Stocks, mutual funds, gold and property: How LTCG tax differs across asset classes

LTCG tax has come back into focus after SBI Research called for scrapping the tax on equities and extending the holding period to two to three years to encourage longer-term investment.

While SBI Research’s proposal centres on equities, the broader debate offers an opportunity to examine how capital gains tax applies to different investments. Stocks, equity and debt mutual funds, gold and property are subject to different holding-period requirements, tax rates and exemptions.

Here is how long-term capital gains tax differs across these asset classes.

Stocks: 12.5% tax on eligible long-term gains above ₹1.25 lakh

Listed equity shares qualify for long-term capital gains treatment when held for more than 12 months. Eligible gains are taxed at 12.5%, with the first ₹1.25 lakh of qualifying long-term gains in a tax year exempt from tax.

For instance, if an investor earns ₹2 lakh in eligible long-term gains from listed shares during a tax year, ₹75,000 would be taxable at 12.5%. The tax would be ₹9,375 before applicable cess and surcharge.

Mutual funds: Equity and debt funds follow different rules

The tax treatment of mutual funds depends on their classification. Investors cannot assume that every mutual fund held for several years qualifies for the same long-term tax rate.

Equity-oriented mutual funds: Units held for more than 12 months generally qualify for long-term treatment. Eligible long-term gains above ₹1.25 lakh in a tax year are taxed at 12.5%, subject to the applicable conditions.

Debt mutual funds: Taxation depends on when the units were purchased and whether the investment falls under the applicable tax rules. Gains from specified debt-oriented mutual funds acquired on or after 1 April 2023 are treated as short-term capital gains, irrespective of how long the units are held, and taxed at the investor’s applicable income-tax slab rate. No indexation benefit is available.

For units purchased before 1 April 2023, the tax treatment depends on the holding period and the rules applicable to the investment. Eligible long-term gains may be taxed at 12.5% without indexation under the current framework, subject to the relevant transitional provisions.

Gold: Tax depends on the form of investment

Gold can be held in physical form or through financial products such as exchange-traded funds (ETFs) and mutual funds. The applicable holding period depends on the form in which the investment is held.

Physical gold generally qualifies as a long-term capital asset after more than 24 months. Long-term gains are taxed at 12.5% without indexation for transfers covered by the revised capital gains regime.

Gold ETFs, which are listed securities, generally qualify for long-term treatment after more than 12 months. Gold mutual funds generally require a holding period exceeding 24 months to qualify as long-term assets.

Unlike eligible equity investments, gains from gold do not benefit from the ₹1.25 lakh annual LTCG exemption. Short-term gains are generally taxed at the applicable slab rate.

Property: 12.5% tax, with a special safeguard for older purchases

Land and buildings generally qualify as long-term capital assets when held for more than 24 months. The general LTCG tax rate for transfers covered by the revised regime is 12.5%, without indexation.

Indexation adjusts the purchase cost of an asset for inflation when calculating taxable gains. Its removal can increase the taxable gain on a property that has appreciated over a long period. However, a special provision protects eligible resident individuals and Hindu undivided families (HUFs) selling land or buildings acquired before 23 July 2024.

For these eligible taxpayers, the tax payable under the revised treatment cannot exceed the tax that would have been payable under the earlier 20% rate with indexation. This protection is limited to the specified property transactions and does not restore indexation as a general benefit for all investments.

Property gains do not qualify for the ₹1.25 lakh annual exemption available for eligible equity-related gains. Properties held for 24 months or less generally attract short-term capital gains tax at the applicable slab rate.

Investors therefore need to consider the investment’s classification, holding period, acquisition date and applicable tax provisions when estimating post-tax returns.