LTCG

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: you hold 200 shares of TCS bought at ₹2,800 per share (total cost ₹5,60,000). After 18 months, you sell at ₹3,500 per share (total proceeds ₹7,00,000). Your 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 important part of wealth management. Many investors harvest the ₹1,00,000 annual exemption by selling and immediately rebuying positions (known as tax harvesting). If your unrealised long-term gains across your portfolio are, say, ₹80,000 in March, you might sell and rebuy to "book" those gains tax-free, resetting your 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. Understanding these distinctions is critical for multi-asset portfolio tax optimisation.