Budget 2026 Capital Gains Changes: LTCG, STCG, and What Investors Need to Know
TL;DR
- Long-term capital gains on listed equities and equity mutual funds continue at 12.5% above the Rs. 1,25,000 annual exemption.
- Short-term capital gains under Section 111A continue at 20% on listed equities.
- Real estate sold after July 23, 2024, attracts 12.5% LTCG without indexation; older property retains the choice between 12.5% without indexation and 20% with indexation.
- Debt mutual funds purchased on or after April 1, 2023, are taxed at slab rates regardless of holding period.
- Reporting accuracy in AIS and Schedule CG of the ITR is under tighter scrutiny, so reconciliation is non-negotiable.
What this means in plain terms
The capital gains framework was overhauled comprehensively in earlier budgets, and Budget 2026 left it largely untouched. What changed is the enforcement side — the AIS now captures trades, mutual fund redemptions, and securities purchases automatically, and Schedule CG cross-checks are tighter. The window for "I forgot to mention that gain" is shrinking fast.
For a typical investor with mutual funds, stocks, an old flat, and maybe some gold, this means three things: keep clean records, redeem with the holding period in mind, and reconcile every line in your AIS before you file. The actual tax math is stable; the friction is now in the reporting.
Equity and equity mutual fund taxation
Long-term capital gains on equity
LTCG on listed equity shares and equity-oriented mutual funds (where domestic equity exposure is more than 65%) is taxed at 12.5% above the Rs. 1,25,000 annual exemption per Section 112A. The holding period for "long term" continues at 12 months.
Short-term capital gains on equity
STCG on the same set of assets attracts 20% under Section 111A as per current rules. This rate applies regardless of your slab. The holding period is anything less than 12 months.
Securities Transaction Tax
STT continues to apply on equity trades. Without STT being paid on the buy side, Section 111A and 112A rates do not apply — the gain becomes a regular capital gain taxed under the general provisions.
Debt and hybrid funds
Post April 2023 purchases
Units of debt mutual funds purchased on or after April 1, 2023, are taxed at slab rates as short-term capital gains regardless of how long you hold them. There is no indexation benefit. This includes liquid funds, short-duration funds, gilt funds, and corporate bond funds where equity exposure is below the relevant threshold.
Pre-April 2023 purchases
Units bought before April 1, 2023, retain the older treatment — held over 24 months, they are LTCG and taxed at 12.5% without indexation under the post-July 2024 rules.
Hybrid funds
For hybrid funds, the equity-versus-debt classification matters. Equity-oriented hybrids (>65% equity) follow Section 112A. Debt-oriented hybrids follow the slab-rate treatment for post-April 2023 purchases.
Real estate and other assets
Property bought before July 23, 2024
Sellers have the choice between two computations: 12.5% LTCG without indexation, or 20% LTCG with indexation. You pick whichever results in lower tax. This grandfathering is meaningful — for properties held for 15-plus years, indexation often still wins.
Property bought after July 23, 2024
LTCG is 12.5% without indexation. Holding period is 24 months.
Gold and unlisted shares
Physical gold and gold ETFs follow the 24-month holding period for LTCG and are taxed at 12.5% without indexation. Unlisted shares, including ESOP holdings in unlisted Indian companies and private equity stakes, also follow the 24-month holding period as per current rules.
A real example
Meet Rohan, 39, Rs. 32L CTC, Mumbai. He sold the following in FY 2025-26: Rs. 4,80,000 of equity mutual funds with a long-term holding period (cost Rs. 3,00,000), Rs. 1,20,000 of stocks within 8 months (cost Rs. 90,000), and a flat in Pune he bought in 2009 for Rs. 32,00,000 and sold for Rs. 78,00,000.
Here is how his capital gains tax would be computed:
- Equity MF LTCG: Rs. 4,80,000 minus Rs. 3,00,000 equals Rs. 1,80,000 gain. After Rs. 1,25,000 exemption, taxable LTCG is Rs. 55,000 at 12.5% — tax of Rs. 6,875.
- Equity stock STCG: Rs. 1,20,000 minus Rs. 90,000 equals Rs. 30,000 gain at 20% — tax of Rs. 6,000.
- Property LTCG: bought in 2009, sold post-July 2024. Choice between 12.5% without indexation on Rs. 46,00,000 (gain) equals Rs. 5,75,000, OR 20% with indexation. With CII indexation pushing cost to roughly Rs. 75,00,000, indexed gain is Rs. 3,00,000 at 20% equals Rs. 60,000. Indexation wins decisively.
- Add 4% cess on each computation. Pay advance tax in the quarter the gain accrued.
- File ITR-2 and report all entries under Schedule CG, matching exactly with AIS.
What to do this week
- Pull your broker P&L statement, mutual fund capital gains statement, and bank records of property sales.
- Reconcile every line against your AIS on incometax.gov.in.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
- If you sold property, compute both indexation and non-indexation routes side by side.
- Set aside advance tax for the next quarter so you do not get hit with Section 234C interest.
FAQ
Does the Rs. 1,25,000 LTCG exemption apply per scheme or in total?
In total. The Rs. 1,25,000 per financial year exemption is aggregated across all your equity LTCG — listed shares plus equity mutual funds combined.
Can I still use Section 54 to save tax on property LTCG?
Yes. Section 54 (reinvestment in residential property) and Section 54EC (investment in specified bonds, capped at Rs. 50,00,000) continue to be available subject to their respective conditions and timelines.
Are SGB redemptions taxable?
Redemption of Sovereign Gold Bonds at maturity is exempt from capital gains tax under the existing rules. Interim sales on the secondary market follow the regular gold taxation rules — 12.5% LTCG without indexation for holding periods above 24 months as per current rules.
What about US stocks and global mutual funds held by an Indian resident?
Foreign equities and global funds do not qualify under Section 112A. They are taxed at 12.5% LTCG without indexation if held above 24 months, or at slab rates as STCG otherwise. They also need to be reported in Schedule FA of ITR-2.
How are buyback proceeds treated?
Post the 2024 changes, buyback proceeds are taxable in the hands of the shareholder as dividend income — taxed at slab rates with no benefit of cost basis offset. The original cost of shares becomes a capital loss on those shares once tendered.
Is STT-paid still required for the lower 12.5% LTCG rate?
Yes for equity shares and equity-oriented mutual funds. If STT was not paid at purchase or redemption, Section 112A's preferential rate does not apply.
What is the penalty for misreporting capital gains?
Misreporting can attract penalties of 200% of the tax sought to be evaded under Section 270A, plus interest under Sections 234A/B/C. AIS reconciliation eliminates almost all genuine mistakes — file with care.
Sources
- https://www.indiabudget.gov.in/
- https://incometax.gov.in/
- https://www.sebi.gov.in/
- https://www.nseindia.com/
- https://finmin.nic.in/
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
