What is the LTCG tax on equity and mutual funds under Section 112A?
Long-Term Capital Gains (LTCG) on equity shares and equity-oriented mutual funds are taxed under Section 112A of the Income Tax Act. This section was introduced in Budget 2018 and the rates were revised in Budget 2024.
Current LTCG tax rules (FY 2025-26):
| Parameter | Detail |
|---|---|
| Tax rate | 12.5% (increased from 10% in Budget 2024) |
| Exemption limit | ā¹1,25,000 per financial year |
| Holding period for LTCG | More than 12 months |
| Applicable on | Listed equity shares, equity mutual funds, units of business trust |
| Indexation | Not available for equity |
How it works:
If you sell listed equity shares or equity mutual fund units after holding for more than 12 months, any gain above ā¹1,25,000 in a financial year is taxed at 12.5%.
Example:
- You bought equity mutual fund units for ā¹5,00,000
- You sell them after 15 months for ā¹7,50,000
- LTCG = ā¹2,50,000
- Exempt: ā¹1,25,000
- Taxable LTCG: ā¹1,25,000
- Tax: ā¹1,25,000 x 12.5% = ā¹15,625 + 4% cess = ā¹16,250
Short-Term Capital Gains (Section 111A):
If you sell within 12 months, the gain is classified as STCG and taxed at 20% (increased from 15% in Budget 2024).
Grandfathering clause:
For shares and mutual funds held before January 31, 2018, the cost of acquisition is the higher of the actual purchase price or the fair market value as on January 31, 2018. This protects gains accrued before the LTCG tax was introduced.
Tax harvesting strategy: Since you get a ā¹1,25,000 exemption every year, consider booking LTCG up to this limit annually by selling and immediately repurchasing. This resets your cost base and reduces future tax liability. Note: there is no wash sale rule in India for equity.
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