Capital Gains Tax Changes for 2026: Complete Guide

Last updated: 2026-08-02

The Finance (No. 2) Act, 2024 introduced major changes to the capital gains tax regime in India, effective from July 23, 2024 — simplifying the structure but also removing long-standing benefits like indexation. These changes are now in full effect for FY 2026-27. This guide covers every change: the new LTCG rate of 12.5%, the increased STCG rate of 20%, removal of indexation, revised holding periods, and grandfathering provisions — all with practical examples.

Overview of Capital Gains Changes (Effective July 23, 2024)

The capital gains tax structure in India was overhauled by the Finance (No. 2) Act, 2024, effective July 23, 2024, with the following key objectives: simplifying the tax framework, removing the distinction between asset classes for LTCG rates, and broadening the tax base. The changes apply to all transfers made on or after July 23, 2024, and remain in effect for FY 2026-27.

LTCG on Equity — 12.5% (Up from 10%)

Long-term capital gains (LTCG) on equity shares and equity-oriented mutual funds are now taxed at a flat 12.5% for gains exceeding ₹1.25 lakh in a financial year. Previously, gains up to ₹1 lakh were exempt, and the excess was taxed at 10% without indexation. No indexation option ever existed for equity LTCG.

The exemption threshold has been raised to ₹1.25 lakh, but the rate has increased from 10% to 12.5%. For most investors with moderate holding periods (1-5 years), the tax outgo may be slightly higher.

STCG on Equity — 20% (Up from 15%)

Short-term capital gains (STCG) from equity shares and equity-oriented mutual funds have been hiked from 15% to 20%. STCG arises when listed equity shares or equity mutual fund units are sold within 12 months of acquisition. The increased rate applies to all STCG transactions executed on or after April 1, 2026.

This change specifically impacts day traders, short-term investors, and those who frequently churn their portfolios. For a trader earning ₹2 lakh in STCG, the tax increases from ₹30,000 to ₹40,000 — a 33% increase in tax liability.

Indexation Removed for All Assets

One of the most significant changes is the complete removal of indexation for computing LTCG on all assets. Indexation previously allowed taxpayers to adjust the purchase price of an asset for inflation using the Cost Inflation Index (CII), thereby reducing the taxable capital gain. This was especially beneficial for real estate, debt funds, and gold held over long periods.

Note on CII values: CII for FY 2026-27 has not yet been notified by CBDT (last notified: 376 for FY 2025-26). The examples below use an estimated CII of 390 for FY 2026-27, based on ~3.5% annual growth in notified CII values. Actual CII, once notified, may differ.

Now, all LTCG is simply calculated as: Sale Price minus Cost of Acquisition. The resulting gain is taxed at 12.5%. While the headline rate has come down from 20% to 12.5%, the removal of indexation means that for assets held over very long periods (10-20 years), the effective tax rate may actually be higher.

Holding Period Changes

The holding period required to qualify for long-term capital gains treatment has been revised for immovable property:

* For debt mutual funds purchased on or after April 1, 2023 (Finance Act 2023), the LTCG/STCG distinction no longer applies — all gains are taxed at slab rates regardless of holding period. The holding periods shown here apply only to funds purchased before April 1, 2023.

The reduction of the holding period to 24 months for immovable property is a welcome change, allowing homeowners and real estate investors to sell properties after just 2 years and still qualify for LTCG treatment (12.5% rate) instead of STCG (which is taxed at slab rates).

Grandfathering Provisions

Grandfathering provisions protect gains that accrued before the rate change from being taxed at the new higher rates. The rules differ by asset type:

• Listed equity shares and equity MFs: For assets acquired before the budget date, the cost of acquisition is taken as the higher of: (a) the actual cost of acquisition, or (b) the fair market value (FMV) as on the budget date. The FMV is the highest price quoted on a recognized stock exchange on that date. This ensures only post-budget appreciation is taxed.
• Real estate and unlisted assets: No universal FMV grandfathering applies. The cost of acquisition remains the actual purchase price. The benefit of the lower 12.5% rate (down from 20% with indexation) applies automatically to all sales after the change date.
• Impact: For equity investors, any appreciation up to the budget date remains tax-free. Only gains after this date are taxed at the new rates. For other asset holders, the lower headline rate of 12.5% provides the transitional benefit.

Capital Gains Tax Rates — Pre vs Post July 23, 2024

Calculation Examples

Example 1: Real Estate Sale — Held for 5 Years

Property purchased in June 2021 for ₹50,00,000. Sold in July 2026 for ₹90,00,000. Holding period: 5 years 1 month (> 24 months, so LTCG).

• Full sale price: ₹90,00,000
• Cost of acquisition: ₹50,00,000
• LTCG: ₹40,00,000
• Tax at 12.5% (no indexation): ₹5,00,000
• Add 4% health and education cess: ₹20,000
• Total tax payable: ₹5,20,000
• Under old regime (20% with indexation): CII 2021-22: 317, CII 2026-27 est: 390. Indexed cost: ₹50L — 390/317 = ₹61,51,420. Taxable gain: ₹28,48,580. Tax at 20%: ₹5,69,716 + cess = ₹5,92,505.
• Difference: New regime saves ₹72,505 for this 5-year holding period — the 12.5% rate without indexation is already better for moderately held assets.

Example 2: Equity Shares — Short-term Trade

Bought 500 shares of ABC Ltd at ₹1,200 in January 2026. Sold at ₹1,500 in June 2026 (holding period: 5 months, so STCG).

• Sale value: 500 — ₹1,500 = ₹7,50,000
• Cost: 500 — ₹1,200 = ₹6,00,000
• STCG: ₹1,50,000
• Tax at 20%: ₹30,000
• Add 4% cess: ₹1,200
• Total tax payable: ₹31,200 (vs ₹23,400 under old 15% rate)

Example 3: Debt Mutual Funds — Held for 3 Years

Investment of ₹5,00,000 in a debt fund in March 2023 (before the Finance Act 2023 ended indexation for new debt fund purchases). Redeemed in May 2026 for ₹6,50,000. Holding period: 3 years 2 months.

• LTCG (holding period now > 24 months for debt funds): ₹1,50,000
• Tax at 12.5%: ₹18,750
• Add cess: ₹750
• Total tax: ₹19,500
• Under old regime (for funds purchased before April 1, 2023): Indexed cost with CII 2022-23 (331) to 2026-27 (est): ₹5L — 390/331 = ₹5,89,124. Gain: ₹60,876. Tax at 20%: ₹12,175 + cess = ₹12,662.
• Difference: New regime is ₹6,838 more expensive for this pre-April 2023 investment — indexation still provided significant relief for long-held debt funds.

Capital Gains Exemptions (Still Available)

The following exemptions on capital gains continue to be available under the new regime:

Frequently Asked Questions