Capital Gains Tax – What You Need To Know About LTCG And STCG In 2026

If you have sold shares, mutual funds or property and wondered how tax you need to pay on the profit this blog is for you. Capital gains tax is confusing for investors but once you understand the basics it becomes simpler.

In this article we will explain everything you need to know about Long Term Capital Gains and Short Term Capital Gains on equity, mutual funds and real estate as per the changes from Budget 2026.

What Are Capital Gains?

When you sell an asset that you have owned for some time any profit you earn from that sale is called a capital gain. The asset could be shares in the stock market your second-house property or mutual fund units.The government treats this profit as income and taxes it.The key factor that decides how tax you pay is the holding period – how long you kept the asset before selling it. This is where LTCG and STCG come into play.

Understanding Holding Periods

The holding period is different for types of assets. For equity shares and equity-oriented mutual funds if you hold the asset for than 12 months it is considered long-term. If you sell it within 12 months it is term. For estate (property) you need to hold the property for more than 24 months to qualify as long-term. Anything sold before 24 months is term. Debt mutual funds follow the equity rule now – 12 months for long-term classification.

Latest Changes from Budget 2026

Budget 2026 brought some updates to capital gains tax that every investor should know.The LTCG tax rate has been kept at 12.5% for asset classes. However there is now an exemption limit of Rs.1.25 lakh per year. This means if your total long-term capital gains in a year are below Rs.1.25 lakh you do not pay any tax on them. For short-term capital gains the tax rate on equity shares and equity-oriented mutual funds has been increased to 20%. This affects traders and short-term investors significantly. The indexation benefit for long-term capital gains has been removed.Indexation was a method that allowed investors to adjust their purchase price for inflation, which reduced the gain. Now all asset classes are taxed at a rate without this benefit.

LTCG and STCG on Equity Shares

Lets take an example to understand how this works for equity shares. Suppose you bought 100 shares of a company at Rs.500 each in March 2024. The total cost was Rs.50,000. In June 2026 you sold all these shares at Rs.800 each earning Rs.80,000. Your profit is Rs.30,000. Since you held these shares for than 12 months this is a long-term capital gain. If your total LTCG for the year is below Rs.1.25 lakh you pay no tax. If it exceeds that limit you pay 12.5% on the amount above Rs.1.25 lakh.

LTCG and STCG on Mutual Funds

Funds are categorized into equity-oriented funds and debt funds. The tax treatment depends on this classification. For equity-oriented funds the holding period is the same as equity shares – 12 months. If you hold for than 12 months and sell the gain is LTCG taxed at 12.5% with the Rs.1.25 lakh exemption. If sold within 12 months it is STCG taxed at 20% on the amount.

LTCG and STCG on Real Estate

Estate has its own set of rules. The holding period for term is 24 months. If you sell a property after holding it for than 24 months the profit is LTCG. If sold before 24 months it is STCG.

Practical Example Combining All Assets

Lets look at a complete picture.

Mr. Rajesh, an investor from Pune has the following transactions in FY 2025-26:

1. He sold equity shares held for 15 months. Earned Rs.1.8 lakh LTCG.
2. He sold equity funds held for 10 months and earned Rs.40,000 STCG.
3. He also sold a shop property held for 3 years and earned Rs.8 lakh LTCG.

For his equity shares his LTCG is Rs.1.8 lakh.

Since the exemption is Rs.1.25 lakh he pays 12.5% on Rs.55,000.

How to Report Capital Gains in ITR

Capital gains must be reported in your Income Tax Return under the heading "Income from Capital Gains."

You need to use the ITR form based on your income sources.

Common Mistakes to Avoid

Many investors make the mistake of not keeping records of their purchase and sale dates. This can lead to classification of gains. Always maintain a record of contract notes from brokers, mutual fund statements and property sale deeds.

Final Thoughts

Capital gains tax can seem complicated at first. Understanding the basic rules makes it manageable. The key points to remember are the holding periods – 12 months for equity and mutual funds 24 months for property –. The tax rates – 12.5% for LTCG with Rs.1.25 lakh exemption and 20% for STCG on equity.

Budget 2026 has simplified some aspects while making others stricter.

If you have questions about your capital gains situation or need help with tax planning feel free to reach out.

Proper planning can save you money. Ensure you stay compliant, with all tax regulations.