Capital Gains Tax in India (FY 2025–26, AY 2026–27)

Capital gains tax in India applies when you sell an investment for more than you paid. This guide is intended for resident individual investors seeking to understand capital gains tax rules for FY 2025–26.
Under the Indian Income Tax Act, 1961, this profit—known as capital gains—is subject to taxation. Whether you’re selling shares, redeeming mutual funds, offloading real estate, liquidating gold holdings, or divesting foreign stocks, the gains you realize attract what’s commonly called capital gains tax.

Capital gains tax in India applies when you sell an investment for more than you paid. This guide is intended for resident individual investors seeking to understand capital gains tax rules for FY 2025–26. Under the Indian Income Tax Act, 1961, this profit—known as capital gains—is subject to taxation.

Whether you’re selling shares, redeeming mutual funds, offloading real estate, liquidating gold holdings, or divesting foreign stocks, the gains you realize attract what’s commonly called capital gains tax.

Long-term capital gains tax (LTCG) is levied on profits earned from selling capital assets such as property, stocks, and mutual funds. Understanding these rules is crucial for optimizing your tax liability and ensuring compliance with Indian tax laws.

This guide focuses specifically on resident individual investors navigating the rules for Financial Year 2025–26 (1 April 2025 to 31 March 2026), which corresponds to Assessment Year 2026–27.

The rules governing capital gains have seen significant changes following Budget 2024, including adjustments to tax rates, holding period thresholds, and the treatment of indexation. Understanding these changes is essential for anyone looking to optimize their tax liability while remaining compliant.

What This Article Covers

Capital gains are classified into two broad categories: short term capital gains (STCG) and long term capital gain (LTCG). The classification depends on how long you hold an asset before selling it, and this distinction directly affects the tax rates you pay. Different asset classes—equity shares, debt funds, property, gold, and foreign investments—each have their own specific rules.

In the sections that follow, we’ll break down the meaning and classification of capital gains under the income tax act, the key tax rates in force after recent Budget changes, and the step-by-step mechanics of calculating your tax liability with rupee examples.

Toward the end, you’ll find a section explaining how digital portfolio tools like Novelty Wealth can help track and estimate capital gains tax across your investments. We’ll close with a legal and tax disclaimer to ensure you’re aware of the limitations of general guidance.

What Is Capital Gains Tax under the Income Tax Act?

Capital gains tax is levied on the profit you make when you transfer a capital asset. But what exactly qualifies as a capital asset, and how is the gain calculated?

Under Section 2(14) of the income tax act, a capital asset is defined as property of any kind held by a person, whether or not connected with their business.

A 'capital asset held' refers to an asset owned for a specific period, and the duration for which it is held determines whether it is subject to long-term or short-term capital gains tax treatment under the Income Tax Act.

This broad definition encompasses:

• Securities such as equity shares, bonds, and debentures
• Units of mutual funds (both equity and debt)
• Immovable property including land and buildings
• Gold, jewellery, and precious metals
• Foreign stocks and international securities (note: foreign shares are not listed on any recognized Indian stock exchange, which affects their tax classification)
• Any other property held for investment purposes

However, certain items are explicitly excluded from the definition of capital asset:

• Stock-in-trade, raw materials, or consumable stores used in business
• Personal effects such as clothes, furniture, and vehicles used personally (though jewellery and works of art remain taxable)
• Agricultural land situated in rural areas as defined under the Act (under the head capital gains, agricultural land in rural India is not considered a capital asset, and gains from its sale are not taxable)

The profit (or capital gain arising from the transfer) is calculated using a straightforward formula. You start with the full value consideration (the sale price or redemption value), then subtract the cost of acquisition, any cost of improvement you’ve incurred, and the expenditure incurred wholly and exclusively in connection with the transfer (such as brokerage fees or legal costs).

Capital gains are taxed in the year in which the “transfer” occurs, as per Section 45 of the Act. This means even if you receive the sale proceeds in a subsequent financial year, the tax liability crystallizes in the year of such transfer—whether that’s a sale, redemption, exchange, or any other form of disposal.

One important clarification: when you receive assets through inheritance or gift, the act of receiving does not trigger capital gains income for you. However, when you subsequently sell those inherited or gifted assets, capital gains will apply.

In such cases, you use the previous owner’s cost of acquisition and add their holding period to yours when determining whether the gain is short-term or long-term.

Now that we've defined capital assets and how gains are calculated, let's look at how assets are classified for tax purposes.

Types of Capital Assets

Capital gains tax in India is levied on profits earned from selling capital assets such as property, stocks, gold, or mutual funds. Capital assets in India are broadly classified into two main categories: immovable and movable assets.

Immovable Assets

Immovable assets include properties such as land, buildings, and residential houses. These are often significant investments for families and individuals, and the capital gains tax treatment for such assets can vary based on how long you hold them. For example, if you sell a residential house and reinvest the capital gains in another residential property within the prescribed time frame, you may be eligible for certain tax exemptions under the Income Tax Act.

Movable Assets

Movable assets encompass financial instruments and valuables such as stocks, bonds, mutual funds, and jewellery. The gains tax on these assets depends on the holding period and the specific asset class. For instance, capital gains from mutual funds are taxed differently based on whether the fund is equity-oriented or debt-oriented, and whether the holding period qualifies as short-term or long-term.

Understanding the classification of your capital asset and its corresponding holding period is crucial, as it directly impacts the applicable capital gains tax rate and your overall tax liability.

With this understanding of asset types, let's move on to how the holding period affects the classification and taxation of your capital gains.

Short-Term vs Long-Term Capital Gains (Holding Period Rules)

Gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the holding period of the asset. Capital gains are calculated differently for assets held for a longer period and for those held over a shorter period. Rates of capital gains tax in India depend on asset type and holding period: Short-Term (STCG) or Long-Term (LTCG).

The classification of your gain as STCG or LTCG hinges entirely on how long you held the asset before selling it. This classification directly affects both the applicable tax rate and whether you can claim the indexation benefit on eligible assets.

Following the changes introduced by Budget 2024 (effective from 23 July 2024), the holding period rules for FY 2025–26 are as follows:

For Listed Equity Shares and Equity Oriented Mutual Funds:

• Long-term if held for more than 12 months
• Short-term if held for 12 months or less

For Units of Business Trusts (REITs/InvITs):

• Long-term if held for more than 12 months
• Short-term if held for 12 months or less

For Unlisted Shares and Immovable Property (Land/Building):

• Long-term if held for more than 24 months
• Short-term if held for 24 months or less

For Gold, Gold ETFs, Jewellery, Bonds, and Most Other Assets:

• Long-term if held for more than 24 months (this threshold was reduced from 36 months under Budget 2024)
• Short-term if held for 24 months or less

For Debt Mutual Funds Acquired On or After 1 April 2023:

• Treated as short-term regardless of holding period (special rule introduced by Finance Act 2023)

Inherited and Gifted Assets

For assets received via gift or inheritance, the holding period of the previous owner is added to your own holding period. So if your father held shares for 8 months before gifting them to you, and you hold them for another 6 months before selling, the combined holding period of 14 months would qualify as long-term for listed equity shares.

Quick Illustrations

Example 1 – Equity Shares:

• Purchase date: 1 January 2024
• Sale date: 10 February 2025
• Holding period: Approximately 13 months
• Classification: LTCG (held over a year)

If the same shares were sold on 10 December 2024 (about 11 months), the gain would be STCG.

Example 2 – Residential Property:

• Purchase date: June 2022
• Sale date: August 2025
• Holding period: Approximately 38 months
• Classification: LTCG (held more than 24 months)

This distinction matters because term capital gains tax rates and calculation methods differ significantly between STCG and LTCG.

Now that you know how gains are classified based on holding period, let's examine the current tax rates for each category.

Current Capital Gains Tax Rates in India (FY 2025–26)

Tax rates on capital gains vary based on the type of asset and whether the gain is short-term or long-term. The rates described below reflect the law as of Budget 2024, with changes effective from 23 July 2024.

Comparison Table: STCG and LTCG Tax Rates Across Asset Classes

STCG on Listed Equity Shares and Equity Oriented Funds (Section 111A)

When you sell listed equity shares or units of equity oriented mutual funds where Securities Transaction Tax (STT) has been paid, and the holding period is 12 months or less, the gain is taxed under Section 111A.

• Tax Rate: 20% (increased from 15% under Budget 2024)
• This is a flat rate, not dependent on your income slab
• Surcharge and health & education cess (4%) apply on top

STCG on Other Assets

For assets not covered under Section 111A—such as property sold within 24 months, gold sold within 24 months, debt funds, foreign shares, and other short term capital asset categories—the gain is added to your taxable income and taxed at your applicable slab rate.

• Tax Rate: As per your income tax slab (could be 5%, 20%, or 30% depending on your total income under the old regime, or the applicable rates under the new tax regime)

LTCG on Listed Equity and Equity Oriented Funds (Section 112A)

For listed equity shares, equity mutual funds, and business trust units where STT is paid and holding exceeds 12 months, term capital gains ltcg is taxed under Section 112A.

• Tax Rate: 12.5% without indexation (increased from 10% under Budget 2024)
• Exemption Threshold: Capital gains earned up to ₹1,25,000 per year from these assets are tax free
• Only the amount exceeding ₹1.25 lakh is subject to the 12.5% rate

Example: If your total eligible equity LTCG in FY 2025–26 is ₹2,00,000, then:

• Exempt amount: ₹1,25,000
• Taxable gain: ₹75,000
• Tax payable: ₹75,000 × 12.5% = ₹9,375 (plus surcharge and cess)

LTCG on Other Assets (Section 112)

For long term capital assets such as immovable property, gold, unlisted shares, and older debt fund units, the gains tax treatment has been simplified under Budget 2024.

• Tax Rate: 12.5% without indexation (for transfers on or after 23 July 2024)
• The earlier regime allowed 20% with indexation under Section 112, but this indexation benefit has been removed for most assets under the new uniform rate

For assets sold before 23 July 2024, the legacy 20% rate with indexation may still apply. Taxpayers should verify the applicable rules based on their specific transfer date.

Note that surcharge and health & education cess (currently 4%) continue to apply on top of these base rates, though detailed surcharge slabs are beyond the scope of this article.

With the tax rates clarified, let's move on to the key concepts and steps involved in calculating your capital gains.

Key Concepts for Calculating Capital Gains

Whether you’re calculating capital gains on a stock sale, property disposal, or gold liquidation, the fundamental approach remains the same. Section 48 of the income tax act governs the computation.

Full Value Consideration

• The total sale price or redemption proceeds you receive (or are entitled to receive) from the transfer.
• For securities, it’s typically the amount shown on your broker’s contract note.
• For property, it’s the amount stated in the sale deed.

Special Rule for Property (Section 50C):

• If the stamp duty valuation of land or building exceeds the actual sale consideration, the stamp duty value may be deemed as the full value consideration for tax purposes.
• However, a safe harbour exists—if the stamp duty value doesn’t exceed 110% of the declared consideration, the declared amount is accepted.

Cost of Acquisition

• The amount you originally paid to acquire the asset, including:
  • Purchase price of the asset
  • Brokerage charges and commissions paid at acquisition
  • Stamp duty and registration fees (for property)
  • Other costs directly related to the purchase

Note: STT paid on purchase of securities is generally not added to the acquisition cost.

Example – Stock Purchase: You buy shares worth ₹1,00,000 and pay ₹500 as brokerage. Your cost of acquisition is ₹1,00,500.

Example – Property Purchase: You buy a flat for ₹50,00,000 and pay ₹3,00,000 as stamp duty and registration. Your cost of acquisition is ₹53,00,000.

Cost of Improvement

• Capital expenditure incurred to enhance or improve the asset after acquisition.
• For real estate, this might include:
  • Construction of additional rooms or floors
  • Major renovations that materially increase the property’s value
  • Structural improvements

Routine repairs and maintenance do not qualify as cost of improvement.

Example: You spend ₹5,00,000 adding a floor to your residential house property. This amount qualifies as cost of improvement and can be deducted when computing capital gains.

Expenditure on Transfer

• Costs directly incurred to effect the sale, including:
  • Brokerage or agent’s commission
  • Legal fees related to the transfer
  • Advertisement expenses for selling the property
  • Any other expenditure incurred wholly and exclusively for the transfer

Indexation and the Cost Inflation Index

• Indexation allows you to adjust your cost of acquisition for inflation, thereby reducing your taxable gain.
• The adjustment uses the cost inflation index (CII) published by the central government.

Formula for Indexed Cost of Acquisition:

Indexed Cost = Original Cost × (CII of Year of Sale ÷ CII of Year of Purchase)

Important Note for FY 2025–26:

Under Budget 2024, the indexation benefit has been removed for most long term capital assets. LTCG is now taxed at a uniform 12.5% without indexation for transfers occurring on or after 23 July 2024. For transfers before this date, the legacy 20% with indexation may apply.

Worked Example – Property Sale (Legacy Method)

Consider a flat purchased in FY 2014–15:

• Purchase cost: ₹40,00,000
• Sale value in FY 2025–26: ₹90,00,000
• CII for FY 2014–15: 240 (representative)
• CII for FY 2024–25: 363 (notified by CBDT)

Indexed Cost of Acquisition:

₹40,00,000 × (363 ÷ 240) = ₹60,50,000

LTCG:

₹90,00,000 – ₹60,50,000 = ₹29,50,000

Under the old regime, this would be taxed at 20%. Under the new regime (post 23 July 2024), the gain is computed without indexation at 12.5%.

With these concepts in mind, let's see how to calculate short-term and long-term capital gains step by step.

How to Calculate Short-Term Capital Gains (STCG) – Step by Step

STCG calculation is straightforward because indexation does not apply regardless of the asset class. You simply deduct your costs from the sale proceeds. Taxpayers are required to pay tax on capital gains realized from the sale of assets as per prevailing tax laws.

It is important to note that certain capital gains may be subject to specific tax rates or regulations, depending on the asset class and recent tax reforms.

Steps to Calculate STCG

1. Determine Full Value of Consideration:
   The total sale price or redemption value received.
2. Subtract Cost of Acquisition:
   The original purchase price plus any eligible charges.
3. Subtract Cost of Improvement (if any):
   Only capital improvements, not routine repairs.
4. Subtract Expenditure on Transfer:
   Brokerage, legal fees, etc.
5. Result:
   The amount left is your Short-Term Capital Gain.
6. Formula:
   STCG = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Expenditure on Transfer)

Worked Example 1 – Equity Shares (Section 111A)

Let’s walk through a complete calculation:

Transaction Details:

• Asset: 100 shares of a listed Indian company
• Purchase Date: 1 May 2025
• Purchase Price: ₹500 per share (₹50,000 total)
• Purchase Brokerage: ₹1,000
• Total Cost of Acquisition: ₹51,000

Sale Details:

• Sale Date: 15 December 2025 (holding period: ~7.5 months)
• Sale Price: ₹560 per share (₹56,000 total)
• Selling Charges: ₹1,000
• Full Value of Consideration: ₹56,000

Calculation:

• STCG = ₹56,000 – (₹51,000 + ₹1,000)
• STCG = ₹56,000 – ₹52,000
• STCG = ₹4,000

Since STT was paid and the asset is a listed equity share held for less than 12 months, this STCG falls under Section 111A and is taxed at 20%.

Tax Liability:

₹4,000 × 20% = ₹800 (plus applicable surcharge and cess)

Worked Example 2 – Gold Jewellery

Transaction Details:

• Asset: Gold jewellery
• Purchase Date: October 2024
• Purchase Price: ₹3,00,000
• Sale Date: February 2026
• Sale Price: ₹3,50,000
• Holding Period: ~16 months (less than 24 months)
• Selling Costs: Negligible (assumed zero)

Calculation:

• STCG = ₹3,50,000 – ₹3,00,000
• STCG = ₹50,000

Since this is a short term capital asset (gold held less than 24 months), the gain is taxed at your applicable slab rate. If you’re in the 30% bracket under the old regime, your tax would be approximately ₹15,000 (plus surcharge and cess).

Setting Off Capital Losses

• Short-term capital losses can be set off against both STCG and LTCG in the same year.
• Unabsorbed short-term losses can be carried forward for 8 assessment years (provided your income tax return is filed within the due date).
• Long-term capital losses can only be set off against long term gains.

Now, let's see how to calculate long-term capital gains.

How to Calculate Long-Term Capital Gains (LTCG) – Step by Step

LTCG calculation may involve indexation for eligible assets (where the law still permits it) or a straight computation without indexation for equity and equity oriented funds. The method depends on the asset type and applicable tax rules.

Steps to Calculate LTCG

For Non-Equity LTCG (With Indexation)

1. Determine Full Value of Consideration
2. Subtract Indexed Cost of Acquisition
3. Subtract Indexed Cost of Improvement (if any)
4. Subtract Expenditure on Transfer
5. Result: The amount left is your Long-Term Capital Gain.

Formula:

LTCG = Full Value of Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Expenditure on Transfer)

For Equity LTCG (Without Indexation)

1. Determine Full Value of Consideration
2. Subtract Cost of Acquisition
3. Subtract Expenditure on Transfer
4. Result: The amount left is your Long-Term Capital Gain.

Formula:

LTCG = Full Value of Consideration – (Cost of Acquisition + Expenditure on Transfer)

Worked Example 1 – Listed Equity Shares (Section 112A)

Transaction Details:

• Asset: 200 shares of a listed Indian company
• Purchase Date: 1 March 2024
• Purchase Price: ₹400 per share (₹80,000 total)
• Purchase Charges: ₹500
• Total Cost: ₹80,500

Sale Details:

• Sale Date: 10 April 2026 (holding period: ~25 months)
• Sale Price: ₹650 per share (₹1,30,000 total)
• Selling Charges: ₹500
• Net Sale Proceeds: ₹1,29,500

Calculation:

• LTCG = ₹1,29,500 – ₹80,500
• LTCG = ₹49,000

This gain is aggregated with other equity LTCG under Section 112A for the year. If total eligible LTCG from equity shares and equity oriented mutual funds doesn’t exceed ₹1,25,000, no tax is payable. Only the excess is taxed at 12.5%.

If Total Equity LTCG = ₹1,50,000:

• Exempt: ₹1,25,000
• Taxable: ₹25,000
• Tax: ₹25,000 × 12.5% = ₹3,125 (plus surcharge and cess)

Worked Example 2 – Residential Property (Without Indexation Under New Rules)

Transaction Details:

• Asset: Apartment (residential property)
• Purchase Date: June 2016
• Purchase Price: ₹60,00,000
• Registration & Stamp Duty: ₹3,00,000
• Total Cost of Acquisition: ₹63,00,000

Sale Details:

• Sale Date: November 2025 (holding period: ~113 months)
• Sale Price: ₹1,20,00,000
• Brokerage: ₹2,00,000
• Expenditure on Transfer: ₹2,00,000

Calculation (Under New 12.5% Regime Without Indexation):

• LTCG = ₹1,20,00,000 – (₹63,00,000 + ₹2,00,000)
• LTCG = ₹1,20,00,000 – ₹65,00,000
• LTCG = ₹55,00,000

Tax at 12.5%:

₹55,00,000 × 12.5% = ₹6,87,500 (plus surcharge and cess)

Note: For transfers occurring before 23 July 2024, the legacy 20% rate with indexed cost may have applied, potentially resulting in a different (and sometimes lower) tax liability.

Carrying Forward Long-Term Losses

• Long-term capital losses can only be set off against long term gains—not against STCG or other income.
• If you cannot fully utilize your long-term losses in the current year, you may carry them forward for up to 8 assessment years, provided you file your income tax return within the due date.

With the calculation methods clear, let's explore how capital gains tax applies to different investment categories, and why understanding how investments are taxed in India is crucial for realistic, post-tax return planning.

Capital Gains Tax on Shares and Stock Market Investments

Indian residents commonly generate capital gains income from various stock market investments, including listed equity shares, equity mutual funds, index funds, ETFs, and debt mutual funds. Each category has distinct tax implications.

Listed Equity Shares and Equity Oriented Mutual Funds

For investments where STT is paid at the time of sale:

Short-Term (Holding ≤ 12 Months)

• Taxed under Section 111A at 20%
• No indexation available
• Added to your tax liability separately from slab-based income

Long-Term (Holding > 12 Months)

• Taxed under Section 112A at 12.5%
• No indexation available
• Gains up to ₹1,25,000 per year are exempt
• Only gains exceeding the threshold attract tax

Combined Illustration:

Suppose in FY 2025–26, you realize:

• LTCG of ₹80,000 from selling shares of Company A
• LTCG of ₹60,000 from redeeming equity mutual fund units
• Total Equity LTCG: ₹1,40,000

Tax Calculation:

• Exempt: ₹1,25,000
• Taxable: ₹15,000
• Tax: ₹15,000 × 12.5% = ₹1,875

Debt Mutual Funds

The taxation of debt funds underwent significant changes with Finance Act 2023:

Units Acquired On or After 1 April 2023

• Treated as short-term regardless of how long you hold them
• Gains are added to your ordinary income and taxed at your slab rate
• No indexation benefit, no long-term capital gain treatment

Units Acquired Before 1 April 2023

• May still qualify for long-term treatment if held beyond the applicable threshold (typically 36 months)
• These “grandfathered” units may enjoy more favourable treatment, though indexation has been largely removed under the new regime

Example Comparison:

• Old Rule (Units Bought March 2023, Sold April 2027): LTCG with potential indexation benefit at 20%
• New Rule (Units Bought May 2023, Sold April 2027): STCG at slab rate (could be 30% for high earners)

Futures & Options (F&O)

F&O contracts are typically classified as business income rather than capital gains for most active traders under Indian tax practice. Profits and losses from F&O trading fall under “Income from Business or Profession” and are subject to different rules, including audit requirements above certain thresholds. This article focuses on capital investments and does not cover F&O taxation in detail.

Record-Keeping Essentials

Accurate records are critical for correct STCG/LTCG classification. Maintain:

• Purchase dates and quantities for each security
• ISIN numbers for identification
• Broker contract notes showing acquisition cost and charges
• STT payment details (visible on contract notes)
• Sale dates and proceeds

With stock market investments covered, and tools like a stock portfolio management app for Indian investors making it easier to track trades and tax lots, let's move to gold and gold-related investments.

Capital Gains Tax on Gold and Gold-Related Investments

Gold is a popular investment among Indian households, held in various forms—each with slightly different tax implications.

Certain exemptions may apply to gold assets held under the gold monetisation scheme, which can affect their tax treatment, and investors often turn to specialised personal finance and investing resources to stay updated on such nuances.

Physical Gold and Jewellery

When gold jewellery or bars are held as an investment (not mere personal adornment), gains from their sale attract capital gains tax.

Holding Period Thresholds (Post Budget 2024)

• STCG: Held for 24 months or less
• LTCG: Held for more than 24 months

Tax Rates

• STCG: At your applicable slab rate
• LTCG: 12.5% without indexation (for transfers on or after 23 July 2024)

Example:

• Purchase: Gold worth ₹5,00,000 in May 2021
• Sale: ₹7,00,000 in July 2025
• Holding Period: ~50 months (more than 24 months)
• LTCG: ₹2,00,000
• Tax at 12.5%: ₹25,000 (plus surcharge and cess)

Gold ETFs and Gold Mutual Funds

Gold ETFs and gold mutual funds are classified as non-equity mutual funds for tax purposes. Their treatment depends on when units were acquired:

Units Acquired On or After 1 April 2023

• All gains treated as short-term, taxed at slab rate

Units Acquired Before 1 April 2023

• May qualify for LTCG treatment if held beyond applicable threshold
• LTCG taxed at 12.5% without indexation under current rules

Example:

• Purchase: Gold fund units worth ₹2,00,000 in March 2022
• Redemption: ₹2,80,000 in April 2026 (held ~49 months)
• LTCG: ₹80,000
• Tax at 12.5%: ₹10,000 (if grandfathered units qualify for LTCG)

Sovereign Gold Bonds (SGBs)

SGBs issued by RBI enjoy special tax treatment:

Redemption at Maturity (with RBI)

• Capital gains are completely exempt for individual investors
• This applies to the 8-year maturity period (or reduced period as notified for certain tranches)
• This makes SGBs tax-efficient compared to physical gold

Sale on Stock Exchange Before Maturity

• Capital gains apply based on holding period
• STCG vs LTCG determined as per non-equity rules
• Tax rates similar to other debt instruments

Note that the gold deposit scheme and national defence gold bonds may have different provisions—consult specific rules for these instruments.

Documentation Requirements

Maintain proper records for all gold investments:

• Purchase bills and invoices for physical gold and jewellery
• Demat and broker statements for gold ETFs
• SGB holding certificates and transaction statements
• Records of any improvements or making charges

Next, let's discuss capital gains tax on foreign stocks for Indian residents.

Capital Gains Tax on Foreign Stocks for Indian Residents

With the Liberalised Remittance Scheme (LRS) enabling investments abroad, many Indian residents now hold US stocks, international ETFs, and foreign mutual funds. Understanding the tax implications of these investments is essential.

Classification and Holding Periods

Foreign shares (such as US stocks on NYSE/NASDAQ) are treated as “unlisted securities” from an Indian tax perspective because they are not listed on any recognised Indian stock exchange.

Holding Period Thresholds

• STCG: Held for 24 months or less
• LTCG: Held for more than 24 months

Tax Rates

• STCG: At your applicable slab rate
• LTCG: 12.5% without indexation (under Budget 2024 rules)

Important: Foreign stocks do not qualify for the ₹1.25 lakh LTCG exemption under Section 112A—that benefit applies only to STT-paid listed equity on Indian exchanges.

Conversion to INR

• All computations must be done in Indian Rupees.
• When acquiring foreign stocks, convert the purchase price to INR at the exchange rate on the acquisition date.
• When selling, convert sale proceeds at the rate on the transfer date.
• The gain or loss in INR is what gets taxed.

Worked Example – US Stock Investment

Transaction Details:

• LRS Remittance: USD 5,000 in July 2023
• Purchase: 50 shares at USD 100 each
• Exchange Rate at Purchase: 1 USD = ₹82
• Cost of Acquisition: ₹4,10,000

Sale Details:

• Sale Date: October 2026
• Sale Price: USD 150 per share (50 × USD 150 = USD 7,500)
• Exchange Rate at Sale: 1 USD = ₹85
• Sale Consideration in INR: ₹6,37,500

Calculation:

• Holding Period: \~39 months (more than 24 months) → LTCG
• LTCG = ₹6,37,500 – ₹4,10,000 = ₹2,27,500
• Tax at 12.5%: ₹28,438 (plus surcharge and cess)

International Mutual Funds

• Foreign equity mutual funds or feeder funds that invest predominantly overseas are generally treated as non-equity mutual funds for Indian tax purposes.
• STCG: Taxed at slab rate
• LTCG (if applicable): 12.5% without indexation

Disclosure and Compliance

If you hold foreign assets or earn foreign income:

• Disclose foreign assets in the appropriate schedule of your income tax return
• Consider foreign tax credit rules if any foreign taxes are withheld (though capital gains on US stocks typically aren’t withheld for Indian residents)
• Maintain records of all foreign exchange transactions and conversion rates used

Now, let's see a comprehensive example of capital gains calculations for an individual investor.

Examples: End-to-End Capital Gains Calculations for an Individual Investor

Let’s construct a realistic scenario for an Indian resident salaried professional in FY 2025–26 who has multiple investments.

The Scenario

Rahul, a 35-year-old IT professional, makes the following transactions during FY 2025–26:

Transaction 1 – Indian Listed Shares (STCG)

• Buy: 200 shares on 1 August 2025 at ₹500 each = ₹1,00,000
• Charges: ₹1,000 (purchase) + ₹1,000 (sale)
• Sell: 15 December 2025 at ₹550 each = ₹1,10,000
• Holding: ~4.5 months → STCG

Calculation:

• Cost: ₹1,00,000 + ₹1,000 = ₹1,01,000
• Sale Value: ₹1,10,000
• Expenditure on Transfer: ₹1,000
• STCG = ₹1,10,000 – ₹1,01,000 – ₹1,000 = ₹8,000

Transaction 2 – Equity Mutual Fund (LTCG)

• Buy: Units worth ₹50,000 on 1 November 2023
• Charges: ₹500 each side
• Sell: 1 May 2025 for ₹70,000
• Holding: 18 months → LTCG

Calculation:

• Cost: ₹50,000 + ₹500 = ₹50,500
• Net Sale Proceeds: ₹70,000 – ₹500 = ₹69,500
• LTCG = ₹69,500 – ₹50,500 = ₹19,000

Transaction 3 – Gold Jewellery (LTCG)

• Buy: January 2024 for ₹2,50,000
• Sell: February 2026 for ₹3,00,000
• Holding: ~25 months → LTCG

Calculation:

• LTCG = ₹3,00,000 – ₹2,50,000 = ₹50,000

Transaction 4 – US Stock (LTCG)

• Buy: October 2022 for ₹3,00,000 (INR equivalent)
• Sell: December 2025 for ₹4,50,000 (INR at sale date)
• Holding: ~38 months → LTCG

Calculation:

• LTCG = ₹4,50,000 – ₹3,00,000 = ₹1,50,000

Aggregation and Tax Calculation

STCG Summary:

• Equity STCG (Section 111A): ₹8,000
• Tax Rate: 20%
• STCG Tax: ₹1,600

LTCG Summary:

• Equity Mutual Fund LTCG (Section 112A): ₹19,000
• Gold LTCG (Section 112): ₹50,000
• Foreign Stock LTCG (Section 112): ₹1,50,000

Section 112A Calculation (Equity Funds):

• Total Section 112A eligible LTCG: ₹19,000
• Exemption threshold: ₹1,25,000
• Since ₹19,000 < ₹1,25,000, Tax: Nil (assuming no other equity LTCG)

Section 112 Calculation (Gold + Foreign Stock):

• Combined LTCG: ₹50,000 + ₹1,50,000 = ₹2,00,000
• Tax Rate: 12.5%
• Tax: ₹25,000

Total Capital Gains Tax (Before Surcharge & Cess):

• STCG Tax: ₹1,600
• LTCG Tax (Section 112A): ₹0
• LTCG Tax (Section 112): ₹25,000
• Total: ₹26,600

If Rahul Had Capital Losses

Suppose Rahul also sold another stock at a short-term loss of ₹5,000. This loss could be set off against his STCG of ₹8,000, reducing his taxable STCG to ₹3,000 and his STCG tax to ₹600.

With these practical examples, and with modern portfolio tracking for Indian investors making multi-asset record-keeping easier, let's review some recent changes in the tax regime and their implications.

Key Highlights of Budget 2026

Budget 2026 has ushered in significant changes to the capital gains tax landscape in India. One of the most notable updates is the removal of the indexation benefit for certain assets, meaning investors can no longer adjust the cost of acquisition for inflation when calculating long term capital gains.

This change is expected to increase the gains tax burden for many, as the taxable gain will now be higher without the indexation benefit.

Another major highlight is the introduction of a uniform 12.5% tax rate on long-term capital gains exceeding ₹1.25 lakh, applicable to most asset classes. This new rate streamlines the tax structure but may result in a higher tax liability for investors who previously benefited from lower rates or indexation.

Additionally, the holding period required for an asset to qualify as a long term capital asset has been revised for certain assets, such as immovable property, where the threshold has been reduced to 24 months.

These changes underscore the importance of reviewing your investment strategy and understanding how the updated tax rules affect your capital gains and overall tax planning.

With these changes in mind, let's see how capital gains are calculated for different types of taxpayers, including NRIs.

Calculating Capital Gains for Non-Resident Indians

Non-Resident Indians (NRIs) are also subject to capital gains tax when selling capital assets located in India. The method for calculating capital gains for NRIs is largely similar to that for resident Indians: the gain is determined by subtracting the cost of acquisition from the sale price of the asset.

However, there are some key differences in tax treatment. For long term capital gains, NRIs are generally taxed at a concessional rate of 20%, compared to the higher rates that may apply to residents, depending on the asset and holding period.

Additionally, NRIs may be eligible for a deduction of up to ₹1 lakh on capital gains tax, provided certain conditions are met. It’s important for NRIs to be aware of the specific tax laws and implications when selling capital assets in India, as compliance requirements and available exemptions can differ from those for residents. Consulting a tax professional is highly recommended to ensure accurate reporting and to optimize your tax liability under the current tax regime.

Now, let's look at some strategies to minimize or defer your capital gains tax liability.

Tax Avoidance or Deferment Strategies

Investors looking to minimize their capital gains tax liability can consider several legitimate tax avoidance or deferment strategies.

Reinvestment Exemptions

• Reinvest the capital gains in another qualifying asset, such as purchasing a new residential house after selling an existing one, which can make the gains tax-exempt under certain sections of the Income Tax Act.

Capital Gains Account Scheme

• Utilize the capital gains account scheme, which allows you to temporarily park your gains in a designated account if you are unable to immediately reinvest, thereby preserving your eligibility for tax exemptions.

Tax-Loss Harvesting

• Sell loss-making assets to offset gains from other investments, effectively reducing your overall gains tax liability for the year.

By strategically timing the sale of capital assets, applying techniques like tax loss and gain harvesting, and leveraging available exemptions and schemes, investors can optimize their tax outcomes while remaining compliant with tax laws.

As always, it’s advisable to consult with a qualified tax advisor to tailor these strategies to your specific financial situation and ensure adherence to all regulatory requirements.

With strategies in mind, let's see how technology can help you track and manage your capital gains.

How Platforms Like Novelty Wealth Help Track Capital Gains

Managing investments across multiple demat accounts, mutual fund platforms, bank accounts, and foreign brokerages can make tracking capital gains extremely cumbersome.

Affluent Indian families and professionals often hold diverse portfolios spanning Indian stocks, mutual funds, bonds, gold ETFs, foreign stocks, and real estate-linked instruments—each with different holding periods and tax rules.

How Novelty Wealth Simplifies Tracking

An AI-powered personal finance tracking and planning app like Novelty Wealth can help by:

• Consolidating Transaction Data: Using frameworks like Account Aggregator where applicable, the platform can pull transaction data across demat accounts, mutual fund platforms, and all linked bank accounts in one place into a single dashboard
• Automatic Classification: Each security is classified by asset type (equity, debt, gold, foreign equity) and holding period to flag whether potential gains are STCG or LTCG, similar to how a mutual fund tracking and monitoring dashboard organises holdings for easier analysis
• Estimating Tax Impact: NovaAI within Novelty Wealth can estimate unrealized and realized capital gains for the current FY, split by tax category (Section 111A, 112A, 112, slab-rate STCG), and show indicative tax liability based on current law, using the same kind of AI-driven portfolio analysis and rebalancing that is reshaping modern investing

Planning Scenarios

NovaAI can also help simulate “what-if” scenarios—for example, showing the approximate tax impact of selling a particular stock in March versus waiting until the next financial year. This helps investors make informed timing decisions while maintaining control over final decisions.

These tools underscore the importance of comprehensive record-keeping and shifting from passive saving to smarter, data-driven investing: dates of acquisition, cost including all charges, improvement expenses, transfer expenses, and foreign exchange rates. The app can store and help retrieve this information when needed for ITR filing or audits.

That said, such platforms assist with planning and record-keeping but do not replace personalized advice from a SEBI-registered investment adviser or a qualified chartered accountant.

Disclaimer

The tax provisions, thresholds, and rates cited in this article are based on law and Budget announcements available up to FY 2025–26 and may change in subsequent years or through amendments. The examples provided are simplified for illustration purposes and ignore surcharge, cess, and some special conditions that may apply to specific situations.

Readers should verify the latest rules applicable to their specific financial year and consult a qualified chartered accountant or tax professional before making decisions based on capital gains tax implications. Tax laws are complex, and individual circumstances vary—what applies to one investor may not apply to another.

Novelty Wealth, a SEBI-registered investment adviser, provide analytical tools and insights to help track and estimate capital gains across your portfolio. However, this does not constitute legal or tax advice. For personalized guidance on your tax liability, adjusted gross income calculations, or specific exemption strategies, please engage a qualified professional.