How do capital gains taxes work?

Capital gains taxes are the taxes you pay on profits earned by selling an investment like stocks, mutual funds, or real estate. In India, how much you pay depends on how long you held the asset and the type of investment. Knowing these rules helps you plan better and reduce your tax burden legally.

What Are Capital Gains?

When you sell an investment at a higher price than you bought it for, the profit is called a capital gain. This gain can be either:

• Short-Term Capital Gain (STCG): When assets are sold within a short period.
• Long-Term Capital Gain (LTCG): When assets are sold after holding them for a longer time.

The tax treatment is different for short-term and long-term gains depending on the asset type.

Capital Gains Tax on Equity Shares

Equity shares listed on a stock exchange are taxed as follows:

• Short-Term: If sold within 12 months, taxed at 15% flat.
• Long-Term: If held more than 12 months, gains above ₹1 lakh are taxed at 10% (without indexation).

No tax is charged if your LTCG is below ₹1 lakh in a financial year.

Capital Gains Tax on Mutual Funds

Equity mutual funds follow the same rule as equity shares.

Debt mutual funds:

• Short-Term: Taxed as per your income slab.
• Long-Term: For investments before April 1, 2023, taxed at 20% with indexation. For new investments, gains are now taxed as per slab (no indexation).

Capital Gains Tax on Real Estate

In case of property sales:

• Short-Term: Held for less than 24 months – taxed as per income slab.
• Long-Term: Held more than 24 months – taxed at 20% with indexation benefit.

You can also save tax on LTCG by reinvesting the amount in specific bonds (like Section 54EC) or another house property under Section 54.

How to Reduce Capital Gains Tax Legally

Here are simple ways to reduce your capital gains tax:

• Hold your investments longer to qualify for LTCG benefits.
• Use exemptions like reinvestment under Sections 54, 54EC.
• Harvest losses by selling loss-making assets to offset gains.
• Use ELSS or tax-saving mutual funds for long-term benefits.

Capital gains taxes are an important part of your investment journey. Knowing when and how much tax you’ll need to pay can help you plan better, hold longer, and even save more. Whether it's mutual funds, stocks, or real estate—keep track of your holding period and always consult a tax advisor if you’re unsure. Smart tax planning helps you grow wealth faster and legally.