Capital Gains ITR Filing

Capital gains arise when you sell a capital asset — listed shares, mutual funds, property, gold, and more — for more than its cost. They're taxed differently from regular income: the rate depends on the asset and the holding period (short-term vs long-term), and several exemptions can reduce or defer the tax.

There are now only two holding periods. Twelve months makes a listed security long-term; twenty-four months does the same for everything else — property, gold, unlisted shares, bonds and debentures. That change, effective for transfers from 23 July 2024, pulled bonds, debentures and gold down from thirty-six months and put units of a listed business trust on the same twelve-month footing as listed equity.

Indexation no longer applies to a general long-term computation. The Finance (No. 2) Act, 2024 removed it when it cut the long-term rate to a flat 12.5% across every category of asset, replacing the earlier 20%-with-indexation treatment. Indexation now survives in exactly one place: as the comparison limb of the relief described below for land and buildings bought before 23 July 2024. Any advice that still starts by indexing your cost is working from a rule that was withdrawn.

The rates are short to state and easy to misapply. Short-term gains on an equity share, an equity-oriented fund unit or a business trust unit where securities transaction tax was paid are taxed at 20% (section 196 of the Income-tax Act, 2025; section 111A of the 1961 Act). Every other short-term gain — property, gold, unlisted shares, debt funds — is taxed at your ordinary slab rate, with no special rate at all. Long-term gains are 12.5% (section 197; section 112), and long-term gains on that same STT-paid equity category are 12.5% on the amount exceeding ₹1,25,000 in the year (section 198; section 112A). That ₹1,25,000 is an annual aggregate, not a per-transaction allowance, and it does not extend to property, gold, debt or unlisted shares.

Relief still exists for older property, and it is narrow. Under section 197(3), a resident individual or HUF transferring land or a building, or both, acquired before 23 July 2024 compares the tax at 12.5% without indexation against what it would have been at 20% with indexation, and the excess over the lower figure is ignored. In effect you pay the better of the two. It applies only to that class of taxpayer, only to land and buildings, and only to pre-23-July-2024 acquisitions. If your transfer falls in AY 2026-27, the equivalent relief sits in section 112 of the 1961 Act and we confirm it against that section for your specific transfer rather than assuming it carries across.

One more rule saves money for smaller taxpayers and is routinely missed. For a resident individual or HUF, where total income excluding the special-rate gains falls below the basic exemption limit, the shortfall is first absorbed against the gains and only the balance is taxed at the special rate (sections 196(2), 197(2) and 198(3)). Pulling the other way: the section 87A rebate is not available against special-rate income, so a return that looks rebate-eligible on total income can still carry real tax on the gains. Chapter VIII deductions are likewise computed on gross total income reduced by these gains.

Worked example — a year with two securities transactions, AY 2026-27. Assumptions: resident individual, new regime, salary income ₹11,00,000. Listed equity shares held 18 months sold for ₹9,00,000 against a cost of ₹5,40,000, STT paid on both acquisition and transfer — a long-term gain of ₹3,60,000. Separately, an equity mutual fund held 5 months producing a short-term gain of ₹80,000, STT paid. The long-term gain is taxed on the amount above ₹1,25,000: ₹2,35,000 at 12.5% = ₹29,375. The short-term gain is taxed at 20%: ₹80,000 × 20% = ₹16,000. The salary is taxed separately on the slabs. Health and education cess of 4% applies on the total. Neither gain qualifies for the section 87A rebate. Change the holding period of the fund from 5 months to 13 months and the ₹80,000 moves into the long-term basket, joins the ₹3,60,000, and is largely absorbed by the same ₹1,25,000 exemption — which is why the sale date matters as much as the sale price.

Worked example — a flat bought before the cut-off. Assumptions: resident individual, sale of a residential flat in tax year 2026-27 for ₹95,00,000, acquired in March 2019 for ₹52,00,000, held well beyond 24 months. The gain is long-term. Because the flat was acquired before 23 July 2024 and the seller is a resident individual, section 197(3) applies. Limb A is 12.5% of ₹43,00,000 = ₹5,37,500. Limb B is 20% of the gain recomputed using the notified cost inflation index for the years of acquisition and transfer. Whichever limb is lower is what you actually bear — if B is lower, the excess is ignored; if B is higher, A simply stands. We compute both using the index notified for your years rather than quoting a figure here, because the index is notified annually. Note separately that the buyer of a property at this value has a 1% TDS obligation of their own on consideration or stamp duty value, whichever is higher — a deduction they must report, and a credit you should see in your Form 26AS.

Some things genuinely need a look at your papers rather than a rule of thumb, and we would rather say so than guess: the reinvestment exemptions (sections 54, 54F and 54EC), surcharge on large gains, the grandfathering of equity cost as at 31 January 2018, and how long a particular loss may be carried forward. We compute these from the current provisions and your own documents at the time of filing, and we do not publish figures for them here that could go stale between now and your transfer.

We compute your gains by asset and holding period, apply the right exemptions, set off losses, and file an accurate ITR.