How capital gains tax works
Capital gains tax depends on the asset and the holding period. For listed equity and equity mutual funds: short-term (under 12 months) is taxed at 20%, long-term (12 months and above) is taxed at 12.5% on gains over ₹1.25 lakh per financial year. For debt mutual funds bought after April 2023: all gains are taxed at your slab rate, no indexation. For real estate held over 24 months: 12.5% LTCG without indexation (or 20% with indexation, your choice for older holdings).
You sell ₹6 lakh of equity mutual funds, bought 18 months ago for ₹4 lakh. Gain is ₹2 lakh. The first ₹1.25 lakh is exempt, the remaining ₹75,000 is taxed at 12.5%, that is ₹9,375. Sell after 11 months instead and the entire ₹2 lakh is taxed at 20%, that is ₹40,000. One month of patience can save ₹30,625.
Booking gains in March without checking your year-to-date LTCG. The ₹1.25 lakh exemption is per financial year, not per transaction. Two ₹80,000 gains in the same year crosses the limit.
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