Capital gains tax on investments
How the profit on selling shares, fund units, gold and property is taxed, and what changed in 2023 and 2024
Rules as on 12 October 2026, for tax year 2026-27 under the Income-tax Act, 2025
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: someone bought a debt fund in June 2023, held it for over three years and sold it this year. Is the gain long-term? Most people who learnt tax before 2023 will say yes. Keep the answer for slide 6. A fund bought before 1 April 2023 is different: raise that only after slide 6.
The tax on a sale depends on three things: what was sold, how long it was held, and when it was bought.
The profit on a sale is called a capital gain. The law sorts each gain into short-term or long-term and taxes the two differently. Key rules changed on 1 April 2023 and 23 July 2024.
Trainer notes
Everything in this deck is one of those three questions. The third one, the purchase date, is the one older material leaves out, and it now decides how a debt fund is taxed.
Three terms to get right first
Capital gain
Sale price minus cost. It arises when the asset is sold or redeemed. A rise in value that has not been sold is not taxed.
Holding period
The time between buying and selling. There are two tests: 12 months for listed securities and 24 months for other assets.
Short-term, long-term
Held for the test period or less: short-term. Held for more than it: long-term. Each kind of gain has its own rate.
Take-away: Equity-oriented fund units follow the 12-month test. Rates in this deck are before surcharge and cess.
Source: CBDT, FAQs on the new capital gains regime, 24 July 2024 (as reproduced by Taxscan); HSBC Mutual Fund Tax Reckoner 2026-27.
Trainer notes
An equity-oriented fund holds at least 65% in listed shares of Indian companies. A switch between schemes, a systematic transfer and a systematic withdrawal are all redemptions, so each one can create a gain.
Rates by asset and holding period
For sales on or after 23 July 2024. Slab rate means the rate on the investor's other income.
| What was sold | Long-term if held | Short-term gain | Long-term gain |
|---|---|---|---|
| Listed shares and equity-oriented fund units, where securities transaction tax is paid | More than 12 months | 20% | 12.5% on gains above ₹1.25 lakh a year |
| Debt fund units bought on or after 1 April 2023 | No long-term category | Slab rate | Does not arise |
| Other fund units: gold, international, hybrids between the two tests | More than 24 months (12 if listed) | Slab rate | 12.5% |
| Land, buildings, physical gold | More than 24 months | Slab rate | 12.5% (see slide 7 for older property) |
Sources: HSBC Mutual Fund Tax Reckoner 2026-27 (Income-tax Act, 2025 as amended by Finance Act 2026); CBDT FAQs, 24 July 2024. Debt fund = 'specified mutual fund'.
Trainer notes
A 'specified mutual fund' is one that invests more than 65% in debt and money market instruments, or a fund of funds with 65% or more in such funds. That definition applies from 1 April 2025. Debt fund units bought before 1 April 2023 are outside the slab-rate rule: they sit in the 'other' row, long-term after 24 months at 12.5%. Sections: 196 for short-term equity (formerly 111A), 198 for long-term equity (formerly 112A), 197 for other long-term gains (formerly 112).
Worked example: an equity fund
THE SALE
Units of an equity-oriented fund bought for ₹4,00,000.
Sold 18 months later for ₹6,00,000.
No other long-term equity gain in the year.
- Held for more than 12 months, so the gain is long-term.
- Gain = ₹6,00,000 − ₹4,00,000 = ₹2,00,000.
- The first ₹1,25,000 of such gains in a year is not taxed. Taxable gain = ₹2,00,000 − ₹1,25,000 = ₹75,000.
- Tax = 12.5% of ₹75,000 = ₹9,375, before surcharge and cess.
Result: Sold within 12 months instead, the whole gain is short-term: 20% of ₹2,00,000 = ₹40,000.
Illustration with assumed figures. Not a forecast of returns and not a reason to hold or sell.
Trainer notes
The ₹1.25 lakh is one limit for the year across all listed shares and equity-oriented funds, not one per fund. Do not turn the comparison in the green band into a suggestion to wait: the price can fall while someone waits.
Worked example: a debt fund
THE SALE
Units of a debt fund bought in June 2023 for ₹5,00,000.
Redeemed in September 2026 for ₹6,20,000.
- Gain = ₹6,20,000 − ₹5,00,000 = ₹1,20,000.
- The units were bought after 1 April 2023. The gain is treated as short-term, although they were held for over three years.
- The gain is added to the investor's income and taxed at the slab rate. There is no indexation.
- If the gain falls in the 30% slab: 30% of ₹1,20,000 = ₹36,000. In the 5% slab: 5% of ₹1,20,000 = ₹6,000.
Result: For these units the holding period no longer changes the rate. The investor's slab does.
Assumed figures. Tax before surcharge and cess, taking the whole gain as falling in one slab.
Trainer notes
This answers the opening question. In practice the gain may straddle two slabs, and rebates and the tax regime chosen also matter, which is why we do not compute a client's tax. The rule sits in section 76 of the 2025 Act (formerly section 50AA).
Indexation: what it was, what is left
What it did
It raised the cost by an official inflation index before the gain was worked out, so less gain was taxed, at 20%.
Where it ended
For sales on or after 23 July 2024 it is withdrawn. The long-term rate on such assets fell from 20% to 12.5%.
What survives
A resident individual or HUF selling land or a building bought before 23 July 2024 pays the lower of the two computations.
Take-away: Assumed: cost ₹1,00,000, index 200 to 300, sold at ₹1,80,000. Gain ₹30,000 indexed, ₹80,000 plain.
Sources: CBDT FAQs, 24 July 2024; Income-tax Act, 2025, section 197 (as reproduced by EZTax). Index values in the band are assumed.
Trainer notes
Arithmetic: indexed cost = 1,00,000 × 300 ÷ 200 = 1,50,000, so the indexed gain is 30,000 and 20% of it is 6,000. Without indexation the gain is 80,000 and 12.5% of it is 10,000. The property seller in the third card pays the lower figure. HUF means Hindu undivided family. Mutual fund units have no indexation in any case now.
When a sale makes a loss
A capital loss can reduce capital gains. It cannot reduce salary or other income.
Short-term loss
Can be set off against short-term gains or long-term gains.
Long-term loss
Can be set off only against long-term gains.
Loss left over
Carried forward for up to eight tax years, if the return for the loss year is filed by the due date.
Assumed case
Long-term equity gain ₹2,00,000, short-term loss ₹40,000. Net gain ₹1,60,000; less ₹1,25,000 leaves ₹35,000 taxed at 12.5% = ₹4,375.
Sources: Income-tax Act, 2025, sections 111 and 121 (formerly sections 74 and 80), as reproduced by TaxHeal. Step 4 uses assumed figures.
Trainer notes
Describe the rule only. Do not suggest selling at a loss to save tax; that is a decision for the investor and their tax professional. Tax before surcharge and cess.
If you learnt this from older material
Three dates changed the picture: 1 April 2023, 23 July 2024 and 1 April 2026.
What older material says
- Equity: short-term 15%; long-term 10% on gains above ₹1 lakh
- Debt funds: long-term after 36 months, taxed at 20% with indexation
- Three holding periods: 12, 24 and 36 months
- Sections 111A, 112 and 112A of the Income-tax Act, 1961
What holds now
- Equity: 20%; 12.5% above ₹1.25 lakh
- Debt funds bought from 1 April 2023: slab rate; older units: 12.5% after 24 months
- Two holding periods: 12 and 24 months
- Sections 196, 197, 198 of the 2025 Act, in force from 1 April 2026
Sources: CBDT FAQs on the new capital gains regime, 24 Jul 2024; HSBC MF Tax Reckoner 2026-27; Trustner Academy verified fact sheet, 7 Oct 2026.
Trainer notes
Debt fund units bought before 1 April 2023 are outside the slab-rate rule: sold now, they are long-term after 24 months (12 if listed) and taxed at 12.5% without indexation. The new Act also says 'tax year' in place of previous year and assessment year.
Four things people get wrong
Misconception'Long-term means one year.'
What is trueOnly for listed securities and equity-oriented funds. Most other assets need 24 months; newer debt fund units have no long-term category.
Misconception'Debt funds still get indexation.'
What is trueNo mutual fund units get indexation on a sale made on or after 23 July 2024.
Misconception'The ₹1.25 lakh is per fund.'
What is trueIt is one limit a year, across all long-term gains on listed shares and equity-oriented funds taken together.
Misconception'A SIP has one purchase date.'
What is trueEach instalment is a separate purchase with its own holding period. Units are taken as sold first-in-first-out.
Trainer notes
On the last point: a three-year-old SIP redeemed in full will usually have some instalments that are less than 12 months old, and the gain on those is short-term.
Explaining the tax to a client
Name the fund's tax group
Equity-oriented, debt (specified mutual fund) or other. The scheme's documents say how it invests.
Ask the purchase dates
They fix the holding period, and for debt funds they decide which rule applies.
State the rule, not the bill
Explain the rate and the holding period. The amount of tax depends on the client's full income, which we do not assess.
Take-away: This is general education. The tax a person pays depends on their own income, residence status and facts.
Trainer notes
A mutual fund distributor explains how the rules work. For a computation, or for a decision that turns on tax, the client should speak to a chartered accountant or other tax professional. Non-residents have tax deducted at source on redemption and may be covered by a tax treaty.
Check yourself
Question 1: Equity-oriented fund units bought for ₹3,00,000 are sold after 20 months for ₹5,00,000. There is no other gain in the year. What is the tax, before surcharge and cess?
Answer: Long-term gain ₹2,00,000. Less ₹1,25,000 = ₹75,000 taxable. 12.5% of ₹75,000 = ₹9,375.Question 2: A client bought debt fund units in May 2023 and redeems them in October 2026. Is the gain long-term, and at what rate is it taxed?
Answer: No. Units of a specified mutual fund bought on or after 1 April 2023 always give short-term gains, taxed at the investor's slab rate, with no indexation.Question 3: Who can still use indexation, and for which asset?
Answer: A resident individual or HUF selling land or a building bought before 23 July 2024. Tax is the lower of 12.5% without indexation and 20% with indexation. Mutual fund units do not qualify.
Sources and disclaimer
Sources for the figures in this explainer
- Rates, holding periods, the ₹1.25 lakh limit, the 'specified mutual fund' rule, sections 196 and 198: HSBC Mutual Fund Tax Reckoner 2026-27 (Income-tax Act, 2025 with Finance Act 2026).
- Two holding periods, the change from 15% to 20% and 10% to 12.5%, ₹1 lakh to ₹1.25 lakh, end of indexation, effective 23 July 2024: CBDT FAQs of 24 July 2024, PIB release 2036604.
- Land and buildings bought before 23 July 2024 (section 197), capital losses (section 111): Income-tax Act, 2025 as reproduced by EZTax; return-filing condition from Patron Accounting.
- Other section mapping, first-in-first-out and SIP holding periods: Trustner Academy verified fact sheet (investments), 7 Oct 2026.
- Act sections read in reproductions (TaxHeal, EZTax); CBDT FAQs read on PIB. All worked examples use assumed figures.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).