What is capital gains tax?
A capital gain is the profit you make when you sell a capital asset, such as listed shares, mutual fund units, property, or gold, for more than what you paid for it.
The Income Tax Act splits this profit into short-term and long-term capital gains depending on how long you held the asset, and taxes each category differently.
For listed equity shares and equity-oriented mutual funds on which securities transaction tax (STT) has been paid, a holding period of 12 months or less is short term, and more than 12 months is long term.
Per the Income Tax Department, the Union Budget 2024 revised both the rates and the long-term exemption limit for these assets, with effect from 23 July 2024. For your total tax liability across income heads, run the numbers on the income tax calculator.
Short term vs long term, by asset type
The holding period that separates short-term from long-term gains is not the same for every asset. The table below covers the most common categories.
| Asset Type | Short Term | Long Term |
|---|---|---|
| Listed equity shares / equity mutual funds (STT paid) | 12 months or less | More than 12 months |
| Debt mutual funds bought on or after 1 Apr 2023 | Always short term | Not applicable |
| Property, unlisted shares, gold, other assets | 24 months or less | More than 24 months |
How the calculator works
This calculator covers listed equity shares and equity-oriented mutual funds. It first works out your capital gain, then applies the LTCG exemption if your holding period is long term, and finally taxes the remaining gain at the applicable rate.
Gain = Sale Value - Purchase Value - Expenses
Tax = max(0, Gain - Exemption) x Rate
In the formula the terms represent the following:
| Term | Meaning |
|---|---|
| Sale Value | The price you sold the shares or mutual fund units for |
| Purchase Value | The price you originally paid to acquire them |
| Expenses | Brokerage, STT, and other costs of buying and selling |
| Exemption | ₹1,25,000 per year, only for long-term gains |
| Rate | 12.5% for long term, 20% for short term |
If the sale value is lower than the purchase value plus expenses, the result is a capital loss. No tax applies, and the loss can be set off against other gains or carried forward.
Worked example
You bought equity mutual fund units for ₹5,00,000 and sold them two years later for ₹8,00,000, paying ₹5,000 in transfer expenses. The gain is ₹8,00,000 − ₹5,00,000 − ₹5,000 = ₹2,95,000. Since the holding period is long term, the ₹1,25,000 exemption applies, leaving ₹1,70,000 taxable at 12.5%, a tax of ₹21,250 and a net gain of ₹2,73,750.
Capital gains tax rates for FY 2025-26
| Asset Type | Short Term Rate | Long Term Rate |
|---|---|---|
| Listed equity shares / equity mutual funds (STT paid) | 20% | 12.5% above ₹1.25 lakh exemption |
| Debt mutual funds bought on or after 1 Apr 2023 | Slab rate | Not applicable |
| Property, gold, unlisted shares, other assets | Slab rate | 12.5% without indexation |
For property acquired before 23 July 2024, individuals and HUFs can choose between 12.5% without indexation and 20% with indexation, whichever results in a lower tax. Debt mutual fund gains are added to your total income and taxed at your slab rate, with no long-term category available.
Setting off and carrying forward losses
Short-term capital loss
A short-term capital loss can be set off against both short-term and long-term capital gains in the same financial year, across any asset class.
Long-term capital loss
A long-term capital loss can only be set off against long-term capital gains. It cannot be used to reduce short-term gains or other heads of income.
Carry forward
Any loss that remains after set-off can be carried forward for up to 8 assessment years and adjusted against eligible gains in those years, provided the income tax return for the year of the loss is filed before the due date.
How SIP redemptions are taxed (FIFO rule)
Each SIP instalment buys units on its own date at its own NAV, so it is treated as a separate purchase for tax purposes, not one lump investment.
When you redeem units, mutual funds apply the FIFO (First In, First Out) method: the oldest units in your folio are considered sold first. This means the earliest instalments of a long-running SIP are usually the first to qualify as long term, while the most recent instalments may still count as short term even in the same redemption.
Capital gains vs dividend income
A capital gain arises only when you sell the shares or units for more than you paid. Dividends are a separate payout from the company or fund while you continue to hold the investment, taxed as "Income from Other Sources" at your income tax slab rate, not at the 12.5%/20% capital gains rates covered by this calculator.
Ways to legally reduce your capital gains tax
Cross the 12-month mark before selling
Selling one day before the 12-month mark means the gain is taxed as STCG at 20% instead of LTCG at 12.5%. Where the investment thesis allows it, waiting a few extra days to cross into long-term status can meaningfully cut the tax on a large gain.
Use the annual ₹1.25 lakh exemption every year
The LTCG exemption does not carry forward if unused. Booking long-term gains up to ₹1.25 lakh each financial year, even on units you plan to hold long term (by selling and immediately reinvesting), locks in that year's tax-free allowance instead of letting a larger gain build up and get taxed later.
Set off losses before the financial year ends
Reviewing your portfolio in February or March for positions sitting at a loss, and selling them to book the loss, lets you set it off against gains realised earlier in the same year, reducing the net taxable gain for that year.
Capital gains and your income tax return
Capital gains are reported in Schedule CG of your income tax return, not clubbed with your salary or other income heads.
Use ITR-2 if capital gains are your only income beyond salary and interest, or ITR-3 if you also have business or professional income. ITR-1 cannot be filed in a year you have any capital gains, even a small one.
Your broker and mutual fund registrar (RTA) both report your transactions to the tax department through their own annual filings, so gains left out of your return can trigger a mismatch notice even when the tax payable works out to zero after the exemption.
How to use this capital gains calculator
The calculator needs four inputs:
- Purchase Value: enter the total price you paid to acquire the shares or mutual fund units.
- Sale Value: enter the total amount you received when you sold the investment.
- Transfer Expenses: add brokerage, STT, or other costs paid at the time of sale.
- Holding Period: pick long term (more than 1 year) or short term (up to 1 year).
The calculator applies the ₹1.25 lakh LTCG exemption automatically for long-term holdings, then shows your tax payable, net gain, and a full breakdown in the table above.