Long Term Capital Gains Tax in India: The 12.5% Rules After Budget 2024

What Long Term Capital Gains Tax Means Now

Long Term Capital Gains Tax (LTCG) is the tax on the profit you make when you sell a capital asset that you held for longer than a defined period. For listed equity shares on the NSE or BSE and for equity oriented mutual funds, that period is more than 12 months. Hold for 12 months and one day or longer, sell at a profit, and the gain is a long term capital gain.

The single most important update every Indian trader must internalise is the Budget 2024 change. For transfers made on or after 23 July 2024, the LTCG rate on equity and equity funds rose from 12.5% to 12.5%, and the annual exemption rose from Rs 1 lakh to Rs 1.25 lakh. A lot of older articles, calculators and even some broker statements still quote 10% over Rs 1 lakh. That figure is now wrong for any sale dated 23 July 2024 onwards.

Why does the exact date matter so much? Because the law splits the financial year 2024 to 2025 in two. Equity sold up to 22 July 2024 is taxed under the old regime at 10% over Rs 1 lakh. Equity sold on or after 23 July 2024 falls under the new 12.5% over Rs 1.25 lakh regime. When you file your return, the schedule for capital gains asks you to bifurcate gains before and after this cut off date, so the trade date on your contract note genuinely changes your tax.

The Corrected Rates at a Glance

Here is the clean, current picture for listed equity and equity oriented funds. Treat this as the reference and discard any source that still shows 10% or 15%.

Worked Example: Selling Reliance Industries Shares

Numbers below are illustrative and not a prediction. Suppose in March 2023 you bought 500 shares of Reliance Industries on the NSE at Rs 2,300 per share. Your cost was 500 times Rs 2,300, which is Rs 11,50,000. In September 2024 you sell all 500 shares at Rs 2,950 per share, so your sale value is 500 times Rs 2,950, which is Rs 14,75,000.

Your holding period is about 18 months, comfortably more than 12 months, so this is a long term capital gain. The gross gain is Rs 14,75,000 minus Rs 11,50,000, which equals Rs 3,25,000. Because you sold in September 2024, the new regime applies. Subtract the Rs 1.25 lakh exemption: Rs 3,25,000 minus Rs 1,25,000 leaves a taxable gain of Rs 2,00,000.

LTCG tax at 12.5% on Rs 2,00,000 is Rs 25,000. Add the 4% Health and Education Cess of Rs 1,000 and your total tax is Rs 26,000 (ignoring surcharge, which only applies at higher income levels). Under the old 10% over Rs 1 lakh rule the tax on the same gain would have been 10% of Rs 2,25,000, which is Rs 22,500 plus cess. So the same trade now costs you more, which is exactly why using the correct rate matters.

STT, Brokerage and What Actually Reduces Your Gain

To qualify for the equity LTCG rate of 12.5%, the sale of listed shares must normally be subject to Securities Transaction Tax (STT) and routed through a recognised exchange. On a delivery sell, STT is currently 0.1% of the sale value, charged on both the buy and sell legs for delivery equity. STT is not allowed as a deduction in your capital gains computation, but brokerage, exchange transaction charges, GST on those charges and SEBI fees that you actually paid as part of the transfer can be reduced from the sale consideration or added to cost.

In the Reliance example, a discount broker might charge zero brokerage on delivery, but you would still pay STT of roughly Rs 1,475 on the Rs 14,75,000 sale (0.1%), plus small exchange and SEBI charges and GST. These are minor against a Rs 3.25 lakh gain, but for thinly profitable trades they matter. Keep your contract notes, because the gain you report should reflect net realised values, not screen prices.

• STT on delivery equity: 0.1% on both buy and sell. It validates the equity LTCG concession but is itself not deductible from the gain.
• Brokerage, exchange transaction charges, SEBI turnover fees and GST on these are part of transfer cost and adjust your gain.
• Stamp duty paid on purchase adds to your cost of acquisition.
• Demat and annual maintenance charges are not part of the per trade capital gains computation.

Short Term Capital Gains: Now 20%, Not 15%

If you sell listed equity or equity oriented funds within 12 months, the profit is a Short Term Capital Gain (STCG). Budget 2024 raised the STCG rate on these from 15% to 20% for transfers on or after 23 July 2024. Like LTCG, this attracts 4% cess on top. There is no Rs 1.25 lakh exemption for STCG, so it is taxed from the first rupee of gain.

Take a quick illustrative case. You buy 1,000 shares of TCS at Rs 3,600 and sell them four months later at Rs 3,900. Your gain is 1,000 times Rs 300, which is Rs 3,00,000. As a short term gain under the new regime, the tax is 20% of Rs 3,00,000, which is Rs 60,000, plus Rs 2,400 cess, totalling Rs 62,400. Under the old 15% rule it would have been Rs 45,000 plus cess. The five percentage point jump is a real cost of frequent short term churning in equities.

Why F&O Is Not Capital Gains at All

A frequent and expensive mistake is treating Futures and Options profit as capital gains. It is not. Under Indian tax law, income from trading equity F&O is treated as business income, specifically non speculative business income. That means it is added to your total income and taxed at your normal slab rate, which can be 5%, 20% or 30% plus cess depending on your bracket. The 12.5% LTCG rate and the Rs 1.25 lakh exemption simply do not apply to options or futures.

The flip side is that F&O is taxed on net profit after expenses. Brokerage, STT, exchange charges, internet, advisory fees and other genuine trading costs are deductible, and a loss can be set off and carried forward for up to eight years against business income, subject to filing the return on time. Consider an illustrative Nifty trade: you buy one lot of a Nifty 24,000 call, lot size 65, at a premium of Rs 120 and sell it the same week at Rs 200. Your gross profit is (200 minus 120) times 75, which is Rs 6,000 for that one lot. That Rs 6,000, net of costs, is business income at your slab, not a 12.5% capital gain.

Grandfathering and the 31 January 2018 Floor

When LTCG on equity was reintroduced from 1 April 2018, the law protected gains that had already built up. This is the grandfathering clause. For shares bought before 1 February 2018, your cost of acquisition for LTCG is taken as the higher of the actual cost and the lower of the fair market value as on 31 January 2018 and the actual sale price. In plain terms, gains accumulated up to 31 January 2018 are shielded, and only the appreciation after that date is taxed.

This rule still applies under the new regime. The 12.5% rate and Rs 1.25 lakh exemption sit on top of the grandfathered cost. So for very old holdings, your taxable long term gain is often far smaller than the raw difference between purchase price and sale price, because the high 31 January 2018 reference price lifts your deemed cost.

• Grandfathering applies only to equity and equity funds bought before 1 February 2018.
• Deemed cost is the higher of actual cost and the lower of (31 January 2018 fair value, sale price).
• It reduces taxable gain but does not change the rate, which is 12.5% from 23 July 2024.
• For purchases after 31 January 2018, simply use the actual cost.

Common Mistakes Traders Still Make

The biggest error in 2024 to 2025 onwards is using the old 10% over Rs 1 lakh figure for sales made after 22 July 2024. Tax software and broker P&L reports were updated mid year, and many traders carried forward stale numbers. Always check whether your sale date falls before or after the cut off and apply the right rate to each slice of gains.

Two other recurring mistakes: assuming indexation applies to equity (it never has, and from 23 July 2024 indexation was withdrawn for most other assets too, with only a narrow grandfathering option for certain old property), and treating F&O profit as a 12.5% capital gain instead of slab rate business income. A fourth is forgetting the 4% cess, which quietly raises the effective rate above the headline number.

• Using 12.5% LTCG or Rs 1.25 lakh exemption for post 22 July 2024 sales. The correct figures are 12.5% and Rs 1.25 lakh.
• Using 15% STCG instead of the current 20%.
• Expecting indexation to lower an equity gain. Equity never had indexation.
• Booking F&O profit at 12.5%. It is business income at slab rate.
• Ignoring the 4% Health and Education Cess and any surcharge.
• Forgetting that the Rs 1.25 lakh exemption is shared across all equity LTCG for the year, not per stock.

Practical Tax Planning Within the Rules

Legitimate planning starts with the annual exemption. Because the first Rs 1.25 lakh of equity long term gains each financial year is tax free, some long term investors deliberately book gains up to roughly that level each year and reinvest, resetting their cost base higher. This is sometimes called tax harvesting on the gain side. Done within your investment plan, not as forced churning, it can use an exemption that otherwise lapses unused at year end.

On the loss side, a short term capital loss can be set off against both short term and long term gains, while a long term capital loss can be set off only against long term gains. Unabsorbed capital losses can be carried forward for up to eight assessment years if you file your return by the due date. F&O losses, being business losses, follow business loss rules separately. None of this is about avoiding tax illegitimately. It is about applying the set off order the law already allows.

Sources and Further Reading

For authoritative data and the latest rules, refer to the Income Tax Department, SEBI and AMFI. You may also want to read about Short Term Capital Gains Tax and the role of SEBI in market regulation. Always confirm current rates and contract specifications on the official source before you trade.

Sources and Further Reading

For authoritative data and further reading on this topic, refer to Income Tax Department, SEBI (Securities and Exchange Board of India) and AMFI. Always confirm current rules, rates and contract specifications on the official source before you trade.