Capital Gains Rules 2026: Holding Period, FMV Calculation & New Provisions

The capital gains tax framework in India has undergone more changes in the last two years than in the preceding decade. From the removal of indexation benefits to the introduction of a uniform 12.5% LTCG rate, from simplified holding period rules to a new Income Tax Act altogether — investors, property owners, and taxpayers have a lot to keep up with.

This guide consolidates every capital gains rule applicable for FY 2026–27 (AY 2027–28) in one place. Whether you are selling listed shares, property, unlisted startup equity, gold, or debt mutual funds, you will find the correct holding period, tax rate, FMV calculation method, and exemption options here.

What Is Capital Gains Tax?

Capital gains tax is the tax levied on the profit earned from the sale or transfer of a capital asset, computed as the difference between the sale price and the cost of acquisition (adjusted for inflation in eligible cases), and classified as short-term or long-term based on the holding period of the asset.

Capital assets include property (land, building, house), listed and unlisted shares, equity and debt mutual fund units, bonds, gold (physical and digital), jewellery, trademarks, patents, and any other asset of value. Stock-in-trade, raw materials, and personal effects (other than jewellery) are excluded from the definition of capital assets.

Key Terms You Should Know

• STCG (Short-Term Capital Gains): Gains from selling a capital asset held for less than the prescribed holding period. Taxed at higher rates.
• LTCG (Long-Term Capital Gains): Gains from selling a capital asset held for more than the prescribed holding period. Taxed at concessional rates.
• Cost of Acquisition (COA): The price at which the capital asset was originally purchased. For assets acquired before 1 April 2001, taxpayer can choose the higher of actual cost or FMV as on 1 April 2001.
• Cost Inflation Index (CII): A government-notified number used to adjust the cost of acquisition for inflation. Base year is 2001–02 (CII = 100). CII for FY 2025–26 is 363.
• Fair Market Value (FMV): The price an asset would fetch in an open market transaction between a willing buyer and seller. Specific FMV rules apply for different dates — 1 April 2001, 31 January 2018, and date of transfer.
• Indexation: The process of adjusting COA using CII to account for inflation. Removed for most assets post 23 July 2024, with a transitional option for pre-July 2024 property.
• Grandfathering Clause: A provision that exempts gains accrued before a specified date (31 January 2018 for listed equity) from the new tax regime.
• STT (Securities Transaction Tax): A tax paid on purchase/sale of listed securities. Paying STT is mandatory to claim concessional LTCG rates under Section 112A.

Who Needs to Understand Capital Gains Rules?

• Salaried employees selling property, mutual funds, or shares as part of financial planning
• Stock market investors — both short-term traders and long-term equity holders
• Mutual fund investors — equity, debt, hybrid, and international fund unitholders
• Property buyers and sellers — residential, commercial, and agricultural land
• Startup founders and employees holding ESOPs or unlisted shares
• NRIs selling Indian assets (property, shares, mutual funds)
• HUFs, trusts, and firms transferring capital assets

Understanding how capital gains interact with your overall is essential for accurate filing.

Holding Period for STCG vs LTCG — Complete Asset-Wise Table

The classification of a capital gain as short-term or long-term depends entirely on how long you held the asset before selling it. The following table covers every major asset class applicable for FY 2026–27:

Important Note on Debt Mutual Funds: Units of specified mutual funds (where >65% of assets are in debt/money-market instruments) purchased on or after 1 April 2023 are always treated as short-term capital assets regardless of holding period, and gains are taxed at slab rates. This was introduced by Finance Act 2023.

Draft IT Rules 2026 — Rule 6: The Draft Income-tax Rules, 2026 explicitly codify the method for computing holding periods in special cases such as asset conversion, corporate restructuring, demerger, declaration schemes, and transfer of foreign branch assets to Indian subsidiaries. This removes ambiguity that existed under the old rules.

Capital Gains Tax Rates for FY 2026–27 (AY 2027–28)

Budget 2026 made no changes to capital gains tax rates. The following rates (effective from 23 July 2024 / Budget 2024 onwards) continue to apply:

*Transitional Rule for Property: For property acquired before 23 July 2024, individual and HUF taxpayers have the option to compute LTCG either at 12.5% without indexation OR at 20% with indexation — and pay tax at the option that results in the lower amount. This transitional relief was introduced via amendment to Section 112.

Note: 4% Health and Education Cess and applicable surcharge are added on top of the above rates. Section 87A rebate is NOT available against LTCG under Section 112A (equity).

Fair Market Value (FMV) Calculation — Three Key Dates

FMV is critical for computing capital gains in several scenarios. There are three key FMV reference dates that every taxpayer must understand:

FMV as on 1 April 2001 (for assets acquired before 2001)

For capital assets acquired before 1 April 2001, the cost of acquisition is the higher of the actual purchase price or the FMV as on 1 April 2001. This is the “base year” shift from the earlier 1981 base. The chosen cost is then eligible for indexation using CII (where indexation applies). For immovable property, a registered valuer’s report is typically used to establish FMV as on 1 April 2001.

FMV as on 31 January 2018 (Grandfathering for Listed Equity)

For listed equity shares and equity-oriented mutual fund units acquired before 1 February 2018, the grandfathering clause ensures gains accrued until 31 January 2018 are not taxed. The cost of acquisition is deemed to be the higher of:

• The actual purchase price, OR
• The lower of: (a) FMV as on 31 January 2018, and (b) the actual sale price

FMV on 31 January 2018 for listed shares = highest price quoted on a recognised stock exchange on that date. If the share was not traded on that date, the highest price on the immediately preceding trading day is used. For unlisted mutual fund units, FMV = Net Asset Value (NAV) on 31 January 2018.

FMV of Unlisted Shares (Rule 11UA / Section 50CA)

When unlisted (unquoted) equity shares are transferred, the sale consideration for capital gains computation is taken as the FMV if the actual sale price is lower than FMV (anti-abuse provision under Section 50CA). The FMV of unlisted shares is computed using the formula prescribed under Rule 11UA(1)(c) of the IT Rules 1962:

FMV per share = (A – L) × (PV) ÷ (PE)

Where A = book value of assets (net of provisions), L = book value of liabilities, PV = paid-up value of the specific class of shares, PE = total paid-up equity share capital. This formula ensures that private share sales are valued consistently. The Draft IT Rules 2026 are expected to retain this valuation framework with clearer procedural guidance.

Indexation Benefit — What Changed and What Remains

The indexation benefit, which allowed taxpayers to adjust the cost of acquisition for inflation using the Cost Inflation Index (CII), has undergone significant changes:

Removed entirely (post 23 July 2024): For all assets transferred on or after 23 July 2024, indexation is no longer available. LTCG is taxed at a uniform 12.5% on the actual (un-indexed) gain.

Transitional relief for property: For immovable property acquired before 23 July 2024, individual/HUF taxpayers can compute tax as: (a) 12.5% on actual gain (no indexation), OR (b) 20% on indexed gain. The lower tax amount is payable.

Debt mutual funds (post 1 April 2023): No indexation. Gains always taxed at slab rates as STCG.

Already removed earlier: For debt mutual funds purchased on or after 1 April 2023, indexation was already removed by Finance Act 2023.

CII for FY 2025–26 = 363 (base year 2001–02 = 100). CII for FY 2026–27 has not yet been notified as of February 2026. It will be published by the CBDT via notification in the Official Gazette, typically before June.

Capital Gains Exemptions — Sections 54, 54EC, 54F

Even after the removal of indexation, reinvestment-based exemptions remain a powerful tool to reduce or eliminate capital gains tax:

Section 54 — Reinvestment in Residential House (from House Property)

• Available to: Individuals and HUFs
• Trigger: LTCG from sale of residential house property
• Condition: Purchase a new residential house within 1 year before or 2 years after sale, OR construct within 3 years
• Limit: Can invest in up to 2 residential houses if LTCG is up to Rs 2 crore (one-time lifetime option)
• Cost cap: Cost of new house above Rs 10 crore is ignored for exemption calculation

Section 54EC — Capital Gains Bonds

• Available to: All taxpayers
• Trigger: LTCG from sale of land or building
• Condition: Invest in specified bonds (NHAI, REC, PFC, IRFC) within 6 months of sale
• Maximum investment: Rs 50 lakh per financial year
• Lock-in period: 5 years (bonds cannot be sold or pledged before maturity)

Section 54F — Reinvestment in Residential House (from Non-Residential Assets)

• Available to: Individuals and HUFs
• Trigger: LTCG from sale of any capital asset other than residential house
• Condition: Invest the net sale consideration (not just the gain) in a residential house within prescribed timelines
• Restriction: Taxpayer should not own more than one residential house (other than the new one) on the date of transfer

NRIs should note: From FY 2026–27, NRIs selling unlisted shares can adjust the sale consideration for currency fluctuation, effectively reducing taxable gains. This is a welcome relief for NRIs transacting in INR-denominated unlisted securities.

Capital Loss Set-Off and Carry Forward Rules

Understanding how capital losses can offset gains is crucial for tax planning:

STCL can be set off against: Both STCG and LTCG in the same financial year.

LTCL can be set off against: LTCG only (not against STCG or any other income).

Carry forward period: Unabsorbed capital losses (both STCL and LTCL) can be carried forward for up to 8 assessment years.

Mandatory condition: The income tax return must be filed by the due date under Section 139(1) to carry forward capital losses. Late-filed returns forfeit the carry-forward benefit.

New Rule from FY 2026–27: A long-term capital loss can be adjusted only once against gains. It can no longer be carried forward and repeatedly set off over multiple years. This change impacts long-term tax planning strategies and makes timely harvesting of losses more important.

Inaccuracies in reporting capital gains and losses may trigger an . Ensuring your capital gains statement reconciles with AIS (Annual Information Statement) data is critical. Your broker’s capital gain statement must match your ITR disclosures. Employers who handle investment-related TDS should also ensure proper .

Income Tax Act 2025: New Section Mapping for Capital Gains

From 1 April 2026, the Income Tax Act, 2025 replaces the 1961 Act. Capital gains provisions are restructured:

The core rates and holding periods remain unchanged. The transition is primarily about structural reorganisation — consolidating multiple sections into Schedule VII, clearer FMV formulas, and digitised compliance. The tax impact for most taxpayers will remain the same. However, professional advice is recommended during the transition year to ensure correct section references in ITR filing. A for FY 2026–27 will need to follow the new Act’s structure.

Worked Examples

Example 1: LTCG on Listed Shares (Grandfathering)

Ms. Ananya purchased 1,000 shares of Infosys on 15 March 2016 at Rs 500/share (Total: Rs 5,00,000). FMV on 31 January 2018 = Rs 600/share. She sells all shares on 20 October 2026 at Rs 900/share.

Without the grandfathering clause, the gain would have been Rs 4,00,000 (Rs 9L – Rs 5L), resulting in tax of Rs 35,750. The grandfathering clause saved Ms. Ananya Rs 13,000.

Example 2: LTCG on Property (Transitional Indexation Option)

Mr. Rahul purchased a flat in Mumbai in FY 2010–11 for Rs 40,00,000. He sells it in September 2026 for Rs 1,20,00,000.

*CII for FY 2010–11 = 167, FY 2025–26 = 363. Indexed Cost = 40,00,000 × (363/167) = Rs 86,94,612. Mr. Rahul should choose Option B (20% with indexation) as it saves Rs 3,38,922 in tax. This transitional option is available because the property was acquired before 23 July 2024.

Key Takeaways

• LTCG tax rate is a uniform 12.5% across all asset classes. STCG on listed equity is 20%; on other assets, it is at slab rates.
• Holding periods: 12 months for listed securities (including gold ETFs and bonds), 24 months for property and unlisted shares, 36 months for pre-April 2023 debt funds.
• Indexation has been removed for most assets post 23 July 2024. Transitional relief exists for property acquired before that date (choose lower of 12.5% without or 20% with indexation).
• The grandfathering clause for listed equity shares and mutual fund units acquired before 1 February 2018 continues to exempt pre-2018 gains from tax.
• LTCG exemption of Rs 1.25 lakh per year under Section 112A applies only to listed equity shares, equity mutual funds, and units of business trusts.
• Exemptions under Sections 54, 54EC, and 54F allow tax savings through reinvestment in residential property or specified bonds.
• From FY 2026–27, LTCL set-off is restricted — it can be adjusted only once against gains, not carried forward for repeated set-off over multiple years.
• The Income Tax Act, 2025 consolidates capital gains provisions under Section 67 and Schedule VII. The core tax treatment remains the same.

Need Help with Capital Gains Tax Planning?

Whether you’re selling property, shares, mutual funds, or startup equity, computing capital gains correctly and claiming all available exemptions can save you lakhs in tax. Our CA team at Patron Accounting specialises in with expert capital gains computation.

Talk to us at +91 945 945 6700 or WhatsApp us for a personalised consultation.