Chapter 7 of 8
Capital Gains Tax — Stocks and MFs
STCG, LTCG, and tax-loss harvesting strategies.
Anita had been investing in ELSS for years, watching her portfolio grow. In February, she noticed her equity
mutual funds had ₹80,000 in unrealised gains. Her accountant said: “Sell them before March 31 and
reinvest the next day.” Anita thought it sounded too good to be true — but it was perfectly legal. By
booking ₹80,000 in gains within the ₹1.25 lakh annual LTCG exemption, she reset her cost basis to the current
NAV and legally avoided future capital gains tax on that amount. Understanding capital gains tax is not just
about compliance — it's about strategic wealth building.
What Are Capital Gains?
Capital Gains Tax Rates — Post Budget 2024
| Asset Class | Holding Period (Long Term) | STCG Rate | LTCG Rate | Indexation | Notes |
|---|---|---|---|---|---|
| Equity Shares / Equity MF | >12 months | 20% | 12.5% above ₹1.25L/year | No | Budget 2024: STCG raised from 15% to 20%; LTCG raised from 10% to 12.5%; exemption raised from ₹1L to ₹1.25L |
| Debt Mutual Funds (post Apr 2023) | No LTCG benefit | At slab rate | At slab rate | No | Major 2023 change: all debt MFs now taxed at slab rate regardless of holding period |
| Debt MF (bought before Apr 2023) | >36 months | Slab rate | 20% with indexation | Yes (old units) | Grandfathered; indexation still available on pre-Apr 2023 debt MF units |
| Gold (Physical/Gold ETF/SGBs) | >24 months | Slab rate | 12.5% (no indexation) | No | Budget 2024 removed indexation from gold LTCG; SGBs exempt from LTCG on RBI redemption |
| Real Estate | >24 months | Slab rate | 12.5% (no indexation)* | No* | Budget 2024 removed indexation for most transfers; one-time option for pre-Jul 2024 property to use old indexation |
| Unlisted Shares / Bonds | >24 months | Slab rate | 12.5% | No | Budget 2024 aligned with listed shares rate |
Debt mutual funds bought on or after April 1, 2023 no longer have any LTCG benefit. All gains are taxed at your income slab rate regardless of how long you hold them. For example, a 30% bracket investor holding a debt fund for 5 years still pays 30% tax on gains — making bank FDs and direct bonds comparably efficient.
Properties transferred after July 23, 2024 are taxed at a flat 12.5% LTCG rate without indexation. However, the government provided a one-time relief: for properties acquired before July 23, 2024, you can choose between the old regime (20% with indexation) and the new regime (12.5% without indexation) — whichever is lower.
LTCG Harvesting Strategy
Situation (January, FY 2025-26): Anita holds an equity mutual fund with ₹80,000 in unrealised long-term gains. She has not booked any LTCG this financial year.
Action: Sell units before March 31 to book ₹80,000 LTCG
Tax calculation: ₹80,000 LTCG − ₹1,25,000 annual LTCG exemption = ₹0 taxable Tax payable: ₹0
Reinvest next day: Buy back the same fund at the new NAV New cost basis = current NAV (₹80,000 gain is permanently erased from the taxable record)
✅ Result: ₹80,000 gain locked in at zero tax; future LTCG starts fresh from today's higher NAV Do this every year to keep gains below ₹1.25 lakh and you can accumulate significant tax-free wealth.
Tax-Loss Harvesting
- ELSS Fund A: ₹50,000 long-term gain (sold)
- International Fund B: ₹50,000 unrealised loss (held)
Without harvesting Fund B loss: LTCG on Fund A = ₹50,000 (within ₹1.25L exemption) → Tax = ₹0 in this case
Alternative scenario — higher gains: Suppose Fund A had ₹1,75,000 LTCG (above ₹1.25L exemption): Taxable LTCG without harvesting = ₹1,75,000 − ₹1,25,000 = ₹50,000 → Tax = ₹50,000 × 12.5% = ₹6,250
Sell Fund B with ₹50,000 loss before March 31: Net LTCG = ₹1,75,000 − ₹50,000 (loss) − ₹1,25,000 (exemption) = ₹0 taxable Tax saved: ₹6,250
Note: You can set off long-term capital loss only against long-term capital gains. Short-term capital losses can be set off against both STCG and LTCG.
What is the LTCG tax rate on equity mutual funds for gains above ₹1,25,000 per year, as per Budget 2024?
Key Takeaways
- Post Budget 2024: equity LTCG is 12.5% (above ₹1.25L/year), equity STCG is 20%; debt MFs bought after April 2023 are taxed at slab rate regardless of holding period.
- LTCG harvesting — booking unrealised gains within the ₹1.25 lakh annual exemption and reinvesting — legally resets your cost basis to zero tax every year.
- Tax-loss harvesting before March 31 by selling loss-making investments offsets gains from profitable ones, reducing your capital gains tax liability.
- Real estate LTCG indexation was removed in Budget 2024 — the flat rate is now 12.5%, though pre-July 2024 property owners have a one-time choice between the old and new method.