LTCG

Full form: Long-Term Capital Gains

Tax & Deductions

LTCG is the profit from selling a capital asset held for longer than the minimum period for long-term treatment. For equity and equity mutual funds in India: 12.5% tax on gains above Rs 1.25 lakh annually (held over 12 months). Below Rs 1.25L annually: tax-free.

In detail

LTCG holding periods and rates (post Budget 2024):nnEquity shares and equity mutual funds: LTCG after 12 months at 12.5% on gains above Rs 1.25L per year.nDebt mutual funds: all gains at income slab rate regardless of holding period.nReal estate: LTCG after 24 months at 12.5% (without indexation) under new regime.nGold (physical or ETF): LTCG after 24 months at 12.5%.nSGB: LTCG on maturity at 8 years = completely exempt.

Formula

LTCG tax (equity) = (Total gains - Rs 1.25L exemption) x 12.5% Tax harvesting strategy: Sell equity annually to book up to Rs 1.25L gains tax-free Immediately reinvest to reset cost basis Over 10 years this can save lakhs in future LTCG

Real-life example

🇮🇳 India example

Vidya sells equity mutual fund units after 2 years. Purchase: Rs 5L. Sale: Rs 8.5L. Gain: Rs 3.5L. Exemption: Rs 1.25L. Taxable LTCG = Rs 2.25L. Tax = Rs 2.25L x 12.5% = Rs 28,125. Effective tax rate on total gain = only 8% -- still very tax-efficient.

Frequently asked questions

How can I reduce LTCG tax on equity? ▼

Tax harvesting: sell equity mutual fund units annually to book up to Rs 1.25L of gains tax-free, then immediately reinvest. This resets your cost basis. Over 10 years of regular harvesting you can save significantly compared to holding without harvesting.

Is LTCG applicable on ELSS redemption? ▼

Yes. After the 3-year mandatory lock-in, ELSS redemption gains are treated as LTCG at 12.5% above Rs 1.25L. However the 80C deduction on investment offsets this -- net tax efficiency of ELSS remains excellent.