Tax on profits from selling equity held for more than 12 months, levied at 10% on gains exceeding ₹1 lakh per financial year.
Long-Term Capital Gains (LTCG) tax applies to profits earned from selling listed equity shares or equity-oriented Mutual Fund units that have been held for more than 12 months (the Holding Period threshold). Under Section 112A of the Income Tax Act, LTCG on such assets is taxed at 10% (plus applicable surcharge and cess) on gains exceeding ₹1,00,000 in a financial year, without the benefit of indexation.
Prior to the 2018 Union Budget, LTCG on listed equities was entirely exempt from tax. The reintroduction of LTCG tax (effective 1 April 2018) was grandfathered - the cost of acquisition was deemed to be the higher of the actual purchase price or the highest price quoted on 31 January 2018. This protected pre-existing gains from the new tax.
Consider a practical example: 200 shares of TCS bought at ₹2,800 per share (total cost ₹5,60,000) are sold 18 months later at ₹3,500 per share (total proceeds ₹7,00,000). The capital gain is ₹1,40,000. After the ₹1,00,000 exemption, ₹40,000 is taxable at 10%, resulting in a tax liability of ₹4,000 (plus 4% cess = ₹4,160).
LTCG tax planning is an established part of wealth management. Many investors harvest the ₹1,00,000 annual exemption by selling and immediately rebuying positions (tax harvesting). With unrealised long-term gains of ₹80,000 across the portfolio in March, a sell-and-rebuy "books" those gains tax-free and resets the cost basis higher.
For assets other than listed equities, LTCG rules differ. Debt funds purchased after 1 April 2023 are taxed at slab rates regardless of holding period. Real estate LTCG (held >24 months) is taxed at 20% with indexation. These distinctions feed directly into multi-asset portfolio tax planning.
India Context
Section 112A: 10% LTCG above ₹1L on listed equity (held >12 months). Grandfathering from 31 Jan 2018. No indexation benefit for equity. Debt funds post-2023 taxed at slab rates.