Capital Gains Tax Changes for 2026: Complete Guide

The Budget 2026 introduced significant changes to the capital gains tax regime in India, simplifying the structure but also removing long-standing benefits like indexation. 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 Budget 2026 Capital Gains Changes

The capital gains tax structure in India was overhauled in the 2026 Union Budget 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 are effective from April 1, 2026 (FY 2026-27).

LTCG on Equity — 12.5% (Down from 20% with Indexation)

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. Alternatively, investors could opt for a 20% rate with indexation, which was often beneficial for assets held over long periods.

Under the new regime, 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. However, for long-term holdings (10+ years), the removal of the indexation option could increase the effective tax rate significantly.

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.

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:

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

To ensure a smooth transition and prevent retrospective taxation, the government introduced grandfathering provisions for assets acquired before the date of the Budget announcement (February 1, 2026). The key rules:

• Cost of acquisition for pre-budget assets: For assets acquired before February 1, 2026, 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 February 1, 2026.
• Fair market value for listed securities: The FMV is the highest price quoted on the recognized stock exchange on February 1, 2026. If no trading on that date, the highest price on the immediately preceding trading day.
• Fair market value for other assets: For unlisted shares, real estate, and other assets, the FMV is determined by a registered valuer or based on the stamp duty value / NAV as applicable.
• Impact: Any appreciation up to February 1, 2026 remains tax-free. Only gains after this date are taxed at the new rates. This prevents unfair taxation of gains that accrued under the old regime.

Old vs New Capital Gains Tax Regime — Comparison Table

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: 420. Indexed cost: ?50L × 420/317 = ?66,24,606. Taxable gain: ?23,75,394. Tax at 20%: ?4,75,079 + cess = ?4,94,082.
• Difference: New regime is ?25,918 more expensive in this case.

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 April 2023. Redeemed in May 2026 for ?6,50,000. Holding period: 3 years 1 month.

• 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: Indexed cost with CII 2023-24 (348) to 2026-27 (420 est): ?5L × 420/348 = ?6,03,448. Gain: ?46,552. Tax at 20%: ?9,310 + cess = ?9,682.
• Difference: New regime is ?9,818 more expensive. Debt fund investors lose the most from this change.

Capital Gains Exemptions (Still Available)

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

Frequently Asked Questions