Capital gains tax rules changed meaningfully after Budget 2024, and a lot of commonly repeated advice online is now outdated. Here's how the current rules actually work.
The two key factors: asset type and holding period
How your gain is taxed depends on what you sold and how long you held it. For listed equity shares and equity mutual funds, the holding period threshold for "long-term" is 12 months. For property, gold, and most other assets, it's 24 months.
Equity and equity mutual funds
- Short-term (held 12 months or less): taxed at a flat 20%
- Long-term (held over 12 months): taxed at 12.5%, but only on gains above a ₹1.25 lakh exemption per financial year — this exemption applies per person, not per investment, so it covers your total long-term equity gains combined
Property, gold, and other assets
- Short-term (held 24 months or less): added to your regular income and taxed at your income slab rate
- Long-term (held over 24 months): taxed at 12.5%, but — this is the significant post-2024 change — without indexation benefit for assets acquired on or after 23 July 2024
Why the indexation change matters
Before Budget 2024, long-term property gains were typically taxed at 20% but with indexation — adjusting your purchase price upward for inflation before calculating the gain, which often reduced the taxable amount substantially. The new 12.5% rate without indexation can actually mean a higher effective tax in some cases, especially for property held a long time in a high-inflation period, even though the headline rate looks lower.
Property purchased before 23 July 2024 has a choice in some cases between the old and new calculation methods — this specific situation is nuanced enough that consulting a CA is genuinely worthwhile rather than guessing.
A practical planning implication
Because the ₹1.25 lakh equity LTCG exemption resets every financial year, some investors deliberately book long-term gains up to that threshold each year (and reinvest immediately) rather than letting gains accumulate untaxed for years and then facing a large tax bill on the full amount at once. This isn't right for everyone, but it's worth understanding as an option.