Capital gains tax explained: What you pay on property, stocks and mutual funds

Capital gains tax applies when you sell assets like real estate, stocks, or mutual funds at a profit. But the amount of tax you pay depends on two key factors: how long you’ve held the asset and what type of asset it is.

Here’s a breakdown of how capital gains are taxed and what investors should keep in mind.

Real estate: No indexation, flat LTCG rate

If held for less than 2 years: Gains are classified as short-term and taxed as per your income tax slab.

If held for 2 years or more: Gains are long-term and taxed at a flat 12.5%.

There is no indexation benefit on long-term property gains. This means you cannot adjust the purchase cost for inflation, which was earlier a key way to reduce taxable gains.

“Selling real estate within 2 years could push you into a higher tax bracket,” says Chakravarthy V, Co-founder & Executive Director, Prime Wealth Finserv.

Equity shares and equity mutual funds

• Held less than 1 year: Gains are short-term and taxed at 20%.
• Held 1 year or more: Gains are long-term and taxed at 12.5%.

The first ₹1.25 lakh in long-term equity gains each financial year is tax-free.

“The way gains are classified has a big impact on your final returns,” says Ashish Padiyar, Managing Partner at Bellwether Associates. “Careful timing can save a significant amount in taxes.”

Debt mutual funds

For debt mutual funds purchased after April 1, 2023, all gains—whether short-term or long-term—are taxed at your income slab rate.

There is no indexation benefit, making these funds less tax-efficient than before.

“Debt funds now resemble fixed deposits in terms of taxation,” notes Jeet Chandan, Co-founder, BizDateUp. “Investors need to rethink their debt allocation strategies accordingly.”

Limited scope for exemptions

• Exemptions under Section 54 (residential property) and Section 54EC (bonds) still exist but are capped.
• These limits reduce their usefulness for high-value exits, especially for high-net-worth individuals (HNIs).

“HNIs exiting large holdings need professional advice to avoid multi-crore tax hits,” adds Padiyar.

Key planning tips

• Time your sales: Cross holding thresholds to qualify for lower LTCG rates.
• Split large gains across financial years to stay within exemption limits.
• Reinvest smartly in eligible assets to reduce tax.
• Consult advisors for complex cases like ESOPs, inheritance, or international assets.

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