LTCG
Long Term Capital Gains (LTCG) is the profit from the sale of a capital asset held for more than the specified holding period. Tax rates and holding periods were significantly revised in Budget 2024 and effectively apply for FY 2024-25 onwards.
Understanding LTCG
The Budget 2024 LTCG overhaul was the biggest change in capital gains taxation in over a decade. The simplification: most asset classes now have a 12.5% LTCG rate. The annual ₹1.25 lakh exemption applies to listed equity and equity-oriented mutual funds, not to debt funds or property.
For real estate, the change is mixed — pre-2024 owners can still claim indexation under the grandfathering rule when computing tax on long-held property. Post-2024 buyers get a flat 12.5% rate without indexation. STCG on equity (sold within 12 months) was raised from 15% to 20%.
Why it matters
For equity investors, the ₹1.25 lakh LTCG exemption is one of the few free lunches in the Indian tax code. Selling and re-buying equity to harvest the exemption every year — also known as tax-loss harvesting in reverse — can save 12.5% × ₹1.25 lakh = ₹15,625 per year for the rest of your investing life. Most retail investors miss this.
Example
You sell ELSS units after 4 years. Your gain is ₹3 lakh. The first ₹1.25 lakh is exempt; the remaining ₹1.75 lakh is taxed at 12.5% = ₹21,875. Compare to STCG (sold within a year) where the entire ₹3 lakh would be taxed at 20% = ₹60,000. The holding-period premium is real.
You sell ELSS units after 4 years. Your gain is ₹3 lakh. The first ₹1.25 lakh is exempt; the remaining ₹1.75 lakh is taxed at 12.5% = ₹21,875. Compare to STCG (sold within a year) where the entire ₹3 lakh would be taxed at 20% = ₹60,000. The holding-period premium is real.