Capital Gains — Overview
INCOME TAX ACT 2025 · CHAPTER IV · PART E · SECTIONS 67–89, 196–198
Capital Gains — Overview
A complete introduction to capital gains taxation under the Income Tax Act 2025 — what is a capital asset, when a transfer is taxable, how STCG and LTCG are defined, the headline tax rates, and a section-by-section map of the entire chapter.
📘 Chapter: IV — Computation of Total Income · Part E — Capital Gains
📖 Governing Sections: 67–89 (computation, exemptions) · 196–198 (special tax rates)
🔄 Replaces: Sections 45–55A of the Income Tax Act 1961
📅 Effective: 1st April 2026 (Tax Year 2026-27 onwards)
📖 Governing Sections: 67–89 (computation, exemptions) · 196–198 (special tax rates)
🔄 Replaces: Sections 45–55A of the Income Tax Act 1961
📅 Effective: 1st April 2026 (Tax Year 2026-27 onwards)
⚡ Jump to:
What is a Capital Gain? — Section 67(1)
"Any profits or gains arising from the transfer of a capital asset effected in a tax year shall be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the tax year in which the transfer took place."
Three elements must exist simultaneously for capital gains to arise:
🏠
Capital Asset
The item being transferred must qualify as a "capital asset" under Section 2
🔄
Transfer
There must be a "transfer" as defined — sale, exchange, relinquishment, extinguishment of rights, or compulsory acquisition
💰
Profit / Gain
There must be a profit or gain — consideration exceeds cost of acquisition and improvement
Savings clause [Section 67(1)]: Capital gains are NOT charged where specifically exempted under Sections 82, 83, 84, 85, 86, 87, 88, and 89. These sections cover residential house property, agricultural land, compulsory acquisition, bonds, etc.
What is a Capital Asset?
A "capital asset" means property of any kind held by an assessee, whether or not connected with their business or profession. The term is very broad — but the following are explicitly excluded from the definition:
❌ NOT a Capital Asset (excluded)
- Stock-in-trade, consumable stores, raw materials held for business
- Personal effects (movable property for personal use) — e.g., clothing, furniture — but not jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art
- Agricultural land in India that is rural — i.e., not within specified municipal/notified area limits
- 6½% Gold Bonds (1977), 7% Gold Bonds (1980), National Defence Gold Bonds (1980)
- Special Bearer Bonds (1991)
- Gold Deposit Bonds issued under the Gold Deposit Scheme (1999) or Deposit Certificates under Gold Monetisation Scheme (2015)
✅ IS a Capital Asset (common examples)
- Land and buildings (urban or urban-periphery)
- Shares, debentures, mutual fund units
- Jewellery, paintings, sculptures, works of art
- Patents, trademarks, copyright
- Foreign currency assets
- Business goodwill
- Virtual digital assets (VDA / crypto)
- Sovereign Gold Bonds
- Zero coupon bonds
Short-Term vs Long-Term Capital Asset — Section 2(101)
The holding period of the asset determines whether gains are Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) — which directly affects the tax rate applicable.
| Type of Capital Asset | Short-Term (STCA) |
Long-Term (LTCA) |
1961 Act Reference |
|---|---|---|---|
| Listed securities (equity shares, equity MF units, business trust units, zero-coupon bonds on recognised stock exchange) | ≤ 12 months | > 12 months | Same as 1961 Act |
| Unlisted shares of an Indian company | ≤ 24 months | > 24 months | Same as 1961 Act |
| Immovable property (land, building) | ≤ 24 months | > 24 months | Was ≤ 36 months pre-2017 |
| All other capital assets (jewellery, debt MF, unlisted bonds, VDA, etc.) | ≤ 24 months | > 24 months | Was ≤ 36 months |
| Specified Mutual Fund units / Market Linked Debentures / Unlisted bonds (acquired on/after 1 Apr 2023 or transferred on/after 23 Jul 2024) | Always STCG — regardless of holding period [Section 76] | New provision | |
How the holding period is counted [Section 2(101)(c)]:
- For gifts, inheritance, HUF partition — include the period it was held by the previous owner
- For shares received in amalgamation — include the period held in the amalgamating company
- For shares received in demerger — include the period held in the demerged company
- For a company in liquidation — exclude period after the company goes into liquidation
Tax Rates on Capital Gains — Sections 196, 197 & 198
The 2025 Act significantly restructured capital gains tax rates. Here is the complete rate card:
Short-Term Capital Gains (STCG)
| Type of Asset / Transaction | Rate | Section (2025) | Old Section |
|---|---|---|---|
| Listed equity shares / equity MF units / business trust units — where STT is paid | 20% | Section 196 | Sec 111A @ 15% → now 20% |
| All other STCG (property, jewellery, debt instruments, unlisted shares, etc.) | Slab rates | Section 67 r/w slab rates | Same — slab rates |
Long-Term Capital Gains (LTCG)
| Type of Asset / Transaction | Rate | Exemption | Section (2025) | Old Section |
|---|---|---|---|---|
| Listed equity shares / equity MF units / business trust units — where STT paid on acquisition and transfer | 12.5% | ₹1,25,000 per year exempt | Section 198 | Sec 112A @ 10% above ₹1L |
| All other LTCG (property, jewellery, unlisted shares, bonds, etc.) | 12.5% | No exemption — but see grandfathering below | Section 197 | Sec 112 @ 20% with indexation |
| Unlisted securities / shares of close company — non-resident (not company) or foreign company | 12.5% | No indexation | Section 197(4) | Sec 112 @ 10% |
| Slump sale (undertaking held > 36 months) | 12.5% | No indexation — Net Worth = cost | Section 77 | Sec 50B @ 20% |
🏠 Grandfathering for Property — Section 197(3)
For individual or HUF residents who transfer land or building (or both) that was acquired before 23rd July 2024, a special computation applies:
The excess income-tax (E) to be ignored is computed as:
E = A − B
where:
A = LTCG tax @ 12.5% (without indexation)
B = LTCG tax @ 20% (with indexation on indexed cost)
where:
A = LTCG tax @ 12.5% (without indexation)
B = LTCG tax @ 20% (with indexation on indexed cost)
In plain terms: the taxpayer pays the lower of (a) 12.5% without indexation, or (b) 20% with indexation. This protects taxpayers who held property for long periods and would otherwise pay more under the new flat 12.5% rate.
Note: This grandfathering applies only to land or building for resident individuals/HUF. It does NOT apply to listed equity shares, bonds, or non-resident assessees.
Section-by-Section Map — Capital Gains (2025 Act)
| Section (2025) | Subject | Old Section (1961) |
|---|---|---|
| CHARGEABILITY & SPECIAL CASES | ||
| 67 | Capital gains — chargeability, insurance receipts, compulsory acquisition, ESOP reconstitution | 45 |
| 68 | Capital gains on distribution by company in liquidation | 46 |
| 69 | Capital gains on buy-back of shares / specified securities | 46A |
| 70 | Transactions NOT regarded as transfer (25+ exemptions) | 47 |
| 71 | Withdrawal of exemption under Section 70 in certain cases | 47A |
| COMPUTATION | ||
| 72 | Mode of computation of capital gains — consideration minus cost of acquisition and improvement | 48 |
| 73 | Cost of acquisition — for gifts, inheritance, amalgamation, demerger and other special modes | 49 |
| 74 | Depreciable assets — capital gains computation (always STCG) | 50 |
| 75 | Cost of acquisition for depreciable assets where Section 33(2) depreciation claimed | 50A |
| 76 | Market Linked Debentures / specified MF units / unlisted bonds — always STCG | 50AA |
| 77 | Slump sale — net worth as cost, FMV as consideration | 50B |
| 78 | Full value of consideration — stamp duty value (SDV) substitution for property | 50C |
| 79 | Full value of consideration — FMV substitution for unlisted shares | 50CA |
| 80 | FMV as full consideration where actual consideration is not ascertainable | 50D |
| 81 | Advance money received — treatment in cost computation | 51 |
| EXEMPTIONS — REINVESTMENT BASED | ||
| 82 | Profit on sale of residential house — reinvest in another residential house | 54 |
| 83 | Agricultural land transfer — reinvest in other agricultural land | 54B |
| 84 | Compulsory acquisition of land/building — reinvestment exemption | 54D |
| 85 | Capital gains invested in specified bonds (Section 54EC bonds) — max ₹50 lakh | 54EC |
| 86 | Transfer of capital assets — reinvest in residential house (for all assets, not just house) | 54F |
| 87 | Shifting of industrial undertaking from urban area — exemption | 54G |
| 88 | Shifting of industrial undertaking to SEZ — exemption | 54GA |
| 89 | Extension of time for acquiring new asset or depositing in Capital Gains Account | 54H |
| SPECIAL TAX RATES | ||
| 196 | STCG @ 20% on listed equity shares / equity MF / business trust (STT paid) | 111A |
| 197 | LTCG @ 12.5% on all assets (with grandfathering for property acquired before 23 Jul 2024) | 112 |
| 198 | LTCG @ 12.5% on listed equity / equity MF / business trust (STT paid) — ₹1.25 lakh exempt | 112A |
Key Changes from the 1961 Act
| Aspect | 1961 Act | 2025 Act |
|---|---|---|
| STCG on listed equity (STT paid) | 15% [Sec 111A] | 20% [Sec 196] — increased |
| LTCG on listed equity (STT paid) | 10% above ₹1 lakh [Sec 112A] | 12.5% above ₹1.25 lakh [Sec 198] — rate increased, exemption increased |
| LTCG on property (resident) | 20% with indexation [Sec 112] | 12.5% without indexation — but grandfathering for pre-23 Jul 2024 assets [Sec 197] |
| LTCG on all other assets | 20% with indexation [Sec 112] | 12.5% without indexation [Sec 197] — indexation removed |
| Debt MF / MLD / unlisted bonds | Slab rates (post Apr 2023) | Always STCG at slab rates [Sec 76] — no change for taxpayer |
| Slump sale | 20% LTCG [Sec 50B] | 12.5% LTCG [Sec 77] — rate reduced |
| Section numbering | Scattered: 45–55A, 111A, 112, 112A | Consolidated: 67–89, 196–198 — cleaner structure |
📖 Capital Gains — Continue Reading
📌 Source: Income Tax Act 2025, Act No. 30 of 2025 — Section 67 (page 94), Section 2(101) (page 9), Section 196 (page 237), Section 197 (page 238), Section 198 (page 239), as published in the Gazette of India Extraordinary dated 21st August 2025. Use the Section Cross-Reference tool to map 1961 Act sections to 2025 Act equivalents.
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