Capital gains tax in India: meaning, types and computation

What is a capital asset?

Section 2(14) defines a capital asset as property of any kind held by a taxpayer, whether or not connected with business. It covers immovable property, shares and securities, mutual fund units, gold, jewellery, paintings, trademarks, leasehold rights and even rights in or in relation to an Indian company. The definition is wide, but the Act carves out specific exclusions:

• Stock-in-trade, raw material and consumables held for business or profession (taxed as business income instead).
• Movable personal effects such as furniture, a car or clothing – but jewellery, archaeological collections, drawings, paintings and sculptures remain capital assets.
• Rural agricultural land in India, i.e. land outside notified municipal limits and the prescribed distance bands.
• Certain gold bonds and Gold Monetisation Scheme deposit certificates.

Short-term vs long-term classification

Since the Finance (No. 2) Act, 2024, only two holding periods exist, and they apply throughout FY 2025-26:

Asset	Short-term if held up to	Long-term if held more than
Listed shares, equity mutual funds, listed bonds, REIT/InvIT units	12 months	12 months
Land, buildings, unlisted shares, gold, foreign shares, other assets	24 months	24 months
Specified (debt) mutual funds bought on or after 1 April 2023	Always short-term under section 50AA

Classification matters because short-term gains are usually taxed at slab rates (20% for STT-paid equity), while long-term gains enjoy the concessional 12.5% rate and, for listed equity, a Rs 1.25 lakh annual exemption.

How to compute capital gains: step by step

• Step 1 – Full value of consideration: the sale price or, for land and buildings, the higher of sale price and stamp duty value where the safe-harbour margin is crossed.
• Step 2 – Deduct transfer expenses: brokerage, legal fees, advertisement and similar costs incurred wholly for the transfer.
• Step 3 – Deduct cost of acquisition: what you paid for the asset, including stamp duty and registration at purchase.
• Step 4 – Deduct cost of improvement: capital expenditure that added to the asset's value, such as construction of an extra floor (routine repairs do not count).
• Step 5 – Apply exemptions: reduce eligible reinvestment under sections 54, 54F or 54EC.
• Step 6 – Apply the rate: slab or special rate based on classification – the full matrix is in our rates guide.

For transfers on or after 23 July 2024, indexation using the Cost Inflation Index is generally no longer available. The single exception: resident individuals and HUFs selling land or a building acquired before 23 July 2024 may pay the lower of 12.5% without indexation or 20% with indexation.

Cost of acquisition: special situations

• Gift, will or inheritance: your cost is the previous owner's cost, and the previous owner's holding period counts towards yours.
• Grandfathered listed equity: for STT-paid shares and equity funds bought on or before 31 January 2018, cost is stepped up to the 31 January 2018 fair market value (capped at sale price) under section 112A.
• Bonus shares: cost is nil if allotted after 1 April 2001; the holding period runs from allotment.
• Assets bought before 1 April 2001: you may substitute the fair market value on 1 April 2001 (for land and buildings, capped at stamp duty value) as cost.
• Advance money forfeited on or after FY 2014-15 is taxed as other sources income when received and is not reduced from cost again.

Examples

Exemptions in brief

Long-term gains can escape tax if reinvested: section 54 (house to house), section 54F (any long-term asset to a house, when you own not more than one other house), section 54B (agricultural land) and section 54EC (land or building gains into notified bonds, up to Rs 50 lakh, 5-year lock-in). Unutilised amounts can be parked in the Capital Gains Account Scheme before the ITR due date. Full conditions and timelines are in our section 54, 54F and 54EC guide.

Which ITR form and schedules?

• ITR-2 for individuals/HUFs with capital gains and no business income; ITR-3 if business or professional income exists.
• Schedule CG captures each asset class separately; land or building transfers must be entered property-wise.
• Schedule 112A needs scrip-wise details of STT-paid equity sales.
• Losses flow through Schedules CYLA, BFLA and CFL for set-off and carry-forward (up to 8 years, only if you file on time).
• Cross-check every entry against your AIS and TIS before submitting.

Common mistakes to avoid

• Using the pre-2024 36-month holding period or old 15%/10% equity rates – current rules are in the AY 2026-27 rates guide.
• Indexing the cost of gold, unlisted shares or equity – indexation now survives only in the land/building option for residents.
• Forgetting transfer expenses and improvement costs, which legitimately reduce the gain.
• Ignoring stamp duty value rules on property sales, which can raise the deemed sale consideration.
• Treating crypto profits as normal capital gains – virtual digital assets follow a separate flat 30% regime covered in our crypto and VDA guide.

Frequently asked questions

What is a capital asset under the Income-tax Act?

Property of any kind held by a taxpayer – land, buildings, shares, units, gold, jewellery – excluding stock-in-trade, ordinary personal effects and rural agricultural land in India.

How is a gain classified as short-term or long-term in FY 2025-26?

Listed securities are long-term after 12 months; all other assets after 24 months.

How is capital gain computed?

Sale consideration minus transfer expenses, cost of acquisition and cost of improvement, less any reinvestment exemption.

What is cost of acquisition for inherited or gifted assets?

The previous owner's cost, with the previous owner's holding period added to yours.

Is there any exemption from capital gains tax?

Yes – sections 54, 54F and 54EC allow exemption when gains are reinvested in a house or notified bonds within the prescribed time.

Where are capital gains reported in the income tax return?

In Schedule CG (and Schedule 112A for listed equity) of ITR-2, or ITR-3 if you have business income.

Get help computing your capital gains

All India ITR can identify the right classification, compute cost of acquisition for inherited and grandfathered assets, apply exemptions and file your capital gains return accurately.

Get capital gains ITR filing help

Sources reviewed

• CBDT FAQs on the new capital gains tax regime (PIB, Ministry of Finance)
• Income Tax Department: Exemptions from capital gains
• Income Tax Department: File ITR-2 Online user manual

This page explains the general framework of capital gains taxation for FY 2025-26 (AY 2026-27), last reviewed on 10 June 2026. Outcomes depend on dates of acquisition and transfer, residential status and documentation; confirm your facts with an All India ITR expert before filing.