LTCG, or long term capital gains, is the profit earned on selling a capital asset such as shares, mutual fund units or property after holding it beyond a set qualifying period. This profit is taxed at its own rate, which is kept separate from the tax on gains from assets sold sooner.
For investors asking what is LTCG in practical terms, the holding period decides the label. Listed shares and equity mutual fund units become long term after 12 months, while many other assets need 24 months.
How equity LTCG is taxed
Listed shares, equity oriented mutual fund units and business trust units fall under Section 198 of the Income-tax Act, 2025 (earlier Section 112A of the 1961 Act) once they are held beyond the equity holding period. The Income-tax Act, 2025 renumbers these sections from 1 April 2026. The tax is 12.5% on the gains above Rs 1.25 lakh in a financial year, and securities transaction tax (STT) must have been paid on the sale.
The rate and the exemption limit were set by the Union Budget of July 2024, and they apply to transfers on or after 23 July 2024.
For an individual selling equity fund units with a total gain of Rs 3.5 lakh in a year, there will be a tax of Rs 28,125 after the exemption is applied.
Investors running a SIP in equity funds have a separate clock for each instalment, so the older units may be long term while the recent ones are not. Most LTCG on other assets is taxed at the same rate, without indexation, though resident individuals and HUFs selling land or buildings bought before 23 July 2024 can choose 20% with indexation.
LTCG vs STCG, and the exemption mix-up
Gains on equity units sold within the equity holding period are short term capital gains (STCG), and these are taxed at 20% under Section 196 of the Income-tax Act, 2025 (earlier Section 111A). Long term gains on same units are taxed at the lower rate, so the holding period changes the tax payable on the same profit.
The exemption limit is not given separately for each sale. It is one aggregate for the whole financial year, and it applies only to Section 112A assets, so gold, most property, unlisted shares and debt funds do not get it.