The guide explains capital gains taxation under the Income‑tax Act, 2025 for tax period 2026-27, highlighting that while the structure is reorganised, core principles remain largely unchanged. Capital gains arise from sale of assets like property, shares, and mutual funds, classified as short-term or long-term based on holding periods (typically 12 or 24 months). A key reform is the introduction of a uniform 12.5% tax rate on long-term capital gains for most assets, replacing the earlier 20% with indexation, though property transactions may still allow a choice between the two methods. Short-term gains on equity are taxed at 20%, while others follow slab rates. The exemption threshold for equity LTCG has increased to ₹1.25 lakh. Traditional tax-saving tools such as reinvestment, capital gains accounts, and loss set-off continue. Overall, the law simplifies language and structure while retaining familiar concepts, requiring taxpayers to focus on rate changes and planning strategies.
Capital Gains under the New Income‑tax Act, 2025 – Simple Guide for Tax Period 2026‑27
1. What does “capital gain” mean now?
Capital gain is the profit you make when you sell a capital asset for more than what it cost you, including normal purchase expenses like brokerage, stamp duty and registration charges.
Capital assets under the new Act continue to include:
- Land and building, residential and commercial
- Flats, plots and other immovable property
- Listed shares and units of mutual funds and ETFs
- Unlisted shares, debentures, bonds and AIF units
- Gold, jewellery, gold ETFs, REITs, InVITs and similar investments
If you sell for less than your total cost, the difference is a capital loss. That loss has its own rules for set‑off and carry‑forward. The concepts are the same as under the old 1961 Act; only sections and wording are re‑organised in the 2025 Act.
2. What is the difference between short‑term and long‑term under the new framework?
The new law keeps the same basic idea:
- Short‑term: asset held for a shorter period.
- Long‑term: asset held beyond a specified minimum period.
Finance (No. 2) Act, 2024 and later amendments have standardised holding periods and linked them to the new uniform 12.5% long‑term rate.
Broad pattern for assets sold in tax period 2026‑27 (you should still cross‑check final rules for special assets):
- Listed equity shares / equity‑oriented mutual funds / listed business trust units
- Short‑term: held 12 months or less
- Long‑term: held more than 12 months.
- Immovable property (land, building, flat)
- Short‑term: held 24 months or less
- Long‑term: held more than 24 months.
- Other listed financial assets (for example: listed debt funds, listed gold ETF, listed AIF units, listed REITs and InVITs)
- Finance (No. 2) Act, 2024 moves many such listed units to 12‑month long‑term period were listed on a recognised exchange in India.
- Unlisted shares, unlisted units and other unlisted capital assets
- Long‑term generally at 24 months (and in some cases 36 months) as per amended holding‑period rules, but with the same 12.5% long‑term rate where applicable.
The Income‑tax Act, 2025 mainly renumbers and clarifies these rules; it does not change the substance for 2026‑27 – those changes already came through the 2024 Budget and Finance Act.capage+2
3. What are the long‑term and short‑term tax rates in tax period 2026‑27?
For tax period 2026‑27, the rates are driven by Finance (No. 2) Act, 2024 and carried into the 2025 Act structure:
- Short‑Term Capital Gains (STCG)
- STCG on STT‑paid listed equity, equity MF, business trust units (old Section 111A)
- Rate increased from 15% to 20%.
- STCG on other assets (no special section)
- Taxed at normal slab rates, same as before.
- STCG on STT‑paid listed equity, equity MF, business trust units (old Section 111A)
- Long‑Term Capital Gains (LTCG)
- LTCG on listed equity, equity‑oriented mutual funds, business trust units (old Section 112A)
- Rate increased from 10% to 12.5%.
- Exemption threshold increased from ₹1,00,000 to ₹1,25,000 per tax period for resident taxpayers.
- LTCG on other assets (old Section 112)
- Uniform 12.5% rate without indexation on long‑term gains from other capital assets.
- Immovable property (land/building) – transitional choice
- For certain property acquired before specified dates, the law still allows a choice:
- 20% with indexation, or
- 12.5% without indexation, whichever works out lower.
- For certain property acquired before specified dates, the law still allows a choice:
- LTCG on listed equity, equity‑oriented mutual funds, business trust units (old Section 112A)
Exact section numbers in the 2025 Act are different (for example, capital gains chapter is under new clauses such as 196–203, and reinvestment sections appear as 85–88), but the effective rates for 2026‑27 are as above.
4. Is indexation gone completely?
No. Indexation has not disappeared, but its area has shrunk.
- Finance (No. 2) Act, 2024 introduced 12.5% long‑term rate without indexation as the general rule, replacing the old 20% with indexation regime for most assets.
- For listed equity and equity mutual funds, long‑term gains are taxed at 12.5% without indexation, with the higher ₹1.25 lakh exemption.
- For immovable property, a comparative option exists in many real‑world scenarios: 20% with indexation vs 12.5% without indexation, particularly where the property is old and indexation benefits are substantial.
In other words, for 2026‑27, you cannot assume indexation everywhere. You need to check:
- Asset type (equity vs property vs other)
- Date of acquisition
- Whether specific grandfathering or option for 20% with indexation is still open in that case
The Income‑tax Act, 2025 itself just rearranges these rules; rates and indexation options come from Finance Acts 2024 and 2026.taxguru+2
5. Example 1 – long‑term equity gain in tax period 2026‑27
Facts
- You buy 1,000 listed equity shares in May 2025 at ₹200 each. Cost: ₹2,00,000.
- You sell them in September 2026 at ₹350 each. Sale value: ₹3,50,000.
- STT is paid on purchase and sale.
- Holding period is more than 12 months → long‑term.
Computation
- Long‑term capital gain = ₹3,50,000 – ₹2,00,000 = ₹1,50,000.
- Exemption for long‑term equity gain: ₹1,25,000 per tax period.
- Taxable LTCG = ₹1,50,000 – ₹1,25,000 = ₹25,000.
- Tax @ 12.5% = ₹3,125 (plus surcharge and cess).
If you have no other long‑term capital gains in 2026‑27, your tax on this equity gain is only ₹3,125 because of the higher threshold.
6. Example 2 – long‑term sale of a flat in 2026‑27
Facts
- You bought a residential flat in June 2021 for ₹40,00,000 (assume full cost including stamp duty).
- You sell it in December 2026 for ₹80,00,000.
- Holding period is more than 24 months → long‑term property.
You now evaluate two options (this is typical for property in transitional phase):
Option A – 12.5% without indexation
- Long‑term capital gain = ₹80,00,000 – ₹40,00,000 = ₹40,00,000.
- Tax @ 12.5% = ₹5,00,000 (plus surcharge and cess).
Option B – 20% with indexation
- You compute indexed cost using the Cost Inflation Index (CII).
- Suppose indexed cost becomes ₹55,00,000. (This is only an illustration.)
- Indexed LTCG = ₹80,00,000 – ₹55,00,000 = ₹25,00,000.
- Tax @ 20% = ₹5,00,000 (plus surcharge and cess).
In this simplified illustration, both options give ₹5,00,000. In real cases, especially with very old properties, indexed cost may be much higher and 20% with indexation can still be better or worse depending on numbers.
For 2026‑27, you must compare both methods wherever the law gives you this choice.
7. How can I reduce or postpone capital gains tax under the new law?
The tools are broadly the same as under the 1961 Act; only the section numbers have changed. The Income‑tax Act, 2025 retains the reinvestment‑based exemptions, now clustered under new sections like 85–88 (corresponding to old sections 54–54F, etc.).
Common methods for 2026‑27:
1. Reinvesting in a residential house (old 54 / 54F, now in new capital‑gains chapter)
-
- If you sell a house or certain other capital assets and reinvest the gain or full sale proceeds into an eligible residential house within the specified period (typically 1 year before or 2–3 years after sale), you can claim full or partial exemption, subject to caps and conditions.
2. Capital Gains Account Scheme (CGAS)
-
- If you cannot utilise the amount before the due date for filing your income‑tax return, you may park the unutilised amount in a notified Capital Gains Account Scheme and still claim exemption, provided you later use the money within the permitted period for purchase or construction.
3. Timing of sale for equity and listed assets
-
- Because long‑term equity gains enjoy a ₹1.25 lakh annual exemption, you can spread sales over two tax periods to use the exemption in both years and reduce the taxable portion.
4. Set‑off and carry‑forward of capital losses
-
- Short‑term capital loss (STCL) can be set off against both STCG and LTCG.
- Long‑term capital loss (LTCL) can be set off only against LTCG.
- Unabsorbed losses can be carried forward for eight subsequent tax periods, provided the return is filed within the due date.
These rules are preserved in the 2025 Act with updated section numbers but similar conditions.
8. What about mutual funds, ETFs and other market products?
The 2024 amendments and later clarifications significantly reorganised how listed mutual funds and units are taxed:
- Equity‑oriented mutual funds and equity ETFs (listed, STT paid)
- Short‑term (≤12 months): taxed @ 20% (old Section 111A).
- Long‑term (>12 months): taxed @ 12.5% on gains exceeding ₹1.25 lakh per tax period (old Section 112A).
- Debt mutual funds, gold funds, hybrid funds, REIT/InvIT units, AIF units
- Where listed and meeting conditions, long‑term classification may be at 12 months with 12.5% rate.
- Where not covered by special provisions, they fall under the general 12.5% long‑term regime or normal slab for short‑term, as per updated Sections 112/112A‑equivalents in the 2025 Act.
Because product types and SEBI classifications differ, professionals should check each ISIN / product category against current CBDT instructions and notified rules for 2026‑27 before final advice.
9. Does the new Act treat NRIs very differently for capital gains?
For NRIs, capital gains logic is similar, but TDS and treaty relief are crucial:
- On sale of property by an NRI, buyers must deduct TDS at source on the sale consideration or estimated gains, often by applying standard long‑term capital gains rates (20% in indexed cases, 12.5% otherwise), plus surcharge and cess.
- NRIs can still:
- File a return for tax period 2026‑27,
- Compute tax using applicable 12.5% / 20% rules under the new framework, and
- Claim refund if TDS is higher than the final liability.
Where a DTAA (double tax treaty) exists, NRIs should also examine treaty articles on capital gains and claim relief through the return and appropriate forms (for example, TRC, Form 10F) as per CBDT rules. The 2025 Act does not disturb these treaty‑relief mechanisms.
10. Is capital‑gains law really “new”, or mainly re‑packed?
Most expert notes on the Income‑tax Act, 2025 say the capital‑gains structure is broadly retained; the main changes are:
- Sections are reorganised into a more logical sequence, with clear chapter headings.
- Definitions (like “capital asset”, “short‑term capital asset”, “long‑term capital asset”, “transfer”) are cleaned up but carry the same meaning as under the 1961 Act.
- Rates themselves are not in the 2025 Act; they continue to come from Finance Acts – in particular, Finance (No. 2) Act 2024 and Finance Act 2026.
- Long‑term capital gains have been rationalised to a uniform 12.5% in most cases, with the familiar equity exemption now at ₹1.25 lakh.pib+3
So, for tax period 2026‑27, you can frankly tell clients:
“Concepts are the same; only the layout, section numbers and some rates have changed. The law is trying to be cleaner and easier to navigate, not completely new.”
11. One combined example for tax period 2026‑27
Assume in tax period 2026‑27 you have three items:
1. Long‑term gain on listed shares and equity mutual funds: ₹2,00,000.
2. Long‑term gain on sale of a flat: ₹12,00,000, no reinvestment.
3. Short‑term loss on debt mutual funds: (₹50,000).
Step 1 – Equity LTCG
- Equity LTCG: ₹2,00,000.
- Exemption: ₹1,25,000.
- Taxable LTCG: ₹75,000.
- Tax @ 12.5% = ₹9,375.
Step 2 – Property LTCG
- Flat LTCG: ₹12,00,000.
- Assume you choose 12.5% without indexation (and no 54‑type exemption).
- Tax @ 12.5% = ₹1,50,000.
Step 3 – Set‑off STCL
- Short‑term loss of ₹50,000 can be set off against any capital gains, including long‑term.
- You may set it off against property LTCG (or equity LTCG). Suppose you set it off against property gain:
- Revised taxable property LTCG = ₹12,00,000 – ₹50,000 = ₹11,50,000.
- Tax @ 12.5% = ₹1,43,750.
Total capital‑gains tax for 2026‑27, before surcharge and cess
- On equity LTCG: ₹9,375.
- On property LTCG after set‑off: ₹1,43,750.
- Total = ₹1,53,125.
If instead you reinvest ₹12,00,000 into an eligible residential property within the time limit under the new reinvestment section (corresponding to old Section 54), you may be able to fully or partly exempt the property gain, leaving only the tax on equity gains.
12. Closing note for practitioners
For tax period 2026‑27, three points matter in daily practice:
1. Uniform 12.5% long‑term rate is now the rule, not the exception, but property and legacy assets sometimes still carry a 20% with indexation option – always compare.
2. Equity threshold raised to ₹1.25 lakh per period gives genuine relief to small investors; plan sales over periods where possible.
3. Section numbers have changed, but the familiar planning tools – reinvestment in houses, capital gains accounts, and loss set‑off – remain alive under the 2025 Act; only the cross‑references and form numbers need updating in your templates.
Indicative references for footnotes:
Author Bio
