tax Year 2026-27. It contains provisions dealing with computation of capital gains, cost of acquisition, special assets, exemptions, valuation and applicable tax rates.
Investax India provides end-to-end Capital Gain Taxation services, including transaction-wise calculation, short-term and long-term classification, property taxation, securities taxation, exemption analysis, capital-loss set-off, tax planning and Income Tax Return reporting.
Capital Gains Under the Income-tax Act, 2025
The Income-tax Act, 2025 applies from 1 April 2026 and introduces the Tax Year concept.
For Tax Year 2026-27 and subsequent tax years, capital gains are governed by the capital-gains provisions of the Income-tax Act, 2025, subject to applicable transitional provisions.
The new framework contains provisions covering the chargeability and computation of capital gains, special rules for specified assets, exemptions and special rates of tax.
Important Capital Gain Sections Under the Income-tax Act, 2025
Section 67
Provides the principal charging provision for income arising under the head Capital Gains.
Section 70
Provides provisions concerning transactions that are not regarded as transfers for capital-gains purposes.
Section 72
Provides the principal mechanism for computation of capital gains.
Sections 73–75
Deal with cost of acquisition and special computation provisions including depreciable assets.
Section 76
Contains special provisions for specified mutual funds, Market Linked Debentures and certain bonds and debentures.
Sections 77–81
Contain special computation and valuation provisions for specified transactions.
Sections 82–89
Provide specified capital-gains exemption and reinvestment provisions.
Sections 196–198
Provide special tax-rate provisions for specified short-term and long-term capital gains.
Section 67 – Chargeability of Capital Gains
Section 67 provides the principal framework for charging income arising from the transfer of capital assets under the head Capital Gains.
The nature of the asset, the transfer, the consideration received or accruing and the applicable computation provisions must be examined to determine the taxable capital gain.
Section 72 – Computation of Capital Gains
Section 72 provides the principal framework for calculating capital gains.
Broadly, the computation involves determining the applicable consideration and deducting the amounts permitted under the relevant provisions, including:
- Eligible expenditure incurred wholly and exclusively in connection with the transfer;
- Cost of acquisition; and
- Cost of improvement.
The applicable computation method can vary depending on the asset, date of acquisition, date of transfer and specific provisions applicable to the transaction.
Short-Term Capital Gain and Long-Term Capital Gain
Capital gains are generally classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG).
The classification depends on the holding-period rules applicable to the particular type of capital asset.
The holding period should therefore be determined separately for each category of asset rather than applying one common period to shares, mutual funds, property, gold and other investments.
Section 196 – Short-Term Capital Gains on Specified Securities
Section 196 provides a special tax-rate framework for specified short-term capital gains.
Subject to the conditions prescribed under the section, short-term capital gains arising from specified equity shares, equity-oriented fund units and business-trust units are generally taxable at 20%.
The applicable Securities Transaction Tax conditions and other requirements must be examined before applying the special rate.
Section 197 – Long-Term Capital Gains
Section 197 provides the special-rate framework for specified long-term capital gains.
Long-term capital gains covered by the applicable provision are generally subject to a 12.5% tax rate, subject to the specific provisions, exceptions and conditions applicable to the transaction.
Section 198 – Long-Term Capital Gains on Specified Equity Investments
Section 198 provides the special tax treatment for eligible long-term capital gains arising from specified equity investments, including eligible equity shares, equity-oriented fund units and business-trust units.
For eligible gains covered by Section 198, the special rate is generally 12.5% on the amount exceeding the applicable threshold of ₹1,25,000, subject to the conditions prescribed under the law.
Special Rule for Property Purchased Before 23 July 2024
One of the most important capital-gains provisions for property owners relates to land or building or both acquired before 23 July 2024.
For an eligible resident individual or resident HUF transferring such property on or after 23 July 2024, the law provides a grandfathering mechanism to protect against a higher tax liability arising solely from the change in the capital-gains regime.
The tax liability is determined by comparing:
- The tax calculated under the applicable 12.5% long-term capital-gains method without indexation; and
- The tax calculated at 20% using the indexed cost under the prescribed grandfathering computation.
Where the tax calculated under the 12.5% method is higher than the tax under the 20% indexed method, the excess is ignored in accordance with the applicable grandfathering provision.
Therefore, an eligible taxpayer should have both calculations prepared before determining the final capital-gains tax liability.
How the Property Grandfathering Calculation Works
Calculation A – 12.5% Without Indexation
Calculate the long-term capital gain using the applicable unindexed cost of acquisition and cost of improvement.
The resulting taxable gain is considered under the applicable 12.5% long-term capital-gains rate.
Calculation B – 20% With Indexation
Calculate the long-term capital gain using the eligible indexed cost of acquisition and indexed cost of improvement.
The resulting gain is considered at the 20% rate for the grandfathering comparison.
The applicable tax liability is determined after comparing the two prescribed computations. This is particularly important for long-held property where indexation can materially affect the taxable gain.
The current AY 2026-27 ITR framework contains specific validation rules for this property comparison and separately restricts the indexation benefit for non-residents. :contentReference[oaicite:2]{index=2}
Capital Gains on Shares and Equity Investments
Shares and eligible equity investments can attract special short-term and long-term capital-gains rates where the prescribed conditions are satisfied.
Investax India can assist with:
- Broker statement reconciliation;
- Contract-note verification;
- Purchase and sale transaction analysis;
- STCG and LTCG classification;
- Special-rate calculation;
- Capital-loss set-off; and
- Income Tax Return reporting.
Capital Gains on Mutual Funds
Mutual-fund capital gains depend on the nature of the fund, acquisition date, transfer date and applicable statutory provisions.
Special attention is required for specified mutual funds covered by Section 76, which contains specific rules for determining their tax treatment.
Investax India can reconcile mutual-fund capital-gains statements and calculate taxable gains and losses for Income Tax Return filing.
Capital Gains on Land and Buildings
Sale of land, residential property or commercial property can result in taxable capital gains.
The computation may require consideration of:
- Purchase price;
- Acquisition date;
- Sale consideration;
- Transfer expenses;
- Cost of improvement;
- Stamp-duty valuation;
- Applicable fair-market-value provisions;
- Holding period;
- Eligible exemptions; and
- Applicable capital-gains rate.
Property acquired before 23 July 2024 should receive additional attention because the applicable grandfathering comparison may materially affect the tax computation.
Capital Gains on Gold and Jewellery
Sale or transfer of gold, jewellery and other capital assets may give rise to taxable capital gains.
Proper purchase invoices, acquisition dates, valuation records, improvement or making charges and sale documentation should be maintained to support the computation.
Capital Gains on Bonds and Debentures
Bonds and debentures require asset-specific tax analysis because certain instruments are subject to special capital-gains provisions.
Section 76 contains special provisions relating to specified mutual funds, Market Linked Debentures and certain unlisted bonds and debentures.
Capital Gains on Foreign Assets
Transfer of foreign shares, securities, property and other overseas assets may have Indian tax implications depending on the taxpayer's residential status and the applicable provisions.
The analysis may also require consideration of:
- Residential status;
- Foreign currency conversion;
- Double Taxation Avoidance Agreement provisions;
- Foreign tax credit;
- Foreign asset reporting; and
- Applicable regulatory requirements.
Capital Gain Exemptions
The Income-tax Act, 2025 contains specified provisions for exemptions and reinvestment of capital gains.
Depending on the nature of the asset and transaction, the relevant provisions may include sections within the capital-gains exemption framework, particularly Sections 82 to 89.
Eligibility depends on the type of asset transferred, amount of gain, nature and timing of reinvestment and fulfilment of all prescribed conditions.
Taxpayers should therefore establish eligibility before relying on an exemption.
Capital Loss Set-Off and Carry Forward
Capital losses should be correctly classified and reported because their future set-off depends on the applicable provisions.
- Short-term and long-term capital losses should be separately identified.
- Eligible current-year losses may be set off against permitted capital gains.
- Eligible unabsorbed capital losses may be carried forward subject to the applicable conditions.
- Brought-forward capital losses from earlier years may remain relevant under the new framework, subject to transitional rules.
Accurate reporting of capital losses is particularly important for investors with frequent securities transactions or substantial property transactions.
Our Capital Gain Taxation Services
Capital Gain Calculation
Transaction-wise calculation of taxable capital gains and capital losses.
Shares & Securities
STCG and LTCG calculation for eligible shares and securities.
Mutual Funds
Capital-gains computation and reconciliation of mutual-fund transactions.
Property & Land
Property capital-gains computation including the pre-23 July 2024 grandfathering comparison.
Gold & Jewellery
Calculation and documentation support for gold and jewellery transactions.
Bonds & Debentures
Review of applicable special provisions and tax treatment.
Foreign Investments
Capital-gains calculation and reporting for eligible overseas assets.
Tax Planning
Review of exemptions, losses, reinvestment and applicable tax computation methods.
Capital Gain Tax Planning
Capital-gain tax planning should ideally begin before an asset is transferred. The tax impact can depend on the asset, acquisition date, transfer date, holding period, taxpayer status and applicable provisions.
Our review may include:
- Short-term versus long-term classification;
- Applicable tax rate;
- Cost of acquisition;
- Cost of improvement;
- Transfer expenses;
- Property valuation;
- Pre-23 July 2024 property grandfathering calculation;
- Capital-gain exemptions;
- Capital-loss set-off;
- Reinvestment options; and
- Income Tax Return reporting.
Capital Gain Tax Calculation Process
- Identify the Asset
Determine whether the transaction involves shares, mutual funds, property, gold, bonds or another capital asset. - Verify Acquisition Details
Establish the acquisition date, purchase price and applicable cost information. - Verify Transfer Details
Determine the transfer date, sale consideration and eligible transfer expenses. - Determine Holding Period
Apply the holding-period rules relevant to the particular asset. - Calculate Capital Gain or Loss
Apply Section 72 and any applicable special computation rules. - Check Special Provisions
Review provisions applicable to the particular asset, including Section 76 and valuation provisions where relevant. - Check Exemptions
Review eligible capital-gain exemptions and reinvestment provisions. - Check Capital Losses
Consider current-year and eligible brought-forward losses. - Apply the Correct Tax Rate
Apply the applicable special-rate provision, including Sections 196, 197 or 198 where relevant. - Complete ITR Reporting
Report the capital gain or loss in the appropriate Income Tax Return and capital-gains schedules.
Documents Generally Required
- Purchase invoices and agreements
- Sale agreements and transfer documents
- Broker contract notes
- Demat statements
- Mutual-fund capital-gains statements
- Property purchase documents
- Property sale documents
- Stamp-duty and registration documents
- Improvement and renovation records
- Gold and jewellery invoices
- Bond and debenture statements
- Foreign investment statements, where applicable
- Previous Income Tax Returns
- Details of brought-forward capital losses
- Bank statements and transaction records
Capital Gains and Income Tax Return Filing
Capital gains must be reported in the appropriate Income Tax Return and applicable capital-gains schedules.
For AY 2026-27, the Income Tax Department's ITR framework includes revised capital-gains reporting requirements. The Department has also removed the requirement to bifurcate Schedule CG reporting merely by whether the transfer occurred before or after 23 July 2024. :contentReference[oaicite:3]{index=3}
However, the special property grandfathering calculation for eligible residents remains relevant where the property was acquired before 23 July 2024. The prescribed ITR validations specifically incorporate the comparison of the indexed 20% calculation with the 12.5% calculation without indexation. :contentReference[oaicite:4]{index=4}
Correct reporting is especially important where the taxpayer has multiple investments, property transactions, brought-forward losses, foreign assets or transactions subject to different capital-gains rates.
Why Choose Investax India?
- Transaction-wise capital-gains calculation
- Support for shares and securities
- Mutual-fund capital-gains reconciliation
- Property and land capital-gains analysis
- Pre-23 July 2024 property tax comparison
- Gold and jewellery taxation support
- Capital-loss set-off and carry-forward review
- Exemption and reinvestment analysis
- Foreign investment capital-gains support
- Income Tax Return reporting
Frequently Asked Questions
What is Capital Gain Tax?
Capital Gain Tax is tax on taxable gains arising from the transfer of a capital asset, subject to the applicable provisions, exemptions and special rates.
Which provisions of the Income-tax Act, 2025 deal with Capital Gains?
The principal capital-gains provisions begin with Section 67 and extend through the capital-gains chapter, including provisions dealing with computation, special assets, exemptions and valuation. Sections 196 to 198 provide special tax-rate provisions for specified capital gains.
What is Section 72 of the Income-tax Act, 2025?
Section 72 provides the principal framework for computing capital gains, including the applicable consideration, transfer expenses and eligible cost deductions.
What is the tax rate for specified short-term capital gains?
Eligible short-term capital gains covered by Section 196 are generally taxable at 20%, subject to the conditions prescribed under that section.
What is the general long-term capital-gains rate?
Long-term capital gains covered by the applicable special provisions are generally taxed at 12.5%, subject to the specific conditions and exceptions applicable to the asset.
If I bought a property before 23 July 2024, can I get the benefit of indexation?
For an eligible resident individual or resident HUF with land or building acquired before 23 July 2024 and transferred on or after that date, the prescribed grandfathering mechanism requires comparison of the tax under the 12.5% method without indexation and the 20% method using indexed cost. If the 12.5% calculation produces a higher tax, the excess is ignored under the applicable provision.
Is the pre-23 July 2024 indexation benefit available to non-residents?
The current AY 2026-27 ITR validation rules specifically provide that indexation should not be allowed for non-residents under this property comparison. The taxpayer's residential status should therefore be verified before applying the grandfathering calculation.
Does the pre-23 July 2024 rule apply to shares and mutual funds?
The special grandfathering comparison discussed on this page is specifically relevant to eligible land or building acquired before 23 July 2024. It should not be treated as a general indexation option for every capital asset.
Are capital-gain exemptions available under the new Act?
Yes. The Income-tax Act, 2025 contains specified exemption and reinvestment provisions in its capital-gains framework, subject to the conditions applicable to each provision.
Can capital losses be carried forward?
Eligible capital losses may be carried forward and set off subject to the applicable provisions, conditions and prescribed time limits.
Can Investax India calculate my property capital gains?
Yes. Investax India can calculate the capital gain, examine eligible exemptions and, where applicable, prepare the pre-23 July 2024 indexed and unindexed comparison for eligible resident taxpayers.
Can Investax India calculate capital gains on shares and mutual funds?
Yes. We can reconcile investment statements and calculate applicable short-term and long-term capital gains and losses for Income Tax Return reporting.
Plan Your Capital Gains Before You Sell
Capital-gains taxation can vary significantly depending on the asset, acquisition date, transfer date and taxpayer status.
This is particularly important for property acquired before 23 July 2024, where eligible resident individuals and HUFs may need to compare the 12.5% unindexed calculation with the 20% indexed calculation.
Investax India can help you calculate the applicable capital gain, review exemptions and losses, determine the relevant tax treatment and report the transaction correctly in your Income Tax Return.
Planning to sell property, shares, mutual funds, gold, bonds or another investment? Connect with Investax India for Capital Gain Taxation and Income Tax compliance support.
Disclaimer
Capital-gains taxation depends on the nature of the asset, acquisition date, transfer date, taxpayer status, residential status and provisions applicable to the relevant Tax Year. Tax rates, exemptions, valuation rules and other provisions may change through legislation, rules or notifications. This page is for general information and should not be treated as transaction-specific tax advice.