FAQs on Capital Gains

How Capital Gains Are Taxed in India — FAQs on Capital Gains (FY 2024-25)

Whenever you sell a capital asset — such as property, shares, mutual funds, or gold — you may earn a capital gain. These FAQs explain how capital gains are taxed under the Income-tax Act 1961, covering definitions, indexation, exemptions, and filing rules.

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Frequently Asked Questions-Capital Gains Taxation

A capital gain arises when a capital asset is transferred for a value higher than its cost of acquisition and improvement. Gains are taxable in the year of transfer.

Capital assets include land, buildings, securities (shares, bonds, mutual funds), jewellery, trademarks, and any other property. Stock-in-trade, personal effects (like furniture), and rural agricultural land are excluded.

  • Short-term: held ≤ 36 months (for listed shares or equity mutual funds ≤ 12 months).
  • Long-term: held > 36 months (for listed shares/equity MF > 12 months).
  • The holding period decides the tax rate and indexation eligibility.

Capital Gain = Full Value of Consideration − (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses).

  • Short-term: taxed at slab rates (or 15 % for equity STCG u/s 111A).
  • Long-term: 20 % with indexation (or 10 % without indexation for certain listed securities u/s 112A).

Indexation adjusts the cost of acquisition/improvement using the Cost Inflation Index (CII) to reflect inflation. Available for long-term capital assets other than specified securities taxed without indexation.

Section 54 allows exemption from long-term capital gains on sale of a residential house if the gain is reinvested in another residential house within the prescribed period (2 years for purchase / 3 years for construction).

  • 54B: sale of agricultural land → purchase of new agricultural land.
  • 54EC: invest in NHAI/REC bonds within 6 months (max ₹ 50 lakh).
  • 54F: sale of any other asset → investment in residential house.
  • 54GB: investment in eligible SME equity for business expansion.

Gains above ₹ 1 lakh from sale of listed equity shares/equity MF/units (held > 12 months) are taxed at 10 % without indexation.

  • Short-term loss: can offset any capital gain.
  • Long-term loss: can offset only long-term gains.
  • Unabsorbed losses may be carried forward up to 8 assessment years.

NRIs are taxed on Indian-source capital gains. TDS is deducted at applicable rates. Benefits of DTAA (Double Tax Avoidance Agreement) may apply to avoid double taxation.

Equity MF — STCG 15 %, LTCG 10 % > ₹ 1 lakh.
Debt MF — taxed as short-term if held ≤ 36 months; otherwise long-term 20 % with indexation.

If advance is forfeited and sale does not materialize, the forfeited amount is taxable under “Income from Other Sources” u/s 56(2)(ix).

Buyer must deduct 1 % TDS u/s 194-IA on property value ≥ ₹ 50 lakh (PAN mandatory). NRI sellers attract higher TDS as per Section 195.

  • ITR-2 — Individuals/HUF with capital gains.
  • ITR-3 — if also carrying on business/profession.
  • Use the correct schedule (Schedule CG).

Sale deed, purchase deed, cost details, improvement bills, broker charges, CII table used, and proof of investments under Sections 54 to 54F.

Pro-Tips

Capital gains tax rules vary by asset type and holding period. Plan reinvestments and documentation early to claim exemptions u/s 54–54F. Review new indexation notifications each year and verify TDS credits (Form 26AS).

Quick Checklist:
✅ Compute holding period to classify STCG/LTCG.
✅ Apply indexation where eligible.
✅ Check if Section 54/54F/54EC exemptions apply.
✅ Set off losses properly and carry forward if needed.
✅ Choose correct ITR form and report gains accurately.

Related Resources

Capital Gains – Income Tax FAQs (FY 2024-25): Clear, practical answers to how capital gains are taxed in India

From Sale to Savings: Decode Capital Gains Tax FAQs under the Income-tax Act (FY 2024-25)

Sources

Disclaimer: These FAQs are for general informational purposes only and reflect provisions of the Income-tax Act as amended by the Finance Act 2025. They are not professional advice. For case-specific guidance, consult official Income Tax Department publications or a qualified tax expert.