LTCG
Long-Term Capital Gains (LTCG) is the profit earned from the transfer of a capital asset held for more than the prescribed holding period — 12 months for listed equities and equity mutual funds — and is taxed at 12.5% (post-Budget 2024) above an annual exemption threshold of ₹1.25 lakh.
LTCG on listed equities and equity-oriented mutual funds was reintroduced by the Finance Act 2018 after a long absence. Before February 1, 2018, gains on such assets were fully exempt under Section 10(38) of the Income Tax Act. The Budget 2018 reimposed the tax at 10% on gains exceeding ₹1 lakh, with a grandfathering clause that protected gains accrued up to January 31, 2018.
Budget 2024 revised the LTCG tax rate upward to 12.5% effective July 23, 2024, while simultaneously raising the annual exemption limit from ₹1 lakh to ₹1.25 lakh. This means gains up to ₹1.25 lakh in a financial year remain fully tax-free. Only gains exceeding this threshold attract the 12.5% flat rate, without the benefit of indexation for equity assets.
The holding period criterion is a critical determinant. For listed shares, equity mutual funds, and units of business trusts, the threshold is 12 months. For unlisted shares, immovable property, and debt mutual funds, the holding period is 24 months or 36 months depending on the asset class. Misclassifying a short-term asset as long-term is a common error that leads to incorrect tax computation.
LTCG is reported in Schedule CG of ITR-2 or ITR-3. Taxpayers must account for each transaction individually, netting gains and losses, and applying the ₹1.25 lakh exemption correctly. The Annual Information Statement (AIS) and Form 26AS now pre-populate much of this data from broker-reported STT transactions, making reconciliation easier but not error-proof.
A common misconception is that LTCG is completely tax-free for small investors. While the ₹1.25 lakh exemption protects modest gains, investors with large equity portfolios accumulating unrealized appreciation over multiple years may face substantial tax liability upon realisation. Systematic partial profit-booking within the annual exemption limit has been a widely discussed strategy among long-term equity investors.