Key Takeaways

Capital gains arise on transfer of a capital asset and are classified as Short-Term (STCG) or Long-Term (LTCG) based on the holding period under Section 67 of the Income Tax Act, 2025 (previously Section 45).
From Tax Year 2024-25 (Budget 2024 changes effective 23.07.2024), LTCG on all assets is taxed at 12.5% and STCG on listed equity is taxed at 20%.
Indexation benefit has been removed for all asset transfers from 23.07.2024. The cost is taken without indexation.
LTCG exemption on listed equity above Rs. 1.25 lakh is taxable under Section 198 of the Income Tax Act, 2025 (previously Section 112A).
Exemptions under Sections 82, 86, and 85 (previously Sections 54, 54F, and 54EC) continue to provide relief on reinvestment.

Income Tax Act, 2025 Update: Under the Income Tax Act, 2025, capital gains provisions previously under Sections 45-55 of the Income Tax Act, 1961 are now under Sections 67-91 (Part D of Chapter IV). Section 45 is now Section 67. Section 46 is now Section 68. Section 47 (transfers not regarded as transfer) is now Section 70. Section 48 (computation) is now Section 72. Section 49 (cost of acquisition) is now Section 73. Section 50 is now Section 74. Section 50B is now Section 77. Section 50C is now Section 78. Section 54 is now Section 82. Section 54B is now Section 83. Section 54D is now Section 84. Section 54EC is now Section 85. Section 54F is now Section 86. Section 55 is now Section 90. The Budget 2024 changes (uniform 12.5% LTCG, removal of indexation, higher 20% STCG on listed equity) continue to apply. The Income Tax Rules, 2026 replace the Income Tax Rules, 1962.

Capital Asset and Transfer

Capital asset (Section 2(14) of the Income Tax Act, 2025) means property of any kind held by an assessee, whether or not connected with business. It excludes:

Stock-in-trade, consumable stores, raw materials
Personal effects (movable property for personal use) except jewellery, archaeological collections, drawings, paintings, sculptures, or art works
Agricultural land in rural India (outside specified municipal limits)

Transfer (Section 2(47) of the Income Tax Act, 2025) includes sale, exchange, relinquishment, extinguishment of rights, compulsory acquisition, and conversion of capital asset into stock-in-trade.

Holding Period Classification (Post 23.07.2024)

| Asset Type | STCG if held for | LTCG if held for | |-----------|------------------|------------------| | Listed equity shares | Up to 12 months | More than 12 months | | Equity-oriented mutual fund units | Up to 12 months | More than 12 months | | Listed bonds, debentures, Govt securities | Up to 12 months | More than 12 months | | Unlisted shares | Up to 24 months | More than 24 months | | Immovable property (land/building) | Up to 24 months | More than 24 months | | Unlisted bonds/debentures | Always STCG | Not applicable | | Other assets (gold, jewellery, etc.) | Up to 24 months | More than 24 months |

Tax Rates (Post 23.07.2024)

| Type | Tax Rate | Section (2025 Act) | Previously | |------|----------|--------------------|-----------| | STCG on listed equity / equity MF (STT paid) | 20% | 196 | 111A | | STCG on other assets | Normal slab rates | Regular | Regular | | LTCG on listed equity / equity MF (STT paid) | 12.5% (above Rs. 1.25 lakh exemption) | 198 | 112A | | LTCG on all other assets | 12.5% | 197 | 112 |

Note: No indexation is available for any asset class from 23.07.2024. Cost of acquisition is taken at actual cost (or fair market value as on specified dates for grandfathering purposes).

Grandfathering Provisions for Listed Equity (Section 198 of the Income Tax Act, 2025, previously Section 112A)

For equity shares/units acquired before 31.01.2018, the cost of acquisition is the higher of:

Actual cost of acquisition, OR
Lower of (Fair Market Value as on 31.01.2018) and (Full value of consideration on transfer)

This ensures that gains accrued up to 31.01.2018 are not taxed.

Exemptions on Reinvestment

| Section (2025 Act) | Previously | Asset Sold | Reinvestment Required | Time Limit | Maximum Exemption | |--------------------|-----------|-----------|----------------------|-----------|------------------| | 82 | 54 | Residential house (long-term) | Purchase/construct one residential house in India | Purchase: 1 year before or 2 years after; Construct: 3 years after | Proportionate to Rs. 10 crore cap on cost of new house | | 86 | 54F | Any long-term capital asset (other than house) | Purchase/construct one residential house in India | Same as Sec 82 | Proportionate; must not own more than one house on date of transfer | | 85 | 54EC | Land or building (long-term) | Investment in specified bonds (NHAI/REC/PFC/IRFC) | Within 6 months of transfer | Rs. 50 lakh |

Landmark Judgement

Case: CIT v. Balbir Singh Maini

Court: Supreme Court of India

Year: 2017

Ruling: The Supreme Court held that a Joint Development Agreement (JDA) where the landowner hands over possession to a developer does not constitute "transfer" under Section 2(47) read with Section 53A of the Transfer of Property Act if the agreement is not registered. Therefore, capital gains cannot be levied at the stage of entering into an unregistered JDA.

Impact: This ruling provided significant relief to landowners entering into development agreements. However, the legislature subsequently introduced a specific provision (now incorporated within Section 67 of the Income Tax Act, 2025, previously Section 45(5A) effective AY 2018-19) to specifically tax capital gains in JDA cases in the year of issuance of completion certificate by the competent authority. Taxpayers should structure JDA transactions considering both this ruling and the relevant provision in Section 67.

Worked Example

Mrs. Deepa sells the following assets in Tax Year 2025-26:

Asset 1: Residential flat in Mumbai

Purchased: June 2018 for Rs. 55,00,000 (stamp duty/registration: Rs. 3,50,000)
Sold: December 2025 for Rs. 1,10,00,000
Holding period: > 24 months = LTCG

| Particulars | Amount (Rs.) | |------------|-------------| | Full value of consideration | 1,10,00,000 | | Less: Cost of acquisition (no indexation post 23.07.2024) | (58,50,000) | | Less: Cost of improvement | NIL | | LTCG | 51,50,000 | | Tax at 12.5% u/s 197 | 6,43,750 |

If she reinvests in a new residential house within 2 years for Rs. 80,00,000: Exemption u/s 82 = LTCG x (Cost of new house / Net consideration) = 51,50,000 x (80,00,000 / 1,10,00,000) = Rs. 37,45,455 Taxable LTCG = 51,50,000 - 37,45,455 = Rs. 14,04,545 Tax = Rs. 14,04,545 x 12.5% = Rs. 1,75,568

Asset 2: Listed equity shares

Purchased: February 2017 for Rs. 3,00,000 (FMV on 31.01.2018: Rs. 5,00,000)
Sold: October 2025 for Rs. 8,00,000 (STT paid)
Holding period: > 12 months = LTCG under Section 198

| Particulars | Amount (Rs.) | |------------|-------------| | Sale consideration | 8,00,000 | | Cost of acquisition (grandfathered): Higher of actual (3,00,000) and lower of FMV 31.01.2018 (5,00,000) and sale price (8,00,000) = 5,00,000 | (5,00,000) | | LTCG | 3,00,000 | | Less: Exemption u/s 198 | (1,25,000) | | Taxable LTCG | 1,75,000 | | Tax at 12.5% | 21,875 |

Expert Tip

CA Vrajkishor Changani says: The removal of indexation has fundamentally changed the capital gains landscape. For properties held for very long periods, the effective tax may actually be higher now at 12.5% without indexation compared to the old 20% with indexation. Before selling a long-held property, get a comparative calculation done. Also, utilise the Rs. 50 lakh Section 85 (previously Section 54EC) bond limit fully and plan Section 82/86 (previously Section 54/54F) reinvestments carefully. Remember, the Capital Gains Account Scheme (CGAS) at a designated bank is essential if you cannot reinvest before the ITR filing date - deposit the capital gains amount and utilise within the prescribed period to save tax.

Section Interconnect

Also read: Chapter 4 - Income from House Property (sale of house property generates capital gains; reinvestment exemption available under Section 82)
Also read: Chapter 8 - Set Off and Carry Forward of Losses (LTCG can only be set off against LTCG under Section 111; STCG has different rules under Section 108)
Also read: Chapter 10 - TDS, TCS & Advance Tax (TDS on property sale under Section 393 at 1% if consideration exceeds Rs. 50 lakh)

Frequently Asked Questions

Q1: Is the Rs. 1.25 lakh exemption under Section 198 per scrip or total?

The Rs. 1.25 lakh exemption under Section 198 of the Income Tax Act, 2025 (previously Section 112A) is the aggregate exemption for the entire financial year across all listed equity shares and equity-oriented mutual fund units combined. It is not per scrip or per transaction.

Q2: Can I claim both Section 82 and Section 85 exemption on the same property sale?

Yes. You can claim exemption under Section 82 (previously Section 54) by reinvesting in a new residential house and simultaneously claim Section 85 (previously Section 54EC) by investing in specified bonds up to Rs. 50 lakh, provided the total exemption does not exceed the capital gain. These exemptions are not mutually exclusive.

Q3: How are capital gains taxed if I sell an inherited property?

The cost of acquisition of inherited property is the cost to the previous owner (from whom you inherited) as per Section 73 of the Income Tax Act, 2025 (previously Section 49). The holding period also includes the period for which the previous owner held the asset. If the previous owner acquired it before 01.04.2001, you can adopt the Fair Market Value as on 01.04.2001 as the cost under Section 90 (previously Section 55).

Disclaimer: This article is for educational purposes only and does not constitute legal or tax advice. Tax laws are subject to amendments. Please consult qualified CAs for advice specific to your situation.

Planning to sell property, shares, or other assets? Our qualified CAs at DRSPV & Associates can compute your exact capital gains liability and identify all available exemptions. Chat with us on WhatsApp for a detailed consultation.

Capital Gains - Sections 67 to 91 | STCG, LTCG, Indexation & Exemptions