Explore the various exemptions available under the Income Tax Act to reduce your tax liability on capital gains for the financial year 2025-26.
Budget 2025 Update
Short-Term Capital Gains
Long-Term Capital Gains
Exemptions Available for Capital Gains
FAQs on Capital Gains Exemption
Key Changes in Budget 2025
The Finance Act 2025 introduced significant changes affecting capital gains taxation.
ULIPs with premiums exceeding 10% of the policy's sum assured are now taxable.
Securities held by investment funds under Section 115UB are classified as capital assets.
New tax rates for long-term capital gains on listed equity shares effective from 23rd July 2024.
Definition and Tax Rates
Short-term capital gains arise from the sale of assets held for a short duration.
Listed equity shares held for less than 1 year are taxed at 20%.
Unlisted equity shares held for less than 2 years are taxed at slab rates.
Specified mutual funds are taxed at slab rates irrespective of holding period.
Example Calculation
Illustration of short-term capital gains tax calculation.
Sale of listed equity shares after 10 months for ₹3,00,000.
Taxable gain: ₹3,00,000 - Cost of acquisition.
Tax payable at 20% on taxable gain.
Definition and Tax Rates
Long-term capital gains apply to assets held beyond a specified period.
Listed equity shares held for more than 1 year are taxed at 12.5% on gains exceeding ₹1,25,000.
Real estate held for more than 2 years is taxed at 12.5% without indexation.
Other assets held for more than 2 years are taxed at 12.5% without indexation.
Example Calculation
Illustration of long-term capital gains tax calculation.
Sale of real estate after 3 years for ₹50,00,000.
Cost of acquisition: ₹30,00,000.
Tax payable at 12.5% on ₹20,00,000 gain.
Section 54 - Residential Property
Exemption on capital gains from sale of residential property.
Applicable to individuals and HUFs.
New residential property must be purchased within 2 years or constructed within 3 years.
Exemption limited to the amount of capital gain or investment, whichever is lower.
Section 54EC - Investment in Bonds
Exemption on capital gains by investing in specified bonds.
Investment must be made within 6 months of asset transfer.
Maximum investment limit: ₹50 lakh.
Bonds must be held for at least 5 years.
Section 54F - Investment in Residential House
Exemption on capital gains from sale of any asset other than a residential house.
Entire sale consideration must be invested in a new residential house.
New house must be purchased within 2 years or constructed within 3 years.
Exemption proportionate to investment in new house.
What is the tax rate for short-term capital gains on listed equity shares?
For FY 2025-26, short-term capital gains on listed equity shares held for less than 1 year are taxed at 20%.
How can I claim exemption under Section 54?
To claim exemption under Section 54, reinvest the capital gains from the sale of a residential property into a new residential property within 2 years or construct one within 3 years.
What is the maximum investment limit under Section 54EC?
The maximum investment limit under Section 54EC for exemption is ₹50 lakh, and the investment must be made within 6 months of the transfer.
Are indexation benefits available for long-term capital gains?
For assets sold after 23rd July 2024, indexation benefits are not available. The tax rate is 12.5% without indexation.
Can I claim Section 54F exemption if I own more than one house?
No, to claim Section 54F exemption, you should not own more than one residential house other than the new one on the date of transfer.
What is the holding period for long-term capital gains on real estate?
For real estate, the holding period for long-term capital gains is more than 2 years.
Is there a deadline for investing in a new property under Section 54?
Yes, you must purchase the new property within 2 years or construct it within 3 years from the date of transfer of the original asset.
What forms are required for reporting capital gains?
Capital gains must be reported in ITR-2 or ITR-3, depending on the nature of income, using Form 16A for TDS details.