What is Capital Gains?

A capital gain is the profit from selling a capital asset such as shares, mutual funds or property, taxed at rates that depend on how long the asset was held.

Since 23 July 2024 the holding periods are simplified to two: twelve months for listed securities and twenty-four months for everything else. Short-term gains on listed equity are taxed at 20% and long-term at 12.5%, with the first ₹1,25,000 of long-term equity gains exempt each year.

Indexation was withdrawn for most assets from that date. Land and buildings acquired before it keep a choice: 20% with indexation or 12.5% without.

Why it matters

Every share and mutual fund sale now appears in your AIS. Gains the department can see and you did not declare are the most common cause of a mismatch notice.

A worked example

A flat bought in 2015 for ₹30,00,000 is sold in 2025 for ₹75,00,000, with ₹1,50,000 of brokerage on the sale.

Illustrative figures. Your own numbers will differ — that is what the quote is for.
Sale consideration	₹75,00,000
Less transfer expenses	₹1,50,000
Net consideration	₹73,50,000
Cost of acquisition	₹30,00,000
Holding period	About 10 years — long term
Long-term gain before exemption	₹43,50,000
Rate on long-term gain on immovable property	12.5% without indexation

The gain can be reduced or eliminated by reinvesting under section 54 in a residential house, or under 54EC in specified bonds within six months up to ₹50 lakh. Those decisions have deadlines that begin at the sale date, which is why they need to be made before the money is spent on something else.

The statutory position

Each figure with the provision it comes from, so it can be checked.
What	Position	Source
Long-term holding period, immovable property	24 months	Section 2(42A), Income-tax Act 1961
Long-term holding period, listed shares and equity funds	12 months	Section 2(42A), proviso
Long-term rate on listed equity	12.5% above the ₹1,25,000 annual exemption	Section 112A as amended by Finance (No. 2) Act 2024
Short-term rate on listed equity	20%	Section 111A as amended by Finance (No. 2) Act 2024
Section 54EC bond limit	₹50,00,000, invested within 6 months	Section 54EC, Income-tax Act 1961
TDS on property purchase	1% where consideration is ₹50,00,000 or more	Section 194-IA, Income-tax Act 1961

Not to be confused with

These get used interchangeably, including by tools that should know better. They are different things.

Business income

Frequent, systematic trading can be assessed as business income rather than capital gains, which changes the rate and allows expenses to be deducted. The distinction turns on volume, holding period and intent.

Sale consideration

The gain is not the sale price. It is the sale price less cost of acquisition, cost of improvement and transfer expenses — a distinction the AIS does not make, since it reports the consideration.

Questions people ask

Can I avoid the tax by buying another house?

Section 54 exempts a long-term gain on a residential house reinvested in another residential house, bought within two years or constructed within three. Where the new house is not bought before the filing due date, the money must go into a Capital Gains Account Scheme deposit to preserve the exemption.

What happens if I sell at a loss?

A long-term capital loss can be set off only against long-term gains; a short-term loss against either. Unabsorbed losses carry forward for eight years — but only if the return is filed by the due date, which is the reason a loss year should never be filed late.

What usually goes wrong

Reporting the AIS sale consideration as the gain
Missing the Capital Gains Account Scheme deposit, and losing a section 54 exemption that was otherwise available
Filing a loss year late and losing the carry-forward entirely
Forgetting the buyer's 1% TDS under section 194-IA, which shows in 26AS and has to be reconciled