LTCG exemption limit on equity: ₹1,25,000 explained

On TaxCare's rules for the tax year 2025-26, the first ₹1,25,000 of long-term capital gain in a year on listed equity shares and equity funds is exempt. Gain above that is taxed at 12.5% (plus 4% cess). Shares and equity funds are long-term when held for more than 12 months. The ₹1,25,000 is a single yearly amount across all your eligible sales, not per share.

Rates and holding periods here apply to transfers on or after 23-Jul-2024, which is the whole of the tax year 2025-26. For the tax year 2026-27, the first under the Income-tax Act, 2025, the Act itself keeps the same figures in section 198: tax at 12.5% on long-term gains on equity shares, equity-oriented fund units and business trust units exceeding ₹1,25,000. Listed securities and equity-oriented fund units stay long-term after 12 months. TaxCare's own 2026-27 rule set is still provisional, pending sign-off.

What counts as equity here

The special rate is for listed equity shares and equity-oriented mutual fund units (and certain other units) on which securities transaction tax (STT) was paid. Gains on other assets follow other rules: debt funds, gold, unlisted shares, foreign shares and property are not in this ₹1,25,000 bucket.

The STT condition differs by asset. For equity shares, STT must have been paid on both the purchase and the sale. For equity-oriented fund units and business trust units, STT on the sale is enough. The STT condition does not apply to a sale on a recognised stock exchange in an International Financial Services Centre paid in foreign currency, and the government can notify kinds of purchase that are excused from the purchase-side condition. An equity-oriented fund is one that invests at least 65% of its money in shares of listed Indian companies (a fund of funds qualifies at 90% under its own test).

The 12-month rule

Short-term gains on listed equity (held 12 months or less) are taxed at 20% with no exemption. Before 23-Jul-2024, the rates were 15% for short-term and 10% for long-term gains.

Worked examples

All figures are illustrations, recomputed with TaxCare's tax engine. They assume your other income already uses up the basic exemption limit, so the gain is taxed in full above ₹1,25,000. The result is the same in both regimes and for both tax years 2025-26 and 2026-27.

Example 1: gain within the limit. You sell listed shares held for 18 months and gain ₹1,10,000. The exemption covers all of it. Tax: nil.

Example 2: gain above the limit. Your long-term equity gain for the year is ₹3,00,000.

• Exempt: ₹1,25,000.
• Taxable: ₹1,75,000.
• Tax at 12.5%: ₹21,875.
• Cess at 4%: ₹875.
• Total: ₹22,750.

Example 3: several sales. You make three sales with gains of ₹50,000 each, all long-term. The total gain is ₹1,50,000. Exempt ₹1,25,000; taxable ₹25,000; tax ₹3,125 plus ₹125 cess, a total of ₹3,250.

Rebate and the new regime

The new regime's rebate under section 87A does not cover special-rate gains. So even if your normal income is under the rebate limit, tax on long-term capital gains above ₹1,25,000 is still payable.

There is one relief for residents. If you are a resident individual and your income other than these gains is below the basic exemption limit, the unused part of the limit reduces the gain before the 12.5% applies. So a person with little other income may pay less than the examples above show.

Grandfathering: shares bought before 1-Feb-2018

For listed equity bought on or before 31-Jan-2018, the cost of acquisition for the gain is adjusted. It is generally the higher of the actual cost and the lower of the market price on 31-Jan-2018 and the sale price. This can reduce your gain.

The Act states it as the higher of (a) the actual cost and (b) the lower of the fair market value and the sale price. For listed shares and units, the fair market value is the highest price quoted on the exchange on 31-Jan-2018 (or on the last earlier day it traded). For fund units not listed on 31-Jan-2018, it is their net asset value on that date. The same rule applies to shares, equity-oriented fund units and business trust units bought before 1-Feb-2018.

Losses

A long-term capital loss can be set off against long-term capital gains. It cannot be set off against other heads of income, such as salary. If it cannot be absorbed in the year, it can be carried forward, but only if you file the return by the due date.

A long-term capital loss cannot be set off against short-term gains, either in the same year or later. (A short-term loss, by contrast, can be set off against both short-term and long-term gains.) An unabsorbed capital loss can be carried forward for eight tax years after the year it arose.

Which ITR form?

If your total long-term gain on listed equity for the year is ₹1,25,000 or less and you have no other capital gain, you can still use ITR-1. If it is more, or if you have any other capital gain, use ITR-2. See our guide on whether a salaried person with capital gains can file ITR-1.

Advance tax on capital gains

If your tax for the year is ₹10,000 or more, advance tax rules apply, including on capital gains. Instalments are due on 15 June, 15 September, 15 December and 15 March at 15%, 45%, 75% and 100% cumulatively. Interest applies if you fall short.

Records to keep

• Your broker's or mutual fund's capital gains statement.
• Contract notes with dates and prices.
• For old holdings, the 31-Jan-2018 price.
• Your AIS entries for share and fund transactions.

How TaxCare helps

TaxCare reads your sales from the portal data, classifies each lot as short-term or long-term, applies the ₹1,25,000 exemption across the year, works out the tax and tells you which ITR form the gains need. For large or complex portfolios, a Tax Expert can take over with your statements.

This guide gives general information and is not professional tax advice.