What Is Long-Term Capital Gain (LTCG)?
Long-Term Capital Gain (LTCG) is the profit earned from selling a capital asset that has been held for more than the prescribed holding period. In the context of Indian equity markets, a gain on listed equity shares or equity mutual fund units held for more than 12 months qualifies as LTCG.
LTCG = Sale Price − Cost of Acquisition (or Deemed Cost per grandfathering)
LTCG Tax Rate After Union Budget 2024
The Union Budget 2024 made significant changes to LTCG:
| Asset Type | Holding Period | LTCG Rate | Annual Exemption |
|---|---|---|---|
| Listed equities (NSE/BSE) | > 12 months | 12.5% | ₹1.25 lakh/year |
| Equity mutual funds | > 12 months | 12.5% | ₹1.25 lakh/year |
| REITs / InvITs | > 12 months | 12.5% | ₹1.25 lakh/year |
| Debt mutual funds | > 24 months | Slab rate | None (indexation removed) |
| Real estate | > 24 months | 12.5% (indexation removed post-2024) | None |
| Gold ETFs | > 12 months | 12.5% | None |
Key changes vs. pre-2024:
- LTCG rate raised from 10% → 12.5%
- Annual exemption raised from ₹1 lakh → ₹1.25 lakh
- Indexation benefit removed from real estate LTCG
The Grandfathering Rule (Pre-2018 Shares)
LTCG on equities was reintroduced in Budget 2018 (it was previously exempt). To protect investors who held shares before the reintroduction, a grandfathering clause applies:
For shares purchased before 31 January 2018, the cost of acquisition is the higher of:
- The actual purchase price, OR
- The closing market price on 31 January 2018
This means gains accumulated before 1 February 2018 are effectively tax-free.
Example:
- You bought Infosys at ₹500 in 2015
- Closing price on 31 January 2018: ₹1,100
- You sell in 2024 at ₹1,450
- Deemed cost = ₹1,100 (higher of ₹500 and ₹1,100)
- Taxable LTCG = ₹1,450 − ₹1,100 = ₹350/share (gains from 2015 to Jan 2018 are tax-free)
The ₹1.25 Lakh Annual Exemption — How It Works
Each financial year, your first ₹1.25 lakh of LTCG from equity is completely tax-free:
| Scenario | LTCG | Exempt | Taxable | Tax @ 12.5% |
|---|---|---|---|---|
| Partial booking | ₹80,000 | ₹80,000 | ₹0 | ₹0 |
| At threshold | ₹1,25,000 | ₹1,25,000 | ₹0 | ₹0 |
| Above threshold | ₹2,00,000 | ₹1,25,000 | ₹75,000 | ₹9,375 |
Smart LTCG Harvesting Strategy
Since the first ₹1.25 lakh is exempt each year, investors can harvest gains annually to reset cost basis and take the exemption:
- In March, identify positions with LTCG below ₹1.25 lakh
- Sell those positions — no tax payable
- Immediately repurchase the same shares
- Cost basis resets to current market price
- Repeat next year
This strategy legally reduces future LTCG tax liability at zero tax cost.
FAQ
Q: Is LTCG added to my income for tax bracket purposes? A: LTCG on equity is taxed at a flat rate (12.5%) and is not added to your regular income for slab rate calculation. It is a separate tax.
Q: Can LTCG be set off against capital losses? A: Yes. Long-term capital loss (LTCL) can be set off against LTCG. Short-term capital loss (STCL) can also be set off against LTCG.
Q: Do I pay LTCG if I hold equity mutual funds for 2 years? A: Yes. For equity mutual funds, the holding period threshold is 12 months (not 24 months). Any gains on redemption after 12 months are LTCG at 12.5%.
Disclaimer
This content is for educational and informational purposes only and does not constitute SEBI-registered investment advice. Always consult a qualified financial advisor before making investment decisions. Past performance is not indicative of future results.