Capital Gains Tax under Income Tax Act — Sections 45, 54, 112A Guide
Authoritative guide — legal provisions, leading case laws, and expert FAQs, all in one place.
What is Capital Gains Tax India (LTCG & STCG under Sections 45 & 112A)?
Capital gains tax in India is levied under Sections 45-55 of the Income Tax Act. LTCG on listed equity exceeding ₹1.25 lakh is taxed at 12.5% (Section 112A). STCG on listed equity is 20% (Section 111A). Property LTCG is at 12.5% without indexation (Finance Act 2024). Exemptions under Sections 54, 54EC, and 54F can reduce or eliminate liability.
What is Capital Gains Tax India (LTCG & STCG under Sections 45 & 112A)?
Capital gains tax under the Income Tax Act, 1961 is levied on profits arising from the transfer of capital assets. The tax treatment depends on the holding period (short-term vs long-term) and the nature of the asset (equity, debt, immovable property, etc.).
Long-Term Capital Gains (LTCG) on listed equity shares and equity-oriented mutual funds exceeding ₹1.25 lakh are taxed at 12.5% without indexation under Section 112A (Finance Act 2024 increased the threshold from ₹1 lakh and the rate from 10%). LTCG on other assets (debt MFs, property, unlisted shares) is taxed at 12.5% without indexation or 20% with indexation (indexation benefit removed for property in Budget 2024, though partially restored).
Short-Term Capital Gains (STCG) on listed equity/equity MFs held ≤12 months are taxed at 20% under Section 111A (Budget 2024 increased from 15%). Other STCG is taxed at slab rates.
Key exemptions under Sections 54, 54B, 54EC, 54F, and 54GB allow re-investment of capital gains into specified assets (residential house, bonds, etc.) to defer or eliminate capital gains tax.
Key Legal Provisions
- Section 45 — Charging section: capital gains arise on 'transfer' of a capital asset in the previous year.
- Section 48 — Mode of computation: Sale price − (Cost of Acquisition + Cost of Improvement + Transfer expenses). Indexation available for LTCG (subject to 2024 amendments).
- Section 111A — STCG on listed equity/equity MFs: flat 20% (w.e.f. 23 July 2024; earlier 15%).
- Section 112A — LTCG on listed equity/equity MFs: 12.5% on gains above ₹1.25 lakh (w.e.f. 23 July 2024; earlier 10% above ₹1 lakh).
- Section 54 — Exemption on LTCG from residential house: re-invest in another residential house (one property; up to ₹10 crore w.e.f. AY 2024-25).
- Section 54F — Exemption on LTCG from any long-term asset (other than house): invest net sale consideration in a residential house.
- Section 54EC — Exemption on reinvestment in specified bonds (NHAI, REC) up to ₹50 lakh within 6 months.
- Section 50C/50CA — Stamp duty value of immovable property treated as full value of consideration for capital gains computation.
Relevant Statutory Sections
§45 — Capital gains
ITA§48 — Mode of computation
ITA§54 — Profit on sale of property used for residence
ITA§54F — Capital gain on transfer of certain capital assets not...
ITA§54EC — Capital gain not to be charged on investment in certain bonds
ITA§111A — Tax on short-term capital gains in certain cases
ITA§112A — Tax on long-term capital gains on certain assets
ITA§50C — Special provision for full value of consideration in...
Frequently Asked Questions All FAQs →
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For listed equity shares and equity-oriented mutual fund units, the holding period to qualify as long-term capital asset is more than 12 months. For unlisted shares, the threshold is 24 months. For immovable property and debt mutual funds, the threshold is 24 months (after Budget 2024 changes for debt MFs).
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Under Section 112A, LTCG on listed equity shares, units of equity-oriented mutual funds, and units of business trusts exceeding ₹1,25,000 in a financial year are taxed at 12.5% (increased from 10% by Finance (No. 2) Act 2024, applicable from 23 July 2024). Gains up to ₹1.25 lakh remain exempt. No indexation or foreign exchange benefits are available.
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Under Section 54, if a residential house held for more than 24 months is sold and the LTCG (not the sale price) is re-invested in purchasing or constructing another residential house in India within the prescribed time (1 year before / 2 years after for purchase; 3 years for construction), the LTCG is exempt to the extent of the cost of the new house. The new house cannot be sold within 3 years, else the exemption is withdrawn. Maximum exemption capped at ₹10 crore (w.e.f. AY 2024-25).
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Section 54 applies when a residential house property is sold — the taxpayer must re-invest the LTCG in another residential house. Section 54F applies when any long-term capital asset (other than a residential house) is sold — the taxpayer must re-invest the entire net sale consideration (not just the gains) in a residential house. Under 54F, if only part of the consideration is invested, proportionate exemption is allowed. Both require the taxpayer to not own more than one residential house (other than the new house) on the date of transfer.
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Finance (No. 2) Act 2024 removed indexation from LTCG on property, lowering the rate to 12.5% without indexation (previously 20% with indexation). However, a relief provision was inserted for residents: if property was purchased before 23 July 2024, taxpayers can choose between (a) 12.5% without indexation or (b) 20% with indexation, whichever is lower. Non-residents and companies do not get this choice.
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Practical Implications
- Budget 2024 changes — Indexation removed for property LTCG; flat 12.5% rate applies. This benefits some and hurts long-held properties — calculate both ways.
- Section 54 exemption — Reinvest property sale proceeds in a new residential house within 2 years (purchase) or 3 years (construction) to claim exemption.
- 54EC bonds — Invest up to ₹50 lakh in REC/NHAI/PFC bonds within 6 months of transfer for capital gains exemption (5-year lock-in).
- LTCG harvesting — Sell and repurchase listed equity annually to realise gains up to ₹1.25 lakh tax-free under Section 112A.