The Finance Bill 2025 and the subsequent Budget changes have introduced important revisions in how capital gains are taxed in India. For investors and taxpayers, these updates impact not only how gains and losses are reported but also how portfolios should be managed for optimal tax efficiency. From higher short-term capital gains tax rates to a more generous long-term exemption threshold and a unique one-time relief for loss set-off, FY 2025-26 is a pivotal year for capital gains planning.
1. Holding Periods — Short-Term vs Long-Term:
A) Listed equity / equity funds / business trusts: Holding period of 12 months for LTCG classification.
B) Other assets (unlisted shares, immovable property, gold, etc.): Holding period of 24 months to be treated as LTCG.
2. Long-Term Capital Gains (LTCG) — Section 112A
Tax rate: 12.5% (without indexation) on LTCG above the exemption threshold.
Exemption threshold: Increased from ₹1,00,000 to ₹1,25,000 per FY.
Applies to listed equity shares, equity mutual funds, and units of business trusts.
3. Short-Term Capital Gains (STCG) — Section 111A
Tax rate: Increased to 20% (from earlier 15%) for STCG on equity/equity funds where STT is paid.
Other assets: STCG taxed at normal income tax slab rates.
4. One-Time Relief for Loss Set-Off
A new rule allows long-term capital losses (LTCL) incurred up to 31 March 2026 to be set off against short-term capital gains (STCG). This relief applies only in AY 2027-28 (FY 2026-27).
Historically, LTCL could only be set off against LTCG — making this a unique planning opportunity.
5. Exemptions for Property Transactions
A) Section 54:
Exemption for reinvestment of LTCG from sale of a residential house into another residential property, within 2 years (purchase) or 3 years (construction).
B) Section 54EC:
Exemption if reinvested in specified bonds (NHAI/REC etc.) within 6 months, subject to limits.
Capital Gains Account Scheme (CGAS): Can be used if reinvestment is delayed.
6. Grandfathering & Date of Transfer Rules
Changes in tax rates (LTCG & STCG) and exemptions were introduced from 23 July 2024.
For assets acquired/sold around that date, older rules may apply depending on timing — important for correct tax calculation.
7. Set-Off & Carry Forward Rules (Unchanged)
STCL: Can be set off against both STCG and LTCG.
LTCL: Can be set off only against LTCG (except for the one-time relief above).
Carry forward: Capital losses can be carried forward for 8 assessment years, provided returns are filed on time.
8. Practical Implications for Tax Planning
Higher STCG rate (20%) discourages short-term trading; holding beyond 12 months is now more attractive.
The raised LTCG exemption (₹1.25 lakh) provides relief to small investors.
Taxpayers with LTCL before March 2026 may strategically retain them for offsetting STCG in AY 2027-28.
Proper record-keeping (trade dates, STT proof, holding period) is more important than ever.
9. Tax Harvesting Strategies (LTCG & STCG)
Tax harvesting is the practice of selling assets strategically to realize gains or losses in a tax-efficient manner. With the new rules for FY 2025-26, investors can refine their strategies:
a) Long-Term Capital Gain (LTCG) Harvesting
Use the exemption limit of ₹1.25 lakh: Sell assets once gains approach the limit, re-purchase them to reset the cost base, and continue holding for long-term growth.
Diversify harvest timing: Spread sales across financial years to repeatedly use the annual exemption.
Benefit in family portfolios: Spouse/children accounts can also harvest separately to maximize exemptions.
b) Short-Term Capital Gain (STCG) Harvesting
Offset with carried forward losses: STCG (20%) can be reduced using STCL from previous years.
Plan around the 20% rate: If in higher income tax slabs, realize STCG strategically in years with lower income.
Pair with LTCL in AY 2027-28: Use the one-time provision to offset LTCL (before March 2026) against STCG in FY 2026-27.
c) Tax-Loss Harvesting
Sell underperforming assets before year-end to book losses, then reinvest in similar instruments without breaching GAAR/wash-sale rules.
Maintain records to substantiate intent and reinvestment.
d) Real Estate & Gold Harvesting
Property: Reinvest LTCG into residential property or 54EC bonds to claim exemptions.
Gold ETFs / Sovereign Gold Bonds: Plan redemptions with LTCG rules (24-month holding).
Final Word
FY 2025-26 brings significant shifts in how gains are taxed, especially on equity and property. With higher STCG rates, a more generous LTCG exemption, and a rare one-time loss relief, investors should review portfolios and plan harvests carefully.