Long Term Capital Gain: Tax Rates, Rules & Exemptions in 2026

Selling a property your family has held for twenty years feels like a significant moment. Until the tax calculation arrives.

That is when most people discover — often right in the middle of a transaction — that a substantial chunk of the profit is heading straight to the government. And if the last time they thought about this was before July 2024, the numbers may look different from what they remember.

LTCG tax in India changed after the Union Budget 2024. Simpler in structure, yes. But not more generous. The removal of indexation for most assets, the revision of the rate on equity gains — these are real shifts, not paperwork changes. And with the Income Tax Act, 2025 replacing the 1961 Act from April 1, 2026, even the section numbers have moved.

Long term capital gain is the profit earned from selling a capital asset — property, shares, mutual funds, or gold — held beyond a specified minimum period: 12 months for listed equity and 24 months for immovable property. This article covers the current tax rates, how the holding period differs across asset types, the three legal exemption routes, and one LTCG angle that most Indian investors overlook entirely.

What Is Long Term Capital Gain?

Capital gains arise the moment an asset sells for more than it cost. Simple enough. But whether that gain qualifies as long-term — and gets taxed at the lower LTCG rate — depends entirely on how long the asset sat before the sale.

Miss the holding period by one day. One. The entire gain gets reclassified as short-term and taxed at a higher rate. In a transaction involving even ₹20–30 lakh in gains, that distinction alone can cost several lakhs.

*Property purchased before July 23, 2024 and sold on or after that date: residents may opt for 20% with indexation if it reduces the tax bill. Source: incometaxindia.gov.in

How LTCG Is Calculated — Formula and a Real Example

The formula itself is not complicated. What trips people up is identifying the correct cost of acquisition — particularly for inherited assets, properties with multiple improvements, or anything bought before 2001.

LTCG = Sale Price − (Purchase Cost + Improvement Cost + Transfer Charges)

For equity and most assets acquired after July 23, 2024, there is no inflation adjustment. The original price paid is what gets used. No index, no uplift.

Walk-Through: A Property Sale in Pune

Take a flat purchased in Pune in 2018 for ₹40 lakh, sold in March 2026 for ₹85 lakh. The owner spent ₹5 lakh on renovations and paid ₹2.5 lakh in stamp duty and brokerage.

1. Sale price (full consideration): ₹85 lakh
2. Purchase price: ₹40 lakh
3. Cost of improvement (renovation): ₹5 lakh
4. Transfer charges (stamp duty + brokerage): ₹2.5 lakh
5. LTCG: ₹85L − (₹40L + ₹5L + ₹2.5L) = ₹37.5 lakh
6. Tax at 12.5%: ₹4.69 lakh + 4% cess = approximately ₹4.88 lakh

Three Legal WayFor a quick back-of-the-envelope calculation before your CA meeting, the Income Tax Calculator on Shriram Life is a useful starting point.

Three Legal ways to Reduce or Eliminate LTCG Tax

Most people hear 'capital gains tax' and assume the number is fixed. It is not. Three provisions under the Income Tax Act, 2025 — continuing unchanged from the earlier 1961 Act — allow the liability to be significantly reduced or eliminated outright. The catch: each has time limits, and missing them means the exemption is gone.

Route 1 — Section 82 (Erstwhile Section 54): Sell a House, Buy Another

This one is straightforward in concept. Sell a residential property you have held for more than 24 months, reinvest the capital gains into another residential property in India, and the gain is exempt from tax — up to ₹10 crore.

The new property must be purchased within one year before or two years after the sale. If constructing, three years from the sale date. Reinvest only a portion of the gain, and only that portion is exempt. The remaining balance is taxable.

One more thing worth flagging here: if the funds are not ready to be deployed immediately, they can be parked in a Capital Gain Account Scheme (CGAS) bank account before the ITR filing deadline. This preserves the exemption window without forcing a rushed purchase.

Only individuals and Hindu Undivided Families (HUFs) can claim this. Companies, LLPs, and partnerships are not eligible.

Route 2 — Section 86 (Erstwhile Section 54F): Selling Something Other Than a House

Sold shares, gold, a plot of land, or commercial property? This is the applicable section. It works differently from Section 86(Erstwhile Section 54F) in one important way: it is not just the capital gains that need to go into the new property — it is the full sale consideration.

Invest the entire amount from the sale into a residential property and the gain is fully exempt. Invest a portion, and the exemption is proportional. The ₹10 crore cap applies here too. And the buyer cannot already own more than one residential house on the date of sale — that disqualifies the claim.

Route 3 — Section 85 (Section 54EC): When Property Is Not on the Table

No plans to buy property? This is where capital gain bonds come in. Invest the LTCG amount — up to ₹50 lakh — in bonds issued by IRFC, PFC, or REC within six months of the sale. The gain is exempt. The bonds carry a five-year lock-in.

Source: Income Tax Act, 2025; Finance Act 2023; IRFC/PFC/REC bond terms as of May 2026.

The Angle Most Indian Investors Miss on LTCG

Here is where it gets interesting. All the discussion about LTCG — the rates, the holding periods, the exemption sections — applies to capital assets. Life insurance maturity proceeds are not capital assets. That single distinction changes everything.

When a life insurance policy matures — an endowment plan, a ULIP, a savings plan — the payout is governed by a completely different provision of the Income Tax Act, 2025. Section-11 read with Schedule II [Table Sl.No 2], the equivalent of Section 10(10D) under the old 1961 Act, covers it. There is no LTCG calculation. No holding period to track. No 12.5% rate. On an eligible policy — where the premium does not exceed specified thresholds relative to the sum assured — the maturity payout is simply exempt. [VERIFY clause reference with compliance before publish]

Actually, let us back up for a second. Why does this matter in a piece about LTCG?

Because the LTCG conversation almost always happens right after a major asset sale. Property has been sold. Shares have been liquidated. Someone is sitting on ₹30 lakh or ₹60 lakh and asking: what now? If that money goes back into another equity instrument or a plot of land, the LTCG clock starts over. A fresh liability is built.

A life insurance savings plan does not work that way. The money compounds inside a defined structure. The sum assured provides a cover layer for the family. And when the policy matures, the tax picture is clear and predictable — with no fresh LTCG exposure created.

At Shriram Life, policyholders in the 40–55 bracket who are also managing estate planning tend to find this angle particularly relevant. The insurance piece is not competing with the investment; it is operating under a different set of tax rules entirely.

For more on how this works in practice: Section 10(10D) life insurance tax exemption explained and ULIP tax on maturity — what actually applies. The new Income Tax Act 2026 overview is also worth a read if the clause renumbering is causing confusion.

To Summarise

Long term capital gain tax is not one fixed number. The asset class, the purchase date, the holding duration, how proceeds are deployed after the sale — each of these changes the final tax liability. The shift to 12.5% and the removal of indexation from July 2024 onwards has made the calculation environment meaningfully different from what older tax guides describe.

The exemption routes — Section 82 (Erstwhile Sections 54), Section 86 (Erstwhile Section 54F), and Section 85 (Section 54EC) — remain available and legally sound. Used within the prescribed limits and timelines, they can bring the actual LTCG payment down to zero. What most people miss is that life insurance savings plans sit entirely outside this framework — no LTCG exposure created, no holding period to track.

Explore Shriram Life's savings and protection plans to understand how they fit alongside a tax-aware allocation. For personalised guidance, speak with a Shriram Life advisor.