Long-Term vs Short-Term Capital Gains: Complete Guide - LTCG & STCG Tax Rates, Holding Period FY 2026-27

The classification of capital gains into Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) is fundamental to India's capital gains taxation framework, with the holding period of the capital asset being the primary determinant. This distinction has profound implications for tax liability, as LTCG typically enjoys preferential tax rates (generally 12.5% for most assets post-Budget 2024) and exemptions such as ₹1.25 lakh threshold for equity, while STCG is taxed more heavily - either at flat 20% for equity or at applicable income tax slab rates for other assets. The holding period thresholds vary significantly across asset classes: 12 months for listed equity shares and equity mutual funds, 24 months for immovable property (land, building) and unlisted shares, and historically 36 months for other assets like gold, debt funds, and bonds (though recent reforms have standardized many thresholds to 24 months). Union Budget 2024-25 introduced sweeping changes effective 23rd July 2024, including removal of indexation benefits for most assets, increase in STCG rate on equity from 15% to 20%, uniform LTCG rate of 12.5% across asset classes, and enhanced exemption limit of ₹1.25 lakh for equity LTCG (up from ₹1 lakh). Understanding LTCG vs STCG classification is critical for tax planning, investment timing decisions, and optimizing post-tax returns across diverse portfolios containing equity, real estate, mutual funds, bonds, gold, and other capital assets. This comprehensive guide for FY 2026-27 covers all aspects of LTCG and STCG including definitions, asset-wise holding periods, tax rates, exemptions, indexation rules, Budget 2024 changes, calculation methodology, and strategic planning considerations.

What are Capital Gains?

Capital gains arise when a capital asset is transferred (sold, exchanged, relinquished, or extinguished) and the sale consideration exceeds the cost of acquisition. The profit or gain from such transfer is termed "capital gain" and is taxable under the head "Income from Capital Gains" in the year of transfer.

What is Holding Period?

The holding period is the duration for which a capital asset is held by the taxpayer from the date of acquisition to the date of transfer. This period determines whether the capital asset is classified as:

• Short-Term Capital Asset: Held for period equal to or less than prescribed threshold
• Long-Term Capital Asset: Held for period exceeding prescribed threshold

Important Notes:

• Date of Acquisition: Date when asset was purchased/acquired by taxpayer
• Date of Transfer: Date of sale deed registration (for property), date of sale contract (for shares), date of transfer of possession
• Both dates inclusive: Month in which acquired and month in which transferred both counted
• Inherited Assets: Holding period of previous owner also considered (stepped-up basis)
• Gifts: Holding period of donor considered in hands of donee

Long-Term Capital Asset (LTCA) - Definition & Holding Periods

A capital asset is classified as Long-Term Capital Asset (LTCA) if it is held for more than the prescribed minimum period. The holding period varies by type of asset.

Special Rules for Specific Assets

Short-Term Capital Asset (STCA) - Definition & Holding Periods

A capital asset is classified as Short-Term Capital Asset (STCA) if it is held for a period equal to or less than the prescribed threshold for long-term classification.

Tax Rates on Long-Term Capital Gains (LTCG)

LTCG enjoys preferential tax treatment compared to STCG, with specific rates and exemptions depending on the type of asset.

Special LTCG Provisions

Tax Rates on Short-Term Capital Gains (STCG)

STCG is generally taxed at higher rates than LTCG, either at flat rates or at applicable income tax slab rates depending on the asset type.

Special STCG Provisions

Budget 2024 Changes - Effective 23rd July 2024

Union Budget 2024-25 introduced significant reforms to capital gains taxation effective from 23rd July 2024:

Comparison: LTCG vs STCG

Asset-Wise Detailed Breakdown

Capital Gains Exemptions

Various exemptions are available for long-term capital gains under specific conditions:

Set-off and Carry Forward of Capital Losses

Advance Tax and TDS on Capital Gains

Reporting Capital Gains in ITR

Capital gains must be reported in Schedule CG (Capital Gains) of Income Tax Return.

Strategic Tax Planning for Capital Gains

Frequently Asked Questions (FAQs)

Key Takeaways FY 2026-27

• Classification based on holding period: LTCG (held longer) vs STCG (held shorter)
• Holding periods: 12 months for equity, 24 months for property/unlisted/other assets (post-Budget 2024 simplification)
• LTCG preferential rates: 12.5% uniform for most assets; ₹1.25L exemption for equity
• STCG higher rates: 20% for equity (increased from 15%), slab rates for others
• Budget 2024 reforms: Uniform 12.5% LTCG, 24-month holding period standardization, indexation removed (except pre-July 2024 property)
• Equity gains: STCG 20%, LTCG 12.5% above ₹1.25L (Section 112A, 111A)
• Property gains: STCG at slab rates, LTCG 12.5% or 20% with indexation (pre-July 2024 acquisitions)
• Exemptions available: Section 54, 54F, 54EC for LTCG on property
• No exemptions for equity LTCG (except ₹1.25L threshold), STCG, debt instruments
• Loss set-off: STCL against both STCG & LTCG; LTCL against LTCG only; carry forward 8 years
• Indexation removed for most assets post 23 July 2024; property bought before that date has choice
• CII FY 2024-25: 363 (for pre-July 2024 property with indexation option)
• Advance tax applicable on capital gains if total tax liability >₹10,000
• TDS 1% on property sale consideration >₹50L (Section 194IA)
• Report in ITR-2 Schedule CG; cannot use ITR-1/ITR-4 with capital gains
• CGAS facility to secure exemptions if investment delayed
• Tax planning: Hold beyond threshold, utilize ₹1.25L exemption, harvest losses, plan property exemptions

Conclusion

The distinction between Long-Term and Short-Term Capital Gains represents a fundamental pillar of India's income tax system, designed to incentivize long-term investment while ensuring appropriate taxation of speculative short-term trading. The holding period classification - 12 months for listed equity and equity mutual funds, 24 months for immovable property and most other assets post-Budget 2024 reforms - creates clear thresholds that profoundly impact tax liability through differential rates, exemptions, and indexation (where applicable). Understanding these thresholds and their implications is not merely an academic exercise but a critical component of effective tax planning that can translate into substantial tax savings for investors across all asset classes.

Union Budget 2024-25's comprehensive reforms to capital gains taxation, effective from 23rd July 2024, represent the most significant overhaul in decades. The simplification of holding periods from the earlier complex matrix (12/24/36 months varying by asset) to a streamlined structure (12 months for equity, 24 months for others) removes ambiguity and enhances compliance. The introduction of a uniform 12.5% LTCG rate across asset classes - replacing the earlier patchwork of 10%, 20%, and varied rates - brings welcome consistency, though the simultaneous removal of indexation benefits for most assets represents a trade-off that impacts long-term holders of non-equity assets. The grandfathering provision allowing pre-23rd July 2024 property owners to choose between 12.5% without indexation or 20% with indexation demonstrates policy pragmatism, protecting taxpayers from retrospective disadvantage.

The increase in equity STCG rate from 15% to 20% (under Section 111A) marks a significant deterrent to short-term equity trading, nudging investors toward longer holding periods that qualify for the preferential 12.5% LTCG rate under Section 112A. The concurrent enhancement of the equity LTCG exemption threshold from ₹1 lakh to ₹1.25 lakh provides relief to small and retail investors, ensuring that modest gains from long-term equity investments remain completely tax-free. This delicate balancing act - increasing STCG rates while enhancing LTCG exemptions - reflects policy intent to channel household savings into long-term equity participation that supports capital formation and economic growth.

The continued availability of exemptions under Sections 54, 54F, and 54EC for long-term property gains - with enhanced limits of ₹10 crores for residential property exemptions and ₹50 lakhs for specified bonds - ensures that taxpayers realizing gains from property sales for genuine residential needs or infrastructure investment can secure significant tax relief. The Capital Gains Account Scheme (CGAS) facility addresses the practical challenge of timing gaps between asset sale and qualifying investment, allowing taxpayers to secure exemption claims while conducting unhurried searches for suitable reinvestment opportunities.

For taxpayers navigating the LTCG vs STCG landscape in FY 2026-27, strategic planning requires holistic consideration of multiple factors: asset type, anticipated holding period, expected appreciation trajectory, tax bracket, availability of exemptions, and portfolio-level capital loss harvesting opportunities. The simple act of holding an equity position for 13 months instead of 11 months transforms tax liability from 20% STCG (Section 111A) to 12.5% LTCG (Section 112A) - potentially saving 7.5 percentage points on the entire gain. For a ₹10 lakh gain, this timing decision alone determines whether tax is ₹2 lakhs or potentially nil (within ₹1.25 lakh exemption) to ₹1.09 lakhs (on ₹8.75 lakh excess) - a difference of approximately ₹91,000 to ₹2 lakhs depending on total annual equity LTCG.

Similarly, for immovable property transactions, understanding the pre/post 23rd July 2024 acquisition date distinction and exercising the indexation choice judiciously can yield tax savings in lakhs. A property acquired in 2010 for ₹50 lakhs and sold in 2026 for ₹2 crores exemplifies this: without indexation, taxable gain is ₹1.5 crores (tax @ 12.5% = ₹18.75 lakhs); with indexation adjusting 2010 cost to approximately ₹1.3 crores using CII, taxable gain reduces to ₹70 lakhs (tax @ 20% = ₹14 lakhs). Choosing the 20% with indexation option saves ₹4.75 lakhs - a substantial amount justifying the modest effort of indexation computation.

The set-off and carry-forward provisions for capital losses present sophisticated tax optimization opportunities. Short-term capital losses function as universal offsets within the capital gains universe, adjustable against both STCG and LTCG, while long-term capital losses can only offset LTCG. Strategic realization of losses through tax-loss harvesting - systematically booking capital losses on underperforming investments before year-end to offset realized gains - transforms portfolio losses from mere disappointments into valuable tax shields. The eight-year carry-forward window provides extended flexibility, though the strict requirement of filing ITR on time to preserve this benefit underscores the importance of disciplined compliance.

From a compliance perspective, accurate reporting of capital gains in ITR-2 (or appropriate ITR form) Schedule CG demands meticulous record-keeping: purchase dates, sale dates, transaction values, brokerage/expenses, indexed costs where applicable, exemptions claimed, and CGAS deposits. The inability to use simplified ITR-1 Sahaj or ITR-4 Sugam forms when capital gains exist necessitates higher compliance rigor, and the advance tax obligations on capital gains (with special provisions for gains arising after 15th March) require proactive tax payment planning to avoid interest charges under Sections 234B and 234C.

The TDS mechanism under Section 194IA (1% on property sale consideration exceeding ₹50 lakhs) creates a withholding tax collection point that sellers must factor into liquidity planning and claim as credit against final tax liability. For high-value property transactions, this TDS can amount to lakhs, temporarily tying up substantial funds until ITR processing and refund realization - a cash flow consideration particularly relevant for sellers planning immediate reinvestment under Section 54/54F exemptions.

Looking ahead, the capital gains taxation framework will likely continue evolving in response to fiscal needs, equity market dynamics, real estate market conditions, and policy objectives around investment promotion versus revenue mobilization. Potential future reforms could include further rationalization of holding periods, adjustments to exemption thresholds in line with inflation, modifications to loss set-off rules, and enhanced digital integration between demat accounts, mutual fund registrars, property registrars, and the income tax department for pre-filled capital gains schedules reducing compliance burden.

For taxpayers, mastering the LTCG vs STCG distinction and its tax implications represents foundational financial literacy essential for investment success. Whether you're a salaried professional building equity portfolio for retirement, an entrepreneur holding unlisted startup equity, a property investor managing real estate holdings, or a trader active in equity markets, understanding how holding periods determine tax classification and consequently tax liability empowers better investment decisions. The difference between selling an equity position at 11 months versus 13 months, holding property for 23 months versus 25 months, or structuring property sales to qualify for Section 54/54F exemptions versus accepting full taxation - these seemingly minor timing and structuring decisions aggregate across a lifetime of investing into substantial wealth differences.

In conclusion, the LTCG vs STCG framework embodies a carefully calibrated policy balancing multiple objectives: incentivizing patient capital formation over speculative trading, mobilizing tax revenue from investment gains while providing relief to small investors, simplifying compliance through standardized thresholds and rates, and offering targeted exemptions for socially desirable investments like residential property and infrastructure bonds. Navigating this framework successfully requires staying current with budget amendments, understanding asset-specific rules, maintaining comprehensive records, engaging professional tax advice for complex scenarios, and integrating tax considerations seamlessly into investment strategy - not as an afterthought but as a core determinant of post-tax returns. As capital gains become an increasingly significant income source for India's growing investor class, mastering the long-term versus short-term distinction evolves from technical knowledge into essential wealth management capability that separates financially sophisticated investors from those who inadvertently surrender substantial portions of their gains to avoidable taxes.

Realized Capital Gains? Need Tax Planning Guidance? Consult qualified Chartered Accountants for optimal holding period strategies, exemption planning, and loss harvesting. Explore our guides on Capital Gains Tax, Section 112A (Equity LTCG), Section 111A (Equity STCG), Section 54 (Property Exemptions), and CGAS for comprehensive capital gains tax planning.