Extensive Guide to Capital Gains in India: the Various Types and Exemptions


Capital gains are a cornerstone in personal finance, crucial for informed decision-making in India. This comprehensive guide dives into the intricate world of capital gains, focusing on the myriad types and their associated exemptions. From the distinctive characteristics of short-term and long-term capital gains to the significance of other variations, this article comprehensively examines capital gains in India.

Understanding Capital Gains

Short-term capital gains transpire when a capital asset is liquidated within a brief holding period of less than 36 months. The tax treatment of short-term capital gains in India is straightforward. These gains are taxed at the individual's applicable income tax rate. In simpler terms, if your regular income places you in the 20% tax bracket, your short-term capital gains will face taxation at the same rate. Identifying your tax bracket cannot be overstated; it lays the foundation for effective tax planning.


Contrastingly, long-term capital gains transpire when a capital asset is sold after a holding period exceeding 36 months. These gains are subject to a different tax rate. As per the existing tax regime in India, long-term capital gains on equities are taxed at a flat rate of 10%, devoid of indexation benefits. It is crucial to note that the tax rate for long-term capital gains on real estate and other assets may diverge.

Real Estate

Real estate capital gains merit special attention in the Indian financial landscape. If you sell a residential or commercial property and realize a profit, it qualifies as real estate capital gains. Just like their counterparts, these gains can be classified into short-term and long-term categories. Short-term real estate capital gains are taxed at your regular income tax rate, while long-term real estate capital gains attract a 20% tax with the provision for indexation.


Equities, comprising shares and securities, represent a prominent avenue for investments. Capital gains derived from equities enjoy unique tax treatment. As mentioned earlier, long-term Capital gains from equities are taxed at a fixed rate of 10%, whereas short-term gains are taxed at the applicable income tax rate.

Debt Instruments

Debt instruments, such as bonds and debentures, have their niche in investments. Based on the holding period, capital gains arising from debt instruments can be either short-term or long-term. Short-term gains are taxed at your income tax rate, similar to the taxation of other short-term capital gains. Long-term capital gains from debt instruments are taxed at a rate of 20% with the advantage of indexation. By factoring in inflation, indexation reduces the tax burden on long-term gains.

Gold and Precious Metals

Gold and other precious metals have long been coveted as investments in India. If you sell gold or any other precious metal and make a profit, it qualifies as capital gains. Depending on the holding period, these gains are categorized as short-term or long-term. Short-term capital gains on gold are taxed at your income tax rate, while long-term payments incur a 20% tax with indexation benefits.


Exemptions serve as essential instruments for reducing the tax liability on capital gains. Among these, indexation stands as a notable tool. It allows for the adjustment of the cost of the capital asset to account for inflation, thus reducing the taxable gains. Section 54 of the Income Tax Act, 1961 also enables individuals to claim exemptions. This provision permits the reinvestment of capital gains from the sale of one property into the acquisition or construction of another, offering homeowners a means to mitigate their tax liability.


Capital gains in India is multifaceted, with different increases stemming from various asset categories. Understanding the nuances of short-term and long-term capital gains is fundamental, as each type bears a different tax structure.

Exemptions such as indexation can substantially impact your overall tax liability, making them vital for financial planning.

Whether investing in equities, real estate, debt instruments, or precious metals, familiarity with the rules governing each type of capital gain can help you optimize your investment strategy and minimize your tax burden.


Buy Now

insurance Insurance mutual-fund Mutual
investment Fixed