Category: Capital Gain

Sale of Depreciable Assets: Capital Gains Under Sections 74 and 75 (Earlier 50 and 50A)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When an asset in a block of assets on which depreciation has been allowed is sold, a capital gain arises only if the sale price exceeds the opening written down value of the block plus additions of the year plus the expenses of transfer (section 74(2)).
  • The excess is a short-term capital gain, whatever the holding period; if the block ceases to exist because all its assets are sold, the net result is also a short-term gain or loss (section 74(3)).
  • Where depreciation was allowed on an asset in a particular year, its written down value is taken as the cost of acquisition (section 75).
  • The tax is at the assessee’s slab rate or at the short-term rate, not at 12.5%.

A business that sells machinery, a vehicle or a building on which it has claimed depreciation does not compute the gain asset by asset, as it would for shares. The Income-tax Act, 2025 treats such assets in blocks, and sections 74 and 75 (earlier sections 50 and 50A) provide the special rules.

What is a block of assets

Depreciation is allowed on a block of assets: assets of the same class with the same depreciation rate. The block has an opening written down value (WDV) each year, which is reduced by depreciation and by the sale proceeds of assets sold, and increased by the cost of assets acquired.

Section 74(2): gain when part of a block is sold

If, during the tax year, the full value of consideration received or accruing for the transfer of one or more assets in a block exceeds the total of:

  • (a) the expenditure incurred wholly and exclusively on the transfer;
  • (b) the written down value of the block at the start of the tax year; and
  • (c) the actual cost of any asset of the block acquired during the tax year,

then the excess is deemed to be a short-term capital gain, irrespective of how long the asset was held. The gain is charged in the year of the sale.

If the sale price is less than or equal to this total, there is no capital gain under this section, and the sale is dealt with under the depreciation provisions for the block.

Example. The WDV of a block of machinery at the start of the year is ₹10,00,000. During the year, you buy a machine of the same block for ₹2,00,000 and sell an old machine for ₹14,00,000 (expenses ₹20,000).

  • Total = 20,000 + 10,00,000 + 2,00,000 = ₹12,20,000
  • Sale price ₹14,00,000 is more than ₹12,20,000, so short-term capital gain = ₹1,80,000

Section 74(3): the block ceases to exist

If all the assets of a block are transferred in the year, so that the block ceases to exist:

  • the cost of acquisition of the block is the WDV at the beginning of the year plus the actual cost of any asset of the block acquired during the year; and
  • the amount received or accruing is deemed a short-term capital gain (or a short-term loss, if it is less than that cost less the expenses).

Example. A block has a WDV of ₹6,00,000 and is entirely sold for ₹4,50,000 with no additions. The result is a short-term capital loss of ₹1,50,000 (less expenses). The loss is a capital loss and is dealt with under the loss rules (see our post on capital loss), not as a business loss.

Section 75: where depreciation was obtained on an asset

If depreciation has been obtained under section 33(2) for a capital asset in any tax year, then sections 72 and 73 apply with the modification that the written down value of the asset, as defined in section 41 and adjusted, is its cost of acquisition. This avoids a double benefit: the depreciation already claimed is not allowed again as a cost.

Who these provisions affect

  • Businesses and professions that claim depreciation (plant, machinery, vehicles, furniture, buildings, intangible assets).
  • Goodwill: if you bought goodwill and claimed depreciation before the tax year commencing 1 April 2020, the depreciation reduces the purchase price for its cost of acquisition (section 90(4)).

Tax and reporting

  • The gain is short-term and is taxed at the slab rates (individuals), or the rates for the entity (company, firm).
  • Report the gain in the capital gains schedule under short-term gains, with the block details.
  • Advance tax applies to the gain as it arises.

Points to remember

  1. The holding period does not matter: the gain is short-term.
  2. A gain arises only when the sale price exceeds the whole block’s WDV plus additions plus expenses.
  3. When a block disappears, a loss on its sale is a short-term capital loss, which can be set off only against capital gains.
  4. Keep the depreciation schedule to prove the WDV.

Frequently asked questions

How is a gain on a depreciable asset computed?

If the sale price of one or more assets of a block exceeds the total of the expenses of transfer, the written down value of the block at the start of the year and the cost of assets of the block bought during the year, the excess is a short-term capital gain (section 74(2)).

Is the gain long-term if I held the machine for many years?

No. The excess is deemed to be a short-term capital gain irrespective of the holding period (section 74(2)).

What if all assets in the block are sold?

The block ceases to exist. Its cost of acquisition is the written down value at the start of the year plus the cost of assets of that block bought during the year, and the net result is a short-term capital gain or loss (section 74(3)).

What happens if the sale price is lower than the block’s written down value?

No capital gain arises under section 74(2). The sale is dealt with under the depreciation provisions for the block, unless the block ceases to exist, in which case section 74(3) gives a short-term loss.

Does section 75 apply to every asset?

It applies where depreciation was obtained under section 33(2) for a capital asset in any tax year: the written down value of the asset as defined in section 41, as adjusted, is its cost of acquisition for sections 72 and 73.

What tax rate applies?

Short-term capital gain rates. Since the transaction is not on a stock exchange with STT, the gain is taxed at the assessee’s slab rates (or the rate of the entity).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Slump Sale: Capital Gains Under Section 77 (Earlier 50B), Net Worth and Form 28 (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A slump sale is the transfer of one or more undertakings for a lump sum without values for the individual assets and liabilities (section 2(103)). The profit is a long-term capital gain if the undertaking was held for more than 36 months, and a short-term gain otherwise (section 77).
  • The cost of acquisition and of improvement is the net worth of the undertaking, which is its total assets less liabilities as in the books, ignoring revaluation; the sale price is the fair market value of the capital assets worked out under Rule 53.
  • An accountant’s report in Form 28 must be furnished before the specified date in section 63 (section 77(4) and Rule 54).
  • The long-term gain is taxed at 12.5% without indexation.

When a business is sold as a whole, the tax follows special rules. Instead of valuing every asset, the law taxes the profit on the sale of the undertaking as a slump sale. The rules are in section 77 of the Income-tax Act, 2025 (earlier section 50B), with the details of valuation in Rule 53 and the accountant’s report in Rule 54.

What is a slump sale

Section 2(103): the transfer of one or more undertakings, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities. Fixing a value of an asset or liability only for stamp duty, registration fees or similar taxes is not assigning values.

An undertaking includes any part of an undertaking, or a unit or division, or a business activity taken as a whole, but not individual assets or liabilities or any combination of them that is not a business activity (section 2(35)).

Two points follow:

  • A sale of individual assets, even many of them, is not a slump sale.
  • A sale of a business with a price allocated to each asset is also not a slump sale. That is an itemised sale, taxed asset by asset.

Long-term or short-term (section 77(1) and (2))

  • The profit or gain is chargeable as long-term capital gain in the year of the transfer.
  • If the undertaking or division was owned and held for 36 months or less before the transfer, the gain is short-term.

Computing the gain (section 77(3) and (5))

  • Full value of consideration: the fair market value of the capital assets on the date of transfer, calculated as prescribed (Rule 53).
  • Cost of acquisition and cost of improvement: the net worth of the undertaking or division.

Net worth = the aggregate value of total assets of the undertaking, less the value of its liabilities as appearing in the books, with any revaluation of assets ignored. In the aggregate value of total assets:

  • depreciable assets are taken at the written down value of the block of assets (as in section 41(1)(c));
  • goodwill not acquired by purchase from a previous owner is nil;
  • assets whose entire expenditure has been or can be deducted under section 46 are nil; and
  • other assets are at their book value.

There is no indexation. Because the cost is the net worth, which is based on the books, the gain is largely the amount by which the price exceeds the book value of the net assets.

Rule 53: fair market value

Rule 53 gives the fair market value as the higher of two figures:

  • FMV1, the asset-based value: A + B + C + D - L, where A is the book value of assets other than jewellery, artistic work, shares, securities and immovable property (less income-tax paid net of refunds and unamortised deferred expenditure), B the open market price of jewellery and artistic work on a registered valuer’s report, C the fair market value of shares and securities as determined under Rule 57, D the stamp duty value of immovable property, and L the book value of liabilities excluding paid-up capital, proposed dividends, reserves and surplus, provisions for tax beyond tax paid and other provisions and contingent liabilities (as listed in the Rule); or
  • FMV2, the consideration-based value: the monetary consideration received plus the fair market value of non-monetary consideration, determined in the manner in the Rule.

Report of an accountant (section 77(4); Rule 54)

Every assessee must furnish, before the specified date referred to in section 63, a report of an accountant in Form 28. It must include the computation of the net worth of the undertaking or division and certify that the net worth has been correctly arrived at. The specified date in section 63 is the date by which the tax audit report must be filed, so the report is due before that.

Tax rate

A long-term slump sale gain is taxed at 12.5% without indexation (section 197), because the undertaking is not listed equity. A short-term gain is taxed at the rates for the assessee. The surcharge on the long-term gain is capped at 15% (Finance Act, 2026).

Example

A company sells its manufacturing division, held for five years, for a lump sum of ₹5 crore. The aggregate value of total assets of the division, taking depreciable assets at the written down value and other assets at book value, is ₹3 crore, and its liabilities are ₹1 crore.

  • Net worth = 3,00,00,000 - 1,00,00,000 = ₹2,00,00,000
  • Full value of consideration = the higher of FMV1 and FMV2 under Rule 53; suppose it is ₹5,00,00,000 (the consideration)
  • Long-term capital gain = 5,00,00,000 - 2,00,00,000 = ₹3,00,00,000
  • Tax at 12.5% = ₹37,50,000, plus surcharge (capped at 15% on this gain) and cess.

Practical points

  • Do not allocate the price to the assets. If the agreement fixes values for individual assets, the transaction can fail the slump sale test, and each asset is taxed separately, including depreciable assets, under section 74.
  • A demerger or amalgamation that satisfies the Act’s conditions is not a transfer at all (section 70), and has no capital gain.
  • Keep the valuation reports, the net worth working and the Form 28 on file for the return.

Frequently asked questions

What is a slump sale?

The transfer of one or more undertakings, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities (section 2(103)). Fixing values for stamp duty or registration purposes does not count as assigning values.

Is the gain long-term or short-term?

Long-term if the undertaking or division was owned and held for more than 36 months immediately before the transfer; otherwise short-term (section 77(1) and (2)).

How is the gain computed?

Full value of consideration is the fair market value of the capital assets on the transfer date, worked out under Rule 53; the cost of acquisition and improvement is the net worth of the undertaking (section 77(3)).

What is net worth?

The aggregate value of total assets of the undertaking, less its liabilities as shown in the books, ignoring any revaluation. Depreciable assets are taken at the written down value of the block, self-generated goodwill at nil, and assets whose cost was fully deductible at nil (section 77(5)).

Which report is needed?

An accountant’s report in Form 28 computing and certifying the net worth, furnished before the specified date in section 63, that is the date by which the tax audit report is due (Rule 54).

What is the tax rate on a long-term slump sale gain?

12.5% without indexation (section 197), plus surcharge (at most 15% on this gain) and 4% cess.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Sovereign Gold Bonds: Capital Gains Tax on Redemption and Sale from 1 April 2026

Posted on by CA Meet Dhrangadhariya

Last updated: 20 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • From 1 April 2026, redemption of a Sovereign Gold Bond is not a taxable transfer only if the bond is held by an individual from the date of original issue until maturity (section 70(1)(x) of the Income-tax Act, 2025, as amended by the Finance Act, 2026).
  • A bond bought in the secondary market is taxed on redemption: the gain is a capital gain, long-term at 12.5% if held for more than 12 months, short-term at slab rates otherwise.
  • A bond sold on the stock exchange before maturity is taxed in the same way, for every holder.
  • The 2.5% annual interest is taxable as income from other sources at slab rates.

Sovereign Gold Bonds (SGBs) were popular because the gain on redemption was tax free. The Finance Act, 2026 narrowed that relief from 1 April 2026. This post explains who still gets it, who pays tax and how much.

What the Act now says

Section 70(1) lists transactions that are not a transfer, so no capital gains tax arises on them. Clause (x), as amended by the Finance Act, 2026 with effect from 1 April 2026, covers:

redemption of a Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any subsequent Sovereign Gold Bond Scheme, if held by an individual from the date of original issue till maturity.

Before the amendment, the clause covered redemption of a bond under the 2015 scheme by an individual, whether he had subscribed to it or bought it later. The amendment adds two conditions: the original issue and till maturity, and it extends to later schemes.

Who pays tax

Holder On redemption at maturity On sale on the exchange before maturity
Individual who subscribed at issue and holds till maturity No tax Not applicable
Individual who subscribed at issue but sells before maturity Not applicable Capital gain taxed
Anyone who bought the bond in the secondary market Capital gain taxed on redemption Capital gain taxed
HUF, company or trust Capital gain taxed (the clause covers individuals only) Capital gain taxed

How the gain is taxed

Where the exemption does not apply, the gain is the redemption or sale price less your cost of acquisition (the price you paid, with the expenses of the transfer).

  • SGBs are listed securities, so the holding period is 12 months: more than 12 months is long-term, 12 months or less is short-term (section 2(101)).
  • Long-term gain: 12.5% without indexation (section 197). The ₹1,25,000 exemption in section 198 does not apply, because it is only for equity shares and equity-oriented fund units.
  • Short-term gain: added to your income and taxed at slab rates.
  • The surcharge on this long-term gain is capped at 15%, and cess is 4%.

Example. You bought an SGB from the stock exchange for ₹7,000 a unit and held it for two years. It is redeemed at maturity at ₹12,000 a unit (a figure for illustration). The gain per unit is ₹5,000, long-term. Tax at 12.5% is ₹625 a unit, plus 4% cess = ₹650. For an original subscriber who held to maturity, the tax is nil.

Interest

SGBs pay interest of 2.5% a year (as set by the scheme). It is income from other sources (section 92) at your slab rate, in the year it is received or due, whichever your method of accounting is.

What to do if you hold SGBs

  1. Check how you acquired each bond: original issue (the allotment letter or demat statement shows the date) or secondary market.
  2. If you are an original holder, hold to maturity if you want the exemption. An early sale or a premature redemption may be taxed.
  3. For secondary market bonds, plan for tax on redemption and keep the purchase contract note, which fixes your cost and holding period.
  4. Report the interest every year and the capital gain in the capital gains schedule of the return. See our post on capital gains tax for the rates and the way to set off losses.

Frequently asked questions

Is SGB redemption tax free?

Yes, but only if you are an individual who has held the bond from the date of its original issue until maturity. The redemption is then not treated as a transfer (section 70(1)(x)).

What if I bought the SGB from the stock exchange?

The exemption on redemption does not apply to you. The redemption is a transfer, and the gain over your purchase cost is a capital gain.

What is the tax rate on SGB gains?

Long-term (held for more than 12 months, since SGBs are listed securities): 12.5% without indexation. Short-term: your slab rate (sections 2(101) and 197).

Is the interest on SGB taxable?

Yes. The 2.5% a year interest is income from other sources at your slab rate (section 92).

What about premature redemption after five years?

The exemption in section 70(1)(x) speaks of redemption of a bond held from original issue until maturity. A premature redemption is not clearly covered, so take advice before treating it as tax free.

Does the new rule apply to bonds already bought?

It applies from 1 April 2026, to redemptions and transfers from that date, whenever the bond was bought. A bond held by an original subscriber to maturity remains exempt.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains on Shares and Mutual Funds: STCG, LTCG, STT Conditions and Special Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 21 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Listed equity shares and equity-oriented mutual fund units sold on an exchange with STT paid: short-term gain at 20% (section 196), long-term gain (over 12 months) at 12.5% on the amount above ₹1,25,000 a year (section 198).
  • Debt mutual fund units bought on or after 1 April 2023 and market linked debentures always give short-term gains taxed at slab rates (section 76).
  • Gains on demat shares use first-in-first-out for cost and holding period (section 67(7)); shares bought before 1 February 2018 get a grandfathered cost (section 90(7)).
  • A loss on shares bought just before a dividend record date and sold soon after can be ignored (section 175), and buyback proceeds are now taxed as capital gains in the shareholder’s hands (section 69).

For most investors, shares and mutual funds are the biggest source of capital gains. The tax rate depends on three things: the holding period, whether securities transaction tax (STT) was paid, and what the fund invests in. This post explains each for tax year 2026-27 under the Income-tax Act, 2025.

Holding period (section 2(101))

Asset Short-term if held for
Listed shares, UTI units, units of an equity-oriented fund, zero coupon bonds 12 months or less
Unlisted shares, foreign shares, units of debt funds and other assets 24 months or less

Listed equity shares and equity-oriented funds

Short-term (section 196): if the asset is an equity share, a unit of an equity-oriented fund or a unit of a business trust, and the sale is chargeable to STT, the short-term gain is taxed at 20%.

Long-term (section 198): if the gain is on an equity share, a unit of an equity-oriented fund or a unit of a business trust, and STT has been paid:

  • on acquisition and on transfer, for an equity share; and
  • on transfer, for a fund or business trust unit,

the tax is 12.5% on the long-term gain above ₹1,25,000 in the tax year. The Central Government may notify types of acquisition for which the STT-on-acquisition condition does not apply (section 198(5)).

For a resident individual or HUF, any shortfall in the basic exemption limit is first set against the gain (sections 196(2) and 198(3)). Deductions under section 123 and other Chapter VIII deductions are allowed only from income other than these gains. Surcharge on this tax is capped at 15%.

What is an equity-oriented fund (section 198(8))

A fund set up under a mutual fund scheme (or an insurance unit-linked scheme that does not enjoy the exemption in Schedule II, serial 2) that invests a minimum of 65% of its total proceeds in equity shares of domestic companies listed on a recognised stock exchange (the percentage is averaged over the year); or, for a fund of funds investing in another listed fund, at least 90% of proceeds in that fund, which itself invests at least 90% in listed domestic equity.

When STT is not paid

If the conditions for section 196 or 198 are not met (for example an off-market sale of shares, or an unlisted share), the long-term gain is taxed at 12.5% without the ₹1,25,000 exemption (section 197) and the short-term gain at slab rates.

Debt mutual funds, bonds and market linked debentures (section 76)

The gain on transfer, redemption or maturity of the following is always a short-term capital gain, whatever the holding period, taxed at slab rates:

  • a unit of a Specified Mutual Fund acquired on or after 1 April 2023, being a mutual fund that invests more than 65% of its proceeds in debt and money market instruments (or a fund that invests 65% or more in units of such a fund);
  • a market linked debenture; and
  • an unlisted bond or debenture transferred, redeemed or maturing on or after 23 July 2024.

STT is not deducted in computing these gains. Debt fund units bought before 1 April 2023 are ordinary capital assets: short-term if held for 24 months or less, and long-term gains taxed at 12.5% without indexation.

How cost and holding period are fixed

  • First-in-first-out (section 67(7)(c)): for securities held in demat form, if you buy the same security at different times and sell part of the holding, the earliest purchases are treated as sold first, for both the cost of acquisition and the period of holding.
  • Grandfathering (section 90(7)): for long-term equity shares and units covered by section 198 that you bought before 1 February 2018, the cost is the higher of the actual cost and the lower of the value on 31 January 2018 and the sale price.
  • Bonus shares have a nil cost and their holding period runs from the allotment; rights shares cost what you paid (section 90(5) and (6)).
  • STT paid is not deductible (section 72(3)). Brokerage and other expenses incurred wholly and exclusively on the transfer are deducted (section 72(1)(a)).

Special rules

Buyback (section 69): when a company buys back its own shares, the consideration you receive is taxed in your hands as capital gains: the difference between the cost and the amount received. Before the Finance Act, 2026 the buyback consideration was treated as a dividend and was taken as nil for capital gains; from 1 April 2026 it is capital gains. If the shareholder is a promoter, an additional tax applies: 2% (short-term gain) or 9.5% (long-term gain) for a domestic company promoter, and 10% or 17.5% for other promoters (section 69(2)).

Dividend stripping (section 175(8)): if you buy securities within three months before a record date and sell them within three months after it (for units, within nine months), and the dividend or income is exempt, the loss on that purchase and sale is ignored to the extent of the dividend or income. Under section 175(9), a loss on securities bought within three months before the record date and sold within nine months after, while you continue to hold bonus securities allotted on that holding, is ignored and added to the cost of the bonus securities.

Intraday and F&O: a sale without delivery is a speculative transaction (section 66(31)), and a derivative transaction in the exchange is a business transaction. Both give business income and not capital gains. Delivery-based trades by an investor are capital gains.

Dividends: dividend is taxed at slab rates as income from other sources (section 92(2)(a)).

Example

A resident individual during tax year 2026-27, all on a stock exchange with STT paid:

  • Sold shares bought two years ago: long-term gain ₹1,90,000.
  • Sold units of an equity fund bought four months ago: short-term gain ₹60,000.
  • Sold shares bought in November 2016 for ₹1,00,000, worth ₹2,50,000 on 31 January 2018, sold for ₹4,00,000: cost = higher of 1,00,000 and the lower of 2,50,000 and 4,00,000 = ₹2,50,000; long-term gain ₹1,50,000.
  • Long-term gains total ₹3,40,000. Less ₹1,25,000 = ₹2,15,000 at 12.5% = ₹26,875.
  • Short-term gain ₹60,000 at 20% = ₹12,000.
  • Total ₹38,875, plus 4% cess = ₹40,430.

Before you file

  1. Download the capital gains statement from your broker or mutual fund registrar and check it against your own contract notes.
  2. Report each sale with the correct buy date and cost, in the capital gains schedule of ITR-2 or ITR-3. ITR-1 can be used only if the long-term gains under section 198 are no more than ₹1,25,000 and there is no other capital gain (see our post on which ITR form to file).
  3. Pay advance tax on gains as they arise.
  4. Set off losses as explained in our post on capital loss.

Frequently asked questions

What are the tax rates on shares and equity mutual funds?

Short-term gain (held for 12 months or less) on a sale on a stock exchange with STT paid: 20%. Long-term gain (more than 12 months): 12.5% on the gain above ₹1,25,000 in the tax year (sections 196 and 198).

When does the 12.5% rate with the ₹1.25 lakh exemption apply?

When the long-term gain is on an equity share or a unit of an equity-oriented fund or a business trust, and STT was paid on the transfer (and, for an equity share, also on acquisition, unless the Central Government has notified the type of acquisition). Otherwise long-term gains are at 12.5% without the exemption (section 197).

How are debt mutual funds taxed?

If the fund invests more than 65% in debt and money market instruments (a specified mutual fund) and the units were bought on or after 1 April 2023, the gain is a short-term gain taxed at slab rates, however long you hold them (section 76).

How is the cost worked out when I buy the same share at different times?

By first-in-first-out for securities held in demat form: the earliest bought shares are treated as sold first, for both cost and holding period (section 67(7)(c)).

Is intraday trading a capital gain?

No. A transaction settled without delivery is a speculative transaction (section 66(31)) and the profit is business income, not a capital gain, unless it is an exempt derivative transaction.

What is dividend stripping?

Buying shares or units shortly before a dividend record date and selling soon after, to book a loss against exempt dividend. The loss is ignored up to the dividend received if you buy within three months before the record date and sell within three months after (nine months for units) (section 175).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Loss: Set-Off and Carry Forward Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A short-term capital loss can be set off against any capital gain of the year, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against income under any other head, such as salary or house property (section 109(2)).
  • The unabsorbed loss carries forward for eight tax years, against capital gains of the matching kind, but only if the loss was determined in a return filed by the due date (sections 111 and 121).
  • A loss that you could not use because you filed late is lost.

Selling an asset at a loss gives you a capital loss. It reduces tax only if you use it correctly: against the right kind of gain, in the right year, and in a return filed on time. The rules are in sections 108 to 111 and 121 of the Income-tax Act, 2025.

Set-off in the same year (section 108(2))

The net result of each capital asset is computed under sections 72 to 90. Then:

Loss Can be set off against
Short-term capital loss The income computed on any other capital asset, short-term or long-term
Long-term capital loss Only the income on other long-term capital assets

A short-term loss is usually best set off first against short-term gains, which are taxed at higher rates (20% or slab rates), and then against long-term gains.

No set-off against other heads (section 109(2))

For any tax year, the loss under the head Capital gains cannot be set off against income under any other head: not salary, house property, business or other sources. The reverse is allowed: a loss under another head can be set off against capital gains (section 109(1)).

Carry forward (section 111)

If a capital loss cannot be wholly set off in the year, it is carried forward to the following tax years:

  • a short-term loss is set off against the income under the head Capital gains of the next year in respect of any other capital asset;
  • a long-term loss is set off only against long-term capital gains of the next year; and
  • the balance moves on, and no loss is carried forward for more than eight tax years immediately following the year in which it was first computed (section 111(2)).

You must file on time (section 121)

Irrespective of anything else, no loss that has not been determined in pursuance of a return filed under section 263(1) can be carried forward and set off. In practice, you must file the return by the due date and report the loss in it, even if you owe no tax. A belated return (filed after the due date) cannot be used to carry the loss forward; the loss of that year is lost, though it can still be set off against gains of the same year if the return is filed.

Examples

1. Same year. In tax year 2026-27 you have:

  • short-term gain on shares: ₹60,000
  • short-term loss on other shares: ₹1,00,000
  • long-term gain on listed shares: ₹3,00,000

Set off the short-term loss first against the short-term gain (₹60,000), leaving ₹40,000 of the loss. That is set off against the long-term gain, giving net long-term gain ₹2,60,000. The ₹1,25,000 exemption is applied, so ₹1,35,000 is taxed at 12.5% = ₹16,875.

2. Long-term loss. Long-term loss ₹2,00,000 on unlisted shares; short-term gains ₹1,50,000 on listed shares. The long-term loss cannot be set off against the short-term gains. It is carried forward for up to eight years against long-term gains, provided you filed on time.

3. Carry forward. You have a short-term loss of ₹80,000 in 2026-27 and no gains. You file on time. In 2027-28 you have a long-term gain of ₹3,00,000 from the sale of a flat and a short-term gain of ₹20,000. The carried forward short-term loss is set off against both: first the short-term gain (₹20,000) and ₹60,000 against the long-term gain.

4. Salary and capital loss. Salary income ₹12,00,000 and long-term capital loss ₹1,50,000. The loss cannot reduce salary. It is carried forward against future long-term gains.

Practical points

  • Report the loss in the return in the capital gains and carry forward schedules, with the year it arose, and file by the due date.
  • Where the loss is on shares you hold as business stock (a trader), it is a business loss, not a capital loss, and different rules apply (section 112).

Checklist

  1. List all sales of the year with gain or loss, short-term or long-term.
  2. Set off within the year as the table shows.
  3. Carry forward the balance with the year of origin.
  4. File by the due date.

Frequently asked questions

Can I set off a capital loss against salary?

No. Under section 109(2), a loss under the head Capital gains cannot be set off against income under any other head.

How is a short-term loss set off?

Against any capital gain of the same year, whether short-term or long-term (section 108(2)(a)).

How is a long-term loss set off?

Only against long-term capital gains of the same year (section 108(2)(b)).

For how long can I carry forward a loss?

For eight tax years immediately after the year in which it first arose. A short-term loss carried forward can be set off against any capital gain; a long-term loss only against long-term gains (section 111).

Do I have to file my return on time to carry forward a loss?

Yes. A loss not determined in a return filed under section 263(1), that is by the due date, cannot be carried forward (section 121).

Does a capital loss reduce the ₹1,25,000 exempt amount?

The long-term gain on listed equity is computed after set-off of losses, and the ₹1,25,000 is then deducted from the net gain (section 198(2)). A loss set off against a long-term gain reduces the net gain on which the exemption works.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Cost of Acquisition for Capital Gains: Gifted, Inherited and Pre-2001 Assets (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 16 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A gift, will or inheritance is not a transfer, so the giver pays no capital gains tax. The receiver takes over the previous owner’s cost of acquisition and counts his holding period (section 70, section 73 Table serial 1, section 2(101)).
  • For assets acquired before 1 April 2001, the cost is the actual cost or the fair market value on that date, at your option; for land or building the fair market value is capped at the stamp duty value (section 90(9) and (10)).
  • For listed equity shares and equity-oriented fund units bought before 1 February 2018, the cost is the higher of actual cost and the lower of the value on 31 January 2018 and the sale price (section 90(7)).
  • If the previous owner’s cost cannot be found, his cost is the fair market value on the date he acquired it (section 90(11)).

To compute a capital gain you subtract the cost of acquisition from the sale price. For an asset you bought, that is simple. For an asset you received as a gift or inheritance, or that has been in the family since before 2001, the Income-tax Act, 2025 has specific rules. They are in sections 73 and 90.

Gifts and inheritance: no tax on receipt of the asset

  • A transfer by gift, will or irrevocable trust by an individual or HUF is not a transfer for capital gains (section 70(1)(b)), and a partition of a HUF is also outside it (section 70(1)(a)). The giver does not pay capital gains tax.
  • The receiver is not taxed on a gift of money or property received from a relative, on the occasion of marriage, under a will or by way of inheritance, or in contemplation of death (section 92(3)). A gift from a non-relative above ₹50,000 in a year, in cash or property, is taxed as income from other sources (section 92(2)(m)). “Relative” includes the spouse, brothers and sisters, and lineal ascendants and descendants and their spouses (section 92(5)(g)).
  • Income from an asset you gift to your spouse or minor child is generally added to your own income (section 99, income of other persons included), and a house gifted to a spouse or minor child remains yours for house property tax (section 25).

The receiver’s cost and holding period

When the receiver sells the asset:

  • Cost of acquisition is the cost for which the previous owner acquired it, increased by the cost of improvement borne by the previous owner or by the receiver (section 73(1), Table serial 1).
  • Previous owner means the last owner who acquired the asset in a way other than gift, will, inheritance, trust transfer, distribution on liquidation and the other modes in that serial (section 73(2)(a)).
  • Holding period includes the period the previous owner held the asset (section 2(101)(c)(B)(I)).
  • If the cost to the previous owner cannot be found, it is taken as the fair market value on the date he acquired the asset (section 90(11)).
  • Cost of improvement covers capital expenditure on additions and alterations. For an asset that came to the previous owner before 1 April 2001, only expenditure on or after 1 April 2001 counts (section 90(1)(b)(i)). It excludes expenditure already claimed against house property, business or other sources income (section 90(2)).

Assets held since before 1 April 2001

For an asset that became yours, or the previous owner’s, before 1 April 2001, the cost of acquisition is the actual cost or the fair market value on 1 April 2001, at your option (section 90(9)(a) and (b)). For land or building the fair market value on 1 April 2001 cannot exceed the stamp duty value on that date, where it is available (section 90(10)).

Shares and units bought before 1 February 2018 (grandfathering)

For long-term equity shares of a company, units of an equity-oriented fund or units of a business trust that are covered by section 198 and were acquired before 1 February 2018, the cost of acquisition is the higher of:

  • (a) the actual cost; and
  • (b) the lower of (i) the fair market value, and (ii) the sale price.

The fair market value is the highest quoted price on 31 January 2018 for a listed asset, the highest price on the nearest earlier trading day if there was no trade that day, and the net asset value for an unlisted unit (section 90(8)). For shares not listed on 31 January 2018 but listed on the transfer date, the Act gives an indexed cost formula.

Other cost rules

Asset Cost of acquisition
Bonus shares or other financial assets allotted without payment on the basis of holding Nil (section 90(6)(d))
Rights shares you subscribe for The amount you paid (section 90(6)(c))
The right to subscribe, if you renounce it Nil (section 90(6)(b))
Shares you buy from the person who renounced the right The price paid to him plus the amount paid to the company (section 90(6)(e))
Shares after consolidation, sub-division or conversion Cost worked out from the original shares (section 90(9)(d))
Shares on distribution of assets in liquidation Fair market value on the date of distribution (section 90(9)(c))
Shares allotted under an ESOP or RSU The fair market value taxed as a perquisite (section 73, serial 4)
Goodwill, brand, tenancy rights and other rights The purchase price, or nil in other cases (section 90(3))

Examples

1. Inherited house. Your father bought a house in 1990 for ₹2,00,000. Its fair market value on 1 April 2001 was ₹10,00,000, below the stamp duty value on that date. You inherit it in 2018 and sell it in September 2026 for ₹80,00,000. You can choose the cost: ₹2,00,000 (actual) or ₹10,00,000 (value on 1 April 2001). Choose ₹10,00,000, which gives the lower gain. The holding period includes your father’s, so the gain is long-term: 80,00,000 - 10,00,000 = ₹70,00,000. Tax is at 12.5% without indexation, or, as the house was acquired before 23 July 2024, the lower of that and 20% with indexation, if you are a resident individual (section 197).

2. Gifted shares. Your father gives you listed shares he bought in 2015 for ₹1,00,000. They were worth ₹3,00,000 on 31 January 2018. You sell them in 2026 for ₹5,00,000. The cost is the higher of ₹1,00,000 and the lower of ₹3,00,000 and ₹5,00,000, that is ₹3,00,000. The gain is ₹2,00,000, long-term, and taxable above ₹1,25,000 at 12.5%.

3. Gift from a friend. If a friend (not a relative) gives you land with a stamp duty value of ₹20,00,000, you are taxed on ₹20,00,000 as income from other sources in the year you receive it (section 92(2)(m)). That value is then your cost of acquisition if you sell the land later (section 73, serial 17).

Points to keep in mind

  • Keep the documents of the previous owner’s cost and any improvements. For old assets, a registered valuer’s report for the value on 1 April 2001 supports the option.
  • The cost of acquisition cannot include interest you claimed as a deduction elsewhere (section 72(3)).
  • For ESOP shares and shares of a foreign company, see our posts on ESOP taxation and on capital gains.
  • If the property was inherited, check whether the heir needs a will or legal heir certificate to prove the mode of acquisition.

Frequently asked questions

Is there capital gains tax when I gift or inherit an asset?

No. A transfer by gift, will or inheritance is not a transfer for capital gains (section 70(1)(b)), and the receiver is not taxed on a gift from a relative or on an inheritance (section 92(3)). Tax arises when the receiver later sells the asset.

What is the cost of an inherited or gifted asset?

The cost for which the previous owner acquired it, plus any cost of improvement borne by the previous owner or by you (section 73(1), Table serial 1). “Previous owner” is the last owner who acquired it other than by gift, will, inheritance or one of the other modes in that serial.

Does the holding period of the giver count?

Yes. The period for which the previous owner held the asset is included in your holding period (section 2(101)(c)), so an asset held by the giver for a long time is long-term in your hands even if you sell soon after receiving it.

What if the asset was bought before 1 April 2001?

You may take either the actual cost or its fair market value on 1 April 2001. For land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10)). The same applies where the previous owner held it before that date.

How are shares bought before 1 February 2018 treated?

For long-term listed equity shares, units of an equity-oriented fund or a business trust, the cost is the higher of the actual cost and the lower of (i) the highest quoted price on 31 January 2018 (or net asset value for unlisted units) and (ii) the sale price (section 90(7) and (8)).

What is the cost of bonus and rights shares?

Bonus shares: nil. Rights shares: the amount you paid for them. A right to subscribe that you renounce: nil (section 90(5) and (6)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 85 (Earlier 54EC) Capital Gain Bonds, and Sections 83 and 84 (Earlier 54B and 54D) (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 03 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 85 (earlier 54EC) exempts the long-term gain on land or building if the gain is invested within six months in NHAI or REC bonds redeemable after five years, up to ₹50 lakh.
  • The bonds must not be sold, converted into money or pledged for a loan within five years, or the exempted gain is taxed in that year (section 85(3) and (4)).
  • Section 83 (earlier 54B) exempts the gain on agricultural land if you buy other agricultural land within two years; section 84 (earlier 54D) exempts gain on compulsory acquisition of industrial land or building if you buy or build a replacement within three years.
  • Gains not used by the return due date go to the capital gains deposit scheme, except for section 85, where the investment must be within six months.

If you sell land or a building, investing the long-term gain in specified bonds can save tax on it. Two other sections give similar relief for agricultural land and for land taken by the government. This post covers sections 83 to 85 of the Income-tax Act, 2025.

Section 85 (earlier 54EC): investment in specified bonds

Original asset: land or building, or both, with a long-term capital gain. Gain on shares, gold or other assets does not qualify.

Who: any assessee, not only individuals.

Investment: all or part of the capital gain, within six months after the date of transfer, in a long-term specified asset: a bond redeemable after five years, issued on or after 1 April 2018 by the National Highways Authority of India or Rural Electrification Corporation Limited, or another bond notified by the Central Government.

Limit (section 85(2)): the investment from the gain on one or more original assets cannot exceed ₹50 lakh, either in a tax year, or in the year of the transfer and the next tax year taken together.

Exemption (section 85(1)):

  • If the gain is more than the investment, the excess is taxed under section 67.
  • If the gain is equal to or less than the investment, the whole gain is exempt.

Lock-in (section 85(3) and (4)): if you transfer the bonds, or convert them into money, within five years of acquiring them, the exempted gain is treated as long-term capital gain of that year. Taking a loan or advance on the security of the bonds is treated as converting them into money on that date.

No double benefit (section 85(5)): if you use the investment for this exemption, you cannot also claim a section 123 deduction for it.

Example. A plot held for six years is sold on 20/08/2026 for a long-term gain of ₹60,00,000. Within six months, by 19/02/2027, you invest ₹50,00,000 in NHAI bonds. Exempt: ₹50,00,000. Taxed: ₹10,00,000 at 12.5%, i.e. ₹1,25,000 plus cess. If you also sell another plot in the same year, the ₹50 lakh limit is shared.

Points to watch:

  • The six months run from the date of transfer, not the end of the year, and there is no deposit scheme alternative for this section. The bond must be bought in time, even if the return is not yet due.
  • If the sale price for a compulsory acquisition is not received on the date of transfer, the period for investment is counted from the date the compensation is received (section 89).
  • Interest on the bonds is taxable; the exemption is only for the capital gain.
  • The investment limit is for the gain from land or building, not the sale price. Invest no more than the gain.

Section 83 (earlier 54B): agricultural land

Who: an individual or HUF.

Original asset: land used for agricultural purposes by the assessee, his parent or the HUF in the two years immediately before the transfer. (The land must be a capital asset: urban land, as explained in our post on property sales.)

New asset: other land bought within two years after the transfer, for use for agriculture.

  • If the gain exceeds the cost of the new land, the excess is taxed, and the cost of the new land is nil if it is sold within three years of purchase.
  • If the gain is less than or equal to the cost, nothing is taxed, and the cost of the new land is reduced by the gain if it is sold within three years.

Deposit: if the gain is not used by the date of filing the return, deposit it in a specified bank under the capital gains deposit scheme before the due date and attach proof (section 83(2)). Any unused amount is taxed as income of the year in which two years from the transfer expire (section 83(4)).

Section 84 (earlier 54D): compulsory acquisition of an industrial undertaking’s land or building

Original asset: land, building or a right in them, belonging to an industrial undertaking and used by the assessee for its business in the two years before the transfer, compulsorily acquired under any law.

New asset: other land, building or a right, bought within three years after the transfer, or a building constructed in that period, for shifting or re-establishing the undertaking or setting up another industrial undertaking.

The same two-way rule applies: the gain above the cost of the new asset is taxed, and the cost of the new asset is nil or reduced if it is transferred within three years. The unused gain goes into the capital gains deposit scheme before the return due date, and any amount not used within three years of the transfer is taxed in the year those three years expire (section 84(4)).

Which section for which gain

Asset sold Residential house Land or building (not a house) Agricultural land Shares and other assets
Reinvest in a house Section 82 Section 86 Section 86 Section 86
Reinvest in NHAI or REC bonds Section 85 Section 85 Section 85 Not available
Reinvest in agricultural land Not available Not available Section 83 Not available

Our post on sections 82 and 86 explains the house exemptions, and the post on capital gains on property compares them with the bond route.

Before you invest

  1. Count six months from the date of transfer, and invest earlier than that if you want a margin.
  2. Keep the bond certificate and the allotment letter, and a note of the five-year date.
  3. Do not borrow against the bonds.
  4. Report the bonds and exemption in the capital gains schedule of the return.

Frequently asked questions

Who can claim the section 85 (earlier 54EC) exemption?

Anyone, including a company, with a long-term capital gain from the transfer of land or building or both who invests the gain, or part of it, within six months after the transfer in a long-term specified asset. Only gain on land or building qualifies.

What is a long-term specified asset?

A bond redeemable after five years issued on or after 1 April 2018 by the National Highways Authority of India or by Rural Electrification Corporation Limited, or any other bond notified by the Central Government (section 85(6)).

How much can I invest?

Not more than ₹50 lakh from the gain on one or more original assets in a tax year, or in the year of transfer and the next tax year together (section 85(2)).

How long must I hold the bonds?

Five years. If you transfer them, convert them into money or take a loan or advance against them within five years, the exempted gain is taxed as long-term gain in that year (section 85(3) and (4)).

Can I also claim section 123 on the same investment?

No. If the investment is used for section 85, no deduction under section 123 is allowed for it (section 85(5)).

When does section 83 apply?

When an individual or HUF sells agricultural land that was used for agriculture by the assessee, his parent or the HUF in the two preceding years, and buys other agricultural land within two years.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Sections 82 and 86 (Earlier 54 and 54F): Capital Gains Exemption on Buying a House (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 10 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 82 (earlier 54) exempts the long-term gain on sale of a residential house if you buy one house within 1 year before or 2 years after, or build one within 3 years; only the gain has to be reinvested.
  • Section 86 (earlier 54F) exempts the long-term gain on sale of any other long-term asset, such as shares, gold or land, if the whole net sale proceeds go into one house; the exemption is proportionate if only part is invested.
  • Both are for an individual or HUF, both need the new house to be in India, and both allow a deposit in the capital gains account scheme before the return is filed.
  • Both ignore cost or proceeds above ₹10 crore. Section 82 allows two houses once if the gain is up to ₹2 crore. Section 86 is lost if you own more than one other house.

Two sections of the Income-tax Act, 2025 let an individual or HUF avoid tax on long-term capital gains by buying or building a house. Section 82 (the old section 54) covers the sale of a house. Section 86 (the old section 54F) covers the sale of any other long-term asset.

Section 82 (earlier 54): sale of a residential house

Who: an individual or HUF.

Original asset: buildings or land appurtenant to them, being a residential house whose income is taxed as house property, with a long-term gain.

New asset: one residential house in India that you:

  • buy within one year before or two years after the date of transfer; or
  • construct within three years after the date of transfer.

Exemption:

  • If the capital gain is more than the cost of the new house, the excess is taxed under section 67, and if you transfer the new house within three years the cost is taken as nil.
  • If the gain is equal to or less than the cost of the new house, none of it is taxed, and if the new house is transferred within three years its cost is reduced by the gain.

Two houses (section 82(5) and (6)): if the gain is up to ₹2 crore, you may buy or build two houses instead of one. You can use this option only once, for one tax year only.

Limits (section 82(7) and (8)): a cost of the new house above ₹10 crore, and a gain above ₹10 crore for the deposit requirement, are not taken into account.

Example. A flat held for five years is sold for ₹1,20,00,000; indexation aside, the long-term gain is ₹50,00,000. You buy another house for ₹35,00,000 within two years. Exempt: ₹35,00,000. Taxed: ₹15,00,000 as long-term gain. If the new house cost ₹55,00,000, the whole ₹50,00,000 is exempt, and the new house has a reduced cost of ₹5,00,000 if you sell it within three years.

Section 86 (earlier 54F): sale of any other long-term asset

Who: an individual or HUF.

Original asset: any long-term capital asset that is not a residential house (shares, mutual fund units, gold, land, a commercial property and so on).

New asset: one residential house in India bought within one year before or two years after the transfer, or built within three years after.

Exemption (section 86(1)): compare the net consideration (sale price less expenses of the transfer) with the cost of the new house:

  • If the net consideration is equal to or less than the cost, no capital gain is taxed.
  • If it is more, the exempt part of the gain is: gain × cost of the new house ÷ net consideration.

Example. Shares are sold for ₹1,00,00,000 (net consideration), long-term gain ₹40,00,000. You buy a house for ₹60,00,000. Exempt: 40,00,000 × 60,00,000 ÷ 1,00,00,000 = ₹24,00,000. The rest, ₹16,00,000, is taxed under the capital gains rates. If you invest the whole ₹1,00,00,000, the whole gain is exempt.

Conditions that take the exemption away (section 86(5) and (6)):

  • The exemption is not available if, on the date of transfer, you own more than one residential house other than the new house; or if you buy another house (other than the new one) within one year, or build one within three years, after the transfer, and the income of that other house is taxed as house property.
  • If you buy, within two years after the transfer, or build, within three years, a house other than the new one whose income is taxed as house property, the gain that was exempted is taxed as long-term gain in the year you buy or build it.

Withdrawal (section 86(7)): if you transfer the new house within three years of buying or finishing it, the exempted gain is taxed as long-term gain in the year of transfer.

Limits (section 86(8) and (9)): cost of the new house above ₹10 crore, and net consideration above ₹10 crore for the deposit, are ignored.

Capital gains deposit scheme (sections 82(2) and 86(2))

If you have not bought or built the house before filing the return, you must deposit the unutilised amount in a specified bank or institution under the scheme notified by the Central Government. The deposit must be made before the return is filed and not later than its due date under section 263(1), and the proof of deposit must be attached to the return.

  • The amount utilised plus the deposit is treated as the cost of the new house.
  • If the deposit is not fully used within the time limit (three years from the date of transfer, or from the date compensation is received for a compulsory acquisition under section 89), the unutilised amount is taxed as income of the year in which three years from the transfer expire, and you may withdraw the unutilised amount under the scheme.
  • For section 86, the tax on unutilised amount is worked out by the formula X minus Y in section 86(4).

Compare the two

Point Section 82 Section 86
Original asset Residential house Any long-term asset other than a residential house
What must be invested The gain The net consideration (proportionate exemption)
House restriction None No more than one other house when the asset is sold
Two houses Once, if gain up to ₹2 crore No
Cap ₹10 crore ₹10 crore
Lock-in Three years, otherwise cost reduced or nil Three years, otherwise gain taxed

Before you claim

  1. Work out the long-term gain correctly, using the cost and holding period rules (see our post on capital gains).
  2. Decide how to meet the time limits: one year before, two years after, three years for construction.
  3. If funds are not used by the return due date, deposit them first.
  4. Keep the sale deed, purchase or construction documents and the deposit proof for the return and for any notice.

Frequently asked questions

Who can claim the exemption under section 82 (earlier 54)?

An individual or HUF with a long-term capital gain on sale of a residential house (building or land appurtenant to it) whose income is taxed as house property, who buys one residential house in India within one year before or two years after the sale, or builds one within three years after the sale.

How much is exempt under section 82?

The capital gain, up to the cost of the new house. If the gain is more than the cost of the new house, the excess is taxed as long-term gain.

Who can claim section 86 (earlier 54F)?

An individual or HUF with a long-term gain from the transfer of any long-term asset other than a residential house, who invests the net sale proceeds in one new residential house in India within the same time limits, and does not own more than one other house when the asset is sold.

How much is exempt under section 86?

All the gain if the net consideration is invested in the house. If only part is invested, the exempt gain is the gain multiplied by the cost of the new house and divided by the net consideration.

Can I buy two houses?

Under section 82, if the gain is ₹2 crore or less, you may buy or build two houses, but only once in your lifetime.

What if I cannot buy the house before filing the return?

Deposit the unutilised amount in a specified bank under the capital gains account scheme before the due date of filing, attach proof, and use it within the time limit. Any amount not used by the end of three years from the date of transfer is taxed in that year.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax on Sale of Property: Rates, Indexation Choice, Stamp Duty Value and Exemptions (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 15 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A house, flat, plot or building held for more than 24 months gives a long-term gain taxed at 12.5% without indexation (section 197); held for 24 months or less, the gain is short-term and taxed at your slab rate.
  • A resident individual or HUF who acquired the land or building before 23 July 2024 pays the lower of 12.5% on the gain without indexation and 20% on the gain with indexation (section 197(3)).
  • If you sell below the stamp duty value, the stamp duty value is taxed as the sale price, with a 10% tolerance (section 78).
  • The buyer deducts 1% TDS where the consideration or stamp duty value is ₹50 lakh or more; rural agricultural land is not a capital asset at all.

Selling a house, flat, plot or shop is the most common capital gains event for individuals. The rules changed in 2024 (no indexation for property bought after 22 July 2024) and are now in the Income-tax Act, 2025. This post covers the gain, the rate, the stamp duty value rule, TDS and the ways to save tax.

Short-term or long-term

Land and buildings are short-term if held for 24 months or less, and long-term if held for more than 24 months (section 2(101)). The holding period starts from the date you acquired it (for a gift or inheritance, from the previous owner’s date) and ends on the date of transfer.

Rates

Gain Tax
Short-term Added to your income and taxed at slab rates
Long-term 12.5% on the gain computed without indexation (section 197(1))
Long-term, land or building acquired before 23 July 2024, seller is a resident individual or HUF The lower of: 12.5% without indexation, or 20% on the gain computed with the indexed cost of acquisition and improvement (section 197(3))

The surcharge on tax on long-term gains is capped at 15%, and cess is 4%.

Indexed cost of acquisition is the cost multiplied by (the Cost Inflation Index of the year of transfer ÷ the index of the first year you held the asset, or 2001-02 if later) (section 72(8)). The Central Government notifies the index each year.

Example. A flat bought on 01/04/2019 for ₹40,00,000 is sold on 15/09/2026 for ₹1,00,00,000, expenses of the sale being ignored. Assume (for illustration only, not notified figures) indexes of 289 for the year of purchase and 380 for 2026-27.

  • Without indexation: gain 60,00,000 × 12.5% = ₹7,50,000
  • With indexation: indexed cost 40,00,000 × 380 ÷ 289 = ₹52,59,516; gain ₹47,40,484 × 20% = ₹9,48,097
  • The resident individual pays the lower: ₹7,50,000 (plus cess).

For property bought long ago with modest appreciation, indexation can give the lower tax; for property bought recently, 12.5% without indexation usually does. Work out both.

Stamp duty value (section 78)

If the sale price of land or building is less than the stamp duty value, the stamp duty value is deemed to be your sale price for computing the gain.

  • If the stamp duty value is not more than 110% of the actual consideration, the actual consideration is used.
  • If the date of the agreement and the date of registration differ, and part or full consideration was received by account payee cheque, draft or electronic mode on or before the agreement date, the stamp duty value on the agreement date may be used.
  • If you claim that the stamp duty value is above the fair market value, the Assessing Officer may refer the matter to a Valuation Officer (section 78(2)).

The buyer can be taxed on the shortfall as income from other sources (section 92(2)(m)), and the value taxed becomes his cost of acquisition (section 73, serial 17), so a low registered price helps neither side.

Cost of acquisition and expenses

  • Cost: the price paid plus stamp duty and registration paid when you bought. For property acquired before 1 April 2001, the cost, or the fair market value on that date at your option, capped by the stamp duty value on that date (section 90(9) and (10)).
  • Cost of improvement: capital expenditure on additions and alterations, not repairs or expenses already claimed as deductions from house property income (section 90(1) and (2)).
  • Selling expenses: brokerage, legal fees and stamp duty on the sale, if borne by you, incurred wholly and exclusively for the transfer (section 72(1)(a)).
  • Interest claimed as a deduction under section 22 or Chapter VIII on the loan is not added to the cost (section 72(3)).

TDS on the sale

For a resident seller, the buyer must deduct 1% of the higher of the consideration and the stamp duty value, where either is ₹50 lakh or more, on the transfer of immovable property other than agricultural land (section 393(1), Table serial 3(i)). The seller takes credit for it in the return. Make sure the PAN of the seller is correct.

Joint development agreement (section 67(14))

If an individual or HUF gives land to a developer for a share of the built project (a registered “specified agreement”), the capital gain is taxed in the tax year in which the certificate of completion for the whole or part of the project is issued. The full value of consideration is the stamp duty value of the share on that date, plus any cash consideration. If the owner transfers the share before the completion certificate, the gain is taxed in the year of that transfer. The cost of the share when the owner later sells it is that same deemed consideration (section 73, serial 20).

Ways to save tax on the gain

Section Who Condition Limit
82 (earlier 54) Individual or HUF with a long-term gain on a residential house Buy one house within 1 year before or 2 years after the sale, or build one within 3 years; two houses once in a lifetime if the gain is up to ₹2 crore The cost of the new house up to ₹10 crore counts; gain above ₹10 crore is not considered for deposits
86 (earlier 54F) Individual or HUF with a long-term gain on any asset other than a residential house Invest the net consideration (not only the gain) in a house within the same time limits; you must not own more than one other house on the transfer date Cost above ₹10 crore is ignored
85 (earlier 54EC) Anyone with a long-term gain on land or building Invest within 6 months in NHAI or REC bonds redeemable after 5 years ₹50 lakh in a tax year (or across the year of sale and the next)
83 (earlier 54B) Individual or HUF selling agricultural land used for farming Buy other agricultural land within 2 years Cost of the new land

If you cannot invest before the return is filed, deposit the unutilised gain in a specified bank under the capital gains deposit scheme before the filing due date and attach the proof (sections 82(2), 83(2), 86(2)). See our posts on sections 82 and 86 and on the bonds.

The new asset must be kept for a minimum period. If you sell the new house within three years, the cost is reduced or taken as nil under section 82(1), and under section 86(7) the exempted gain is taxed as long-term gain in that year. If you transfer the bonds or take a loan against them within five years, the exempted gain is taxed (section 85(3) and (4)).

Agricultural land

Rural agricultural land in India is not a capital asset, so its sale gives no capital gain. Land is not rural, and is taxable, if it lies in the jurisdiction of a municipality or cantonment board with a population of 10,000 or more, or within a distance measured aerially from its limits of 2 km (population above 10,000 and up to 1 lakh), 6 km (above 1 lakh and up to 10 lakh) or 8 km (above 10 lakh) (section 2(22)). Urban agricultural land is taxed like other land, with section 83 available if you buy other agricultural land.

Compulsory acquisition

Compensation for compulsory acquisition is a capital gain. Enhanced compensation is taxed in the year you receive it, with a cost of nil (section 67(12) and (13)). Section 84 exempts the gain on compulsory acquisition of land or buildings of an industrial undertaking if you buy or build a new asset within 3 years to shift or set up the undertaking.

Reporting

Report the sale in the capital gains schedule of ITR-2 (or ITR-3), with date, cost, indexed cost if used, sale price, stamp duty value and any exemption claimed. Pay advance tax on the gain when you receive the sale money, so as to avoid interest.

Frequently asked questions

How is capital gains tax on a property sale calculated?

Sale price (or stamp duty value if higher by more than 10%) less brokerage and other expenses of the sale, less your cost of acquisition and cost of improvement. If you held it for more than 24 months, the gain is long-term and taxed at 12.5%; otherwise it is added to your income and taxed at slab rates.

Can I still use indexation?

A resident individual or HUF who acquired land or a building before 23 July 2024 may pay the lower of two amounts: 12.5% of the gain computed without indexation, or 20% of the gain computed with indexed cost of acquisition and improvement (section 197(3)). Others, and later purchases, get no indexation.

What is the stamp duty value rule?

If you sell land or building for less than the stamp duty value, the stamp duty value is treated as your sale price (section 78). If the stamp duty value is up to 110% of the actual price, the actual price is used. The date of the agreement can be used instead of the date of registration if part payment was made by a banking channel on or before the agreement.

Is TDS deducted on a property sale?

The buyer deducts 1% of the higher of the consideration and the stamp duty value where either is ₹50 lakh or more, on the transfer of immovable property other than agricultural land (section 393(1), Table serial 3(i)).

How can I save tax on the gain?

By reinvesting the long-term gain in a residential house (section 82 for a house sold, section 86 for other assets), in specified bonds (section 85, up to ₹50 lakh) or in agricultural land (section 83) within the time limits. Unutilised gain must be deposited under the capital gains deposit scheme before the return is filed.

Is agricultural land taxed on sale?

Rural agricultural land is not a capital asset, so there is no capital gain. Land that is within a municipality or cantonment board area with population of 10,000 or more, or within 2, 6 or 8 km of such local limits depending on the population, is a capital asset and taxable.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Capital Gains Tax in India: Short-Term, Long-Term, Rates and Computation (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 26 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Capital gains are the profit on transfer of a capital asset, taxed in the year of transfer under section 67 of the Income-tax Act, 2025; they are computed as the sale value less expenses on the transfer, the cost of acquisition and the cost of improvement (section 72).
  • An asset held for 12 months or less (listed securities, equity-oriented fund units, UTI units, zero coupon bonds) or 24 months or less (everything else) is short-term; otherwise it is long-term (section 2(101)).
  • Short-term gains on listed equity with STT are taxed at 20%; long-term gains are taxed at 12.5%, and gains on listed equity with STT are taxed at 12.5% only on the part above ₹1,25,000 a year.
  • Resident individuals and HUFs can choose indexed cost at 20% for land or building acquired before 23 July 2024 if that gives a lower tax.

Profit on selling a house, plot, shares, mutual fund units or gold is taxed as capital gains. The rules sit in sections 67 to 91 of the Income-tax Act, 2025 (they were sections 45 to 55A of the 1961 Act), and the tax rates in sections 196 to 198. This post sets out the framework for tax year 2026-27, from the sale date to the tax.

What is taxed

Section 67(1): profits or gains from the transfer of a capital asset in a tax year are chargeable under the head “Capital gains” and are the income of the year in which the transfer took place. “Capital asset” means property of any kind held by you, whether or not connected with your business or profession (section 2(22)).

Some transactions are not a transfer (section 70): a gift or will by an individual or HUF, partition of a HUF, certain transfers between a company and its wholly owned subsidiary, amalgamation, and others. A gift is tax free to the giver, but the receiver takes over the cost and holding period of the giver (see our post on cost of acquisition).

The Act also specifically taxes some receipts as capital gains: insurance money received for destruction of a capital asset (section 67(2)), gains on conversion of a capital asset into stock-in-trade (section 67(6), taxed when the stock is sold), contributing an asset to a firm of which you are a partner (section 67(9)), enhanced compensation (section 67(12)), and a real estate joint development (section 67(14)).

Short-term or long-term (section 2(101))

Asset Short-term if held for
Security listed on a recognised stock exchange in India, unit of UTI, unit of an equity-oriented fund, zero coupon bond 12 months or less
Every other capital asset (unlisted shares, foreign shares, land, building, gold, debt fund units and so on) 24 months or less

The holding period runs from the date of acquisition to the date of transfer. It includes the previous owner’s period for a gift, will, inheritance and the other cases in section 73(1) Table serial 1, and, for shares or securities allotted by an employer under an ESOP, runs from the date of allotment. A specified mutual fund bought on or after 1 April 2023, a market linked debenture, and an unlisted bond or debenture transferred or redeemed on or after 23 July 2024 give short-term gains whatever the holding period (section 76).

How the gain is computed (section 72)

Capital gain = full value of consideration, less expenditure incurred wholly and exclusively on the transfer, less the cost of acquisition, less the cost of any improvement.

  • Interest claimed as a deduction under section 22(1)(b) or Chapter VIII and securities transaction tax are not deducted.
  • For land or building, if the sale price is less than the stamp duty value, the stamp duty value is taken as the sale price, but a gap of up to 10% is ignored (section 78). For unquoted shares sold below fair market value, the fair market value is used (section 79).
  • If the price cannot be ascertained, the fair market value on the transfer date is used (section 80).
  • Cost of improvement means capital expenditure on additions or alterations, not repairs (section 90(1) and (2)).

Cost of acquisition

Situation Cost
Bought What you paid
Gift, inheritance, will, certain transfers Cost to the previous owner (the last owner who acquired it otherwise), plus his cost of improvement (section 73(1), Table serial 1)
Acquired before 1 April 2001 Cost, or fair market value on 1 April 2001, at your option; for land or building the fair market value cannot exceed the stamp duty value on that date (section 90(9) and (10))
Long-term listed equity shares, equity-oriented fund units or business trust units acquired before 1 February 2018 The higher of (a) cost and (b) the lower of the fair market value on 31 January 2018 and the sale price (section 90(7))
Shares allotted under an ESOP or RSU The fair market value taken for the perquisite (section 73, serial 4)
Bonus shares and rights shares Nil for bonus shares; the amount paid for rights shares (section 90(5) and (6))

Tax rates (sections 196 to 198)

Gain Rate
Short-term gain on equity shares or units of an equity-oriented fund or a business trust, sold on a stock exchange with STT paid 20% (section 196)
Other short-term gains Normal slab rates
Long-term gain on listed equity shares, equity-oriented fund units or business trust units, where STT was paid on acquisition and transfer (STT on transfer only for fund and trust units) 12.5% on the gain above ₹1,25,000 in the year (section 198)
Other long-term gains (unlisted shares, property, gold, debt units and so on) 12.5%, without indexation (section 197)
Long-term gain on land or building acquired before 23 July 2024, by a resident individual or HUF The lower of 12.5% without indexation, and 20% with the indexed cost of acquisition and improvement (section 197(3))

Other points on rates:

  • For a resident individual or HUF, if the rest of your income is below the basic exemption limit, the shortfall is set against the capital gain before tax is applied (sections 196(2), 197(2) and 198(3)).
  • Chapter VIII deductions (section 123 and others) are allowed only from income other than these capital gains (sections 196(4), 197(5), 198(6)).
  • The rebate under section 156 is allowed against tax on income other than the special-rate capital gains. It does not wipe out tax on long-term gains under section 198 (section 198(7)).
  • Surcharge on tax on these capital gains is capped at 15% whatever the income (Finance Act, 2026), and cess is 4%.

Examples

1. Long-term gain on listed shares. A resident individual bought listed shares for ₹4,00,000 on 12/06/2025 and sold them on a stock exchange on 20/08/2026 for ₹6,10,000, with STT paid on both. Held for more than 12 months, so long-term.

  • Gain: 6,10,000 - 4,00,000 = ₹2,10,000
  • Exempt part: ₹1,25,000; taxable: ₹85,000
  • Tax at 12.5% = ₹10,625; cess 4% = ₹425; total ₹11,050

2. Short-term gain on listed shares. Bought on 01/04/2026 for ₹2,00,000, sold on 10/10/2026 for ₹2,50,000, STT paid. Gain ₹50,000; tax at 20% = ₹10,000 plus cess ₹400 = ₹10,400.

3. Listed shares bought before 1 February 2018. Cost ₹1,00,000 in 2015; value on 31 January 2018 ₹3,00,000; sold in 2026 for ₹5,00,000. Deemed cost = higher of 1,00,000 and the lower of 3,00,000 (value on 31/01/2018) and 5,00,000 (sale price) = ₹3,00,000. Gain = ₹2,00,000; taxable above ₹1,25,000 = ₹75,000 at 12.5% = ₹9,375.

4. Plot of land. Bought for ₹10,00,000 in March 2020 and sold for ₹30,00,000 in August 2026. Held more than 24 months, so long-term. Tax at 12.5% without indexation: 20,00,000 × 12.5% = ₹2,50,000. If indexing the cost at 20% gives a lower figure, the resident individual pays that lower tax, because the land was acquired before 23 July 2024. See our post on capital gains on property.

Losses

  • A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss only against long-term gains (section 108(2)).
  • A capital loss cannot be set off against other heads such as salary (section 109(2)).
  • Unabsorbed losses carry forward for eight tax years against capital gains of the matching kind (section 111), and only if the loss was determined in a return filed by the due date (section 121). See our post on capital loss set-off.

Reporting

Capital gains are reported in the capital gains schedule of the return, with each sale listed (date, cost, sale price). If you have capital gains beyond the long-term gains of ₹1,25,000 under section 198, you cannot use the simple ITR-1 (see our post on which ITR form to file). Pay advance tax on gains as they arise.

Frequently asked questions

What is a capital asset?

Property of any kind held by you, whether or not connected with your business, such as land, a house, shares, units, gold and jewellery, and certain other items (section 2(22)). Stock-in-trade and some other items are outside the definition.

When is a gain short-term or long-term?

Short-term if the asset is held for not more than 24 months before transfer; for a security listed in India, a UTI unit, a unit of an equity-oriented fund or a zero coupon bond the period is 12 months. A longer holding makes the gain long-term (section 2(101)).

What are the capital gains tax rates?

Short-term gain on listed equity shares and equity-oriented fund units sold with STT: 20%. Other short-term gains: slab rates. Long-term gains: 12.5%, and on listed equity shares and equity-oriented fund units with STT 12.5% only on gains above ₹1,25,000 in the year (sections 196 to 198).

Is indexation still available?

Only for a resident individual or HUF selling land or building acquired before 23 July 2024, who may pay the lower of 12.5% without indexation and 20% with indexation (section 197(3)). Indexation is not available for other assets.

How is the cost of acquisition fixed?

Generally what you paid; for gifted or inherited assets, the cost to the previous owner (section 73); for assets acquired before 1 April 2001, cost or fair market value on that date at your option; for listed equity acquired before 1 February 2018, the higher of cost and the lower of its value on 31 January 2018 and the sale price (section 90).

Can I set off a capital loss?

A short-term loss against any capital gain, a long-term loss only against long-term gains. Unabsorbed losses carry forward for eight tax years if the return was filed on time (sections 108, 111 and 121).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.