Short- and Long-Term Capital Gains Calculation

2025-07-21

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Key Takeaways

Capital gains tax is charged on the profit earned from selling a capital asset such as real estate, shares, or mutual funds.
Short-term capital assets are held for 12 to 24 months (depending on the asset type); profits from their sale are classified as Short-Term Capital Gains (STCG).
Long-term capital assets are held for more than the prescribed period; gains from their sale are classified as Long-Term Capital Gains (LTCG).
STCG is taxed at 15% (with STT) or as per your income slab (without STT), while LTCG is taxed at 10%/12.5%/20% based on asset type and date of sale.
Post 23rd July 2024, new tax rates apply—like 12.5% LTCG on equity above ₹1.25 lakhs and dual options for taxing property gains (with or without indexation).

Imagine that you have made certain investments in the stock market, and your portfolio has been growing. Now, you have decided to sell some of the stocks and enjoy the profits. However, here’s the twist–you cannot avoid capital gain tax. It is a tax charged under the Income Tax Act on the profits or gains arising from the sale of capital assets, like stocks, real estate, etc.

This guide explains the common terms associated with capital gains and how these gains are calculated and taxed in India.

Exploring the Types of Capital Assets and Capital Gains

Under the Income Tax Act, there are two types of capital assets:

Short-term Capital Assets
Long-term Capital Assets

Short-term Capital Assets

Capital assets that you hold for less than or equal to 24 months (in the case of some capital assets, the period is 12 months) are short-term capital assets. It means if you hold certain capital assets for equal to or less than 24 or 12 months, they become short-term capital assets. Understand this with the help of the following table:

Capital Assets	Holding Period
Immovable Properties (land, building, etc.)	24 months
Equity shares (listed company), equity-oriented mutual funds, units of UTI, and zero-coupon bonds	12 months

The profits or gains you earn on the sale of these short-term capital assets are called ‘Short-term Capital Gains.’

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Long-term Capital Assets

Capital assets held by you for more than 24 months (in case of certain capital assets, the holding period is 12 months) are called long-term capital assets. Here’s a table to elaborate on this condition:

Capital Assets	Holding Period
Equity or Preference Shares (Listed Company)	12 months
Equity or Preference Shares (Unlisted Company)	24 months
Immovable Property (land, building, or both)	24 months
Listed securities–bonds, debentures, government securities, derivatives	12 months
Listed on unlisted units of UTI	12 months
Listed or unlisted units of equity-oriented mutual funds	12 months
Listed or unlisted units of debt-oriented mutual funds	24 months
Listed or unlisted Zero-coupon Bonds	12 months

If you hold any of the above capital assets longer than the holding period mentioned in the table, they become long-term capital assets. Any profit arising from the sale of such assets is ‘Long-term Capital Gain.’

Did You Know?

More than 93% of income tax returns were filed online in FY 2023–24 using e filing 2.0.

Source: The Economic Times.

Basic Terms to Understand Before Computing Capital Gains

Looking forward to the computation of capital gains tax? Familiarise yourself with the terms below:

Full Value Consideration: It is the total sale value of the capital asset that the seller receives in cash or kind.
Fair Market Value: It is the value at which a property is sold in the market on a specific date.
Transfer Expenses: These costs refer to any direct or indirect expenses incurred during the capital asset’s transfer.
Cost of Acquisition: It is the cost incurred by the seller when they purchased the property
Cost of Improvement: Any expenditure incurred on the modification or improvement of the property by the owner
Indexation: It is a benefit available only in the case of long-term capital assets.

Indexed Cost calculation formula:

Actual Cost x (Cost Inflation Index (CII) in the year of sale) / (Cost Inflation Index (CII) in the year of purchase or improvement)

Understand How Short-term Capital Gain is Calculated

If you have concluded that you have sold a short-term capital asset, you must know how to calculate the short-term capital gain tax. Let’s take an example:

Mr. Akash bought a house property on 01/01/2021 for ₹50 lakhs. He spent ₹2 lakhs on house improvement on 01/01/2022. On 01/11/2022, he sold the house for ₹65 lakhs.

Now, Mr. Akash held the property only for 22 months (from the date of purchase to sale). So, it is a short-term capital asset, and we will calculate short-term capital gain using the following format:

Particulars	Amount (in ₹ lakhs)
Full Value Consideration	65
(-) Transfer Expenses	Nil
(-) Cost of Acquisition	50
(-) Cost of Improvement	2
Short-term Capital Gain	13

Note: As it is a short-term capital asset sale, no indexation benefit is applicable.

Understand How Long-term Capital Gain is Calculated

When you earn profit from the sale of a long-term capital asset, you earn a long-term capital gain. Here’s how you do the computation:

Ms. Rohini purchased a property on 01/01/2000 for ₹20 lakhs. On 01/01/2005, she made repairs to the house worth ₹5 lakhs. Then on 01/01/2023, she sold the house at ₹75 lakhs. She also paid brokerage of ₹ 1.5 lakhs. CIIs for various years are as follows:

2022-23: 311
2004-05: 113

200102: 100 (Base Year)

Here, since Ms. Rohini held the property for more than 24 months, it is a long-term capital asset. Indexation benefit is applicable. Calculation of long-term capital gain:

Particulars	Indexation Computation per Formula	Amount (in ₹)
Full Value Consideration		75,00,000
(-) Transfer Expenses		1,50,000
(-) Indexed Cost of Acquisition	20,00,000 x (311/100)	66,20,000
(-) Indexed Cost of Improvement	5,00,000 x (311/113)	14,64,602
Long-term Capital Loss		-7,34,602

Here, Ms. Rohini has incurred a long-term capital loss on the sale of her property.

Learn About the Capital Gain Tax Rates

For transfers occurring before 23rd July 2024, the following capital gain tax rates are applicable:

Type of Tax	Condition	Tax Rate
Long-term Capital Gain Tax	Sale of: Listed Equity Shares (STT paid) Units of Equity-oriented Mutual Funds (STT paid)	10% above ₹1.25 lakhs
Long-term Capital Gain Tax	Others	20%
Short-term Capital Gain Tax	STT Not Applicable	Normal Slab Rate
Short-term Capital Gain Tax	STT is applicable	15%

For transfers occurring after 23rd July 2024, the capital gain tax rates are as follows:

Type of Tax	Condition	Tax Rate
Long-Term Capital Gain Tax	Sale of: Listed Equity Shares (STT paid) Units of Equity-oriented Mutual Funds (STT paid)	12.5% above ₹1.25 lakhs
	Land, Building, or Both	Individuals and HUFs have two options: 20% tax rate with indexation 12.5% tax rate without indexation
	Others	12.5%
Short-Term Capital Gain Tax	STT Not Applicable	Normal Slab Rate
	STT is applicable	20%

Conclusion

When you sell a capital asset, it is important to calculate the capital gain tax by determining the nature of the asset, short-term or long-term. This guide helps you understand the nuances of capital gain computation and how it is taxed under the Income Tax Act. So, start using the capital gains rules strategically to reduce your tax liability and opt for a hassle-free calculation.

Glossary

e filing 2.0: The advanced income tax filing platform by the government of India for simpler and quicker ITR filing.
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes.
Section 80C: A provision of the Income Tax Act for deduction up to ₹1.5 lakh for particular investments.
ULIP: Unit Linked Insurance Plan brings insurance together with equity/debt investment.
Section 10(10D): Tax-free maturity benefits from life insurance policies, subject to specific conditions.

FAQs

Capital gain tax is not just applicable to individuals. Any person who earns capital gain from the sale of a capital asset has to pay the capital gains tax. It may include HUFs, partnership firms, companies, etc.

Yes If you have earned a long-term capital gain, you can claim exemptions under various sections of the Income Tax Act.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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Key Takeaways

Exploring the Types of Capital Assets and Capital Gains

Short-term Capital Assets

Save Taxes While Building Long-Term Wealth

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Did You Know?

Basic Terms to Understand Before Computing Capital Gains

Understand How Short-term Capital Gain is Calculated

Understand How Long-term Capital Gain is Calculated

Learn About the Capital Gain Tax Rates

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