Long-Term Capital Gains (LTCG): Tax Rates, How to Calculate, Exemptions and Examples

Long Term Capital Gains (LTCG) arise from sale of stocks, properties etc., held longer than 24 months. 12.5% tax is applicable on long-term capital gains. However, for listed equity shares and equity-oriented funds Rs. 1.25 lakhs exemption is available.

Budget 2026 Update

It has been proposed to tax buyback of shares as Capital Gains Income. 

What is Long-term Capital Gain (LTCG)?

• Capital gains or profits arising from the transfer of Long-Term Capital Assets is referred to as Long-Term Capital Gains or LTCG. 
• An asset held for more than 24 months is termed as a long term capital asset.
• For listed equity shares, equity oriented funds, and units of business trust, the holding period is 12 months. (if held for more than 12 months, they are considered long term capital assets)

Long-term Capital Gain (LTCG) Tax Rate 

The following tax rates are applicable to long-term capital gains:

* - 20% tax rate with indexation benefits available for resident individuals and HUFs whose assets were purchased before 23rd July 2024.

**- Exemption up to Rs. 1.25 lakhs available for listed equity shares, equity oriented funds and units of business trust.

Calculation of LTCG Tax

To calculate the long-term capital gains accurately, follow the steps mentioned below:

Step 1: Determine the Full value of consideration

The total amount received from the transfer of capital assets. It includes the monetary payment received or fair market value in certain specified circumstances.

Step 2: Determine the Net value of Consideration

The net value of consideration is determined by deducting expenses related to transfer such as commission, brokerage, etc.

Step 3: Calculate the Cost of Acquisition 

The purchase price of the asset is to be determined, and in the case of assets which get indexation benefits (like immovable property), we have to adjust the cost of acquisition using the Cost Inflation Index, which the government notifies every year. Indexation benefit has been removed for transfer made after 23rd July, 2024.

The formula for calculating the indexed cost of acquisition is:

Indexed cost of acquisition = Cost of acquisition x (CII of the year of transfer / CII of the year of acquisition)

Note: The benefit of indexation is available only for individuals and HUF on sale of land and building.

Step 4: Deduct exemptions under section 54/54B/54D/54EC/54F

Certain types of long-term capital gains may be eligible for exemptions under specific conditions (e.g., reinvestment in certain assets like residential property).

Step 5: Long-Term Capital Gains chargeable to tax

The long-term capital gains chargeable to tax formula is:

LTCG chargeable to tax = Net sale consideration - Cost of Acquisition - Cost of Improvement - Capital Gain Exemptions 

Step 6: Long Term Capital Gains Tax

12.5% tax rate is applied on LTCG amount chargeable to tax. If the indexation benefit is applied, 20% tax rate is applied. If listed equity shares, equity oriented mutual funds are sold, Rs. 1.25 lakhs exemption can be applied.

The computation of long-term capital gain can be best understood through the following table:

* Indexation benefit removed for sale made from 23rd July, 2024  - but made available only for land and building by resident individuals and HUF.

Indexation Benefits

• Long term capital assets are usually held for a many years. During this period inflation increases the gap between the purchase and the sale price.
• Using indexation benefits, the taxpayers can adjust the purchase price to the inflation level of date of sale.
• As per Budget 2024 changes, indexation benefits for long term capital gains are removed. All the LTCG is taxable at 12.5% without indexation benefits.
• For real estate property sold by resident individuals and HUF, indexation benefits can be claimed if the property was purchased before 23rd July 2024.

Long-term Capital Gain Tax Exemptions

• There are various exemptions available under the Income-tax Act that help reduce the LTCG chargeable to tax if the capital gain amount is reinvested in certain specific assets or instruments. 
• Certain conditions have to be fulfilled to claim deductions against capital gains.
• Popular LTCG exemptions are tabulated below:

*- For the current tax filing season, you still have to refer to sections under Income Tax Act 1961, as it is still applicable for income earned up to 31st March 2026.

Long-term Capital Gain Example (With Indexation)

John bought a house in 2005 for Rs. 20 lakhs. He sold it in August 2025 for Rs. 65 lakhs. Now he has an option of choosing the tax rate of 12.5% without indexation or 20% with indexation. The Cost Inflation Index (CII) for 2005-06 is 117 and for 2025-26 is 376. 

The Long-Term Capital Gains will be calculated as follows:

As indexation benefit has been considered in the above example, the tax on said transfer will be applicable at the rate of 20%.

Long-term Capital Gain Example (Without Indexation)

John bought a house in 2005 for Rs. 20 lakhs. He sold it in August 2025 for Rs. 65 lakhs. The Long-Term Capital Gains without indexation will be calculated as follows:

Since the indexation benefit has not been availed, the capital gain of Rs. 45,00,000 will be taxed at 12.5%. 

Capital Gains Account Scheme

• The amount should be invested in the new capital asset within the due date of filing the return or the return filing date, whichever is earlier.
• If the taxpayer is unable to invest the amount in the manner prescribed, he can park those funds in the Capital Gains Account Scheme.
• Deposit should be made within the due date of filing of return or the return filing date, whichever is earlier.

LTCG Tax on Specific Assets

Long-term Capital Gain Tax on Shares

• Listed equity shares qualify as Long-Term Capital Assets if held for at least 12 months. It is determined by subtracting the purchase price from the sale price of shares held for over a year.
• In contrast, gains from unlisted equity shares are categorized as Long-Term only if the holding period is a minimum of 24 months.
• The gain reflects the investor's net profit from the sale of the shares.

Long-term Capital Gain Tax on Property

• Long-Term Capital Gain arises from selling property held for more than 24 months. 
• The tax rate shall be 12.5% without the indexation benefit. 
• There are certain exemptions available to further reduce your LTCG chargeable to tax.
• In case of a sale of land and building made after 23rd July 2024, the taxpayer will have the option to pay tax at 20% with indexation benefit and at 12.5% without indexation benefit if such land/building had been acquired on or before 22nd July 2024.

Clarifications on Treatment of Certain Assets

• It was clarified that ULIPs with premiums exceeding 10% of the policy’s sum assured, alongside those with annual premiums above Rs. 2.5 lakh  - the maturity proceeds should be treated as capital gains.
• It is proposed to amend Section 2(14) to clarify that securities held by investment funds under Section 115UB, will be treated as capital assets.

How to Fill Long-term Capital Gain in ITR-2?

The details of capital gains during the year are to be filled in the Schedule CG of Part A of Form ITR-2. The total amount of capital gains shall be filled in the Part B - Total income which will be auto-populated from the details you filled in the other schedules.

Final Word

By investing in the right assets and holding it for enough period so as to qualify as long term capital assets, siginficant tax outflow can be saved, since the long term capital gains are mostly taxed at 12.5%. One of the overlooked parts of return on investments is taxation on returns. Optimising the holding period is essential to ensure lower tax outgo, and higher post tax returns.