What It Means
LTCG, Long-Term Capital Gains tax, is the tax on the profit from selling a capital asset, such as listed equity shares or equity mutual fund units, that you've held for longer than a specified period. For listed equity and equity-oriented mutual funds, that period is more than 12 months. Sell before that, and the gain counts as short-term instead, taxed differently.
How It Works
At the time of writing, LTCG on listed equity shares and equity mutual funds is taxed at a flat 12.5%, with no indexation benefit, on gains above ₹1.25 lakh in a financial year. Gains up to that ₹1.25 lakh threshold each year are exempt entirely. This rate and exemption limit are revised periodically through the Union Budget, most recently in July 2024, so check the current figure before filing or planning around it.
LTCG Tax Payable = (Total Long-Term Gains − ₹1,25,000) × 12.5%
- Total Long-Term Gains
- Profit from equity/equity fund units held over 12 months, sold in the financial year
- ₹1,25,000
- Annual exemption threshold under Section 112A, at the time of writing
- 12.5%
- Current LTCG tax rate on listed equity, no indexation benefit
Example
An investor sells equity shares held for two years and books a total long-term gain of ₹2,00,000 in a financial year, with no other equity LTCG that year. The first ₹1,25,000 of that is exempt. The remaining ₹75,000 is taxed at 12.5%, working out to ₹9,375 in LTCG tax, not the ₹25,000 a trader would owe if the rate were mistakenly applied to the full gain instead of just the amount above the exemption.
Warning
The ₹1.25 lakh exemption is a threshold, not a flat deduction per trade. It applies once per financial year across all your long-term equity gains combined, so it's easy to overestimate how much room is left if gains are booked across several separate trades.