The Evolution of LTCG & STCG Tax in India

Capital gains tax in India is a form of direct tax applied to profits when an investor sells any capital asset with a gain. 
The Capital Gains Tax (CGT) is one of the vital pillars in India’s direct tax framework. Here, the broad categories of capital assets are securities (Equity Shares, MF, etc.); property (land & building); precious metals (Gold/Silver), Crypto Assets, etc. India’s Capital Gains Tax is broadly classified into two categories ─ STCGT (Short Term Capital Gains Tax) and LTCGT (Long Term Capital Gains Tax).

The STCGT rate is usually higher — arising out of any capital gain (profit) from a relatively shorter duration (say ≤ 12 months for listed equities at 20%), while LTCGT is lower ─ arising out of any capital assets, if any gain is booked after holding for a longer period (say 12.5% for listed equities > 12 months on gains exceeding ₹1.25 lakh per FY).

As of February 2026, India's capital gains tax regime follows the major recalibration introduced in the Union Budget 2024 (effective from July 23, 2024), with no significant changes announced in the subsequent Budget 2025 or 2026 based on current rules. The CGT framework simplifies holding periods and applies a uniform 12.5% LTCG rate (without indexation for most assets), while STCG rates vary by asset class.

Overview: Historical Evolution and Key Changes of LTCG and STCG Tax in India

As part of the British legacy, India has had some form of capital gains tax since 1947, the year of independence. But subsequently, it progressed through various phases and eventually started to modernise after the 1980s with the distinction between LTCGT and STCGT.

• 1947- First Introduction: Capital gains tax (CGT) was introduced in 1947 via an amendment to Section 12B of the Indian Income-tax Act, 1922, effective from the Assessment Year 1947-48. It was initially a flat levy on profits from the transfer of capital assets, without a distinction between short-term and long-term gains. The tax aimed to curb speculative buying and selling of assets in the post-WWII period, amid inflation and economic instability after India's Independence. Over time, the differentiation between short-term and long-term capital gains was introduced, and tax rates evolved.
• 1949-Abolition: The CGT levy was short-lived and abolished effective from April 1, 1948 (via the Finance Act 1949), as it was seen as hampering investor participation and economic activities.
• 1956- Permanent Reintroduction: On the recommendation of economist Nicholas Kaldor, the capital gains tax was reinstated via the Finance Act, 1956. This became a permanent feature, later codified in the Income-tax Act, 1961. In the FY1956-57 Budget, CGT exemptions applied for smaller gains (up to ₹15,000 in some cases at that time), with higher slabs facing steeper rates.

India CGT-Key Milestones & Changes (Chronological – Focus on Equities)

Pre-1980s – Early Framework

• Capital gains are taxed as part of income, with no STCG/LTCG distinction initially. 
• Gains are often aligned with slab rates, limited indexation, or exemptions.

Around 1986–1987, clearer STCG vs LTCG

• A clearer STCGT vs LTCGT demarcation  was introduced
• Generally, 36 months for most assets (including equities at the time) to qualify as long-term. 
• LTCGT applied at concessional rates or slabs, 

1992–2003 – Post-Liberalisation Phase

• LTCG (holding >36 months, later reduced for some assets) at 20% with indexation or 10% without 
• STCG is taxed at slab rates or concessional rates. No special equity carve-out yet.
• Indexation was introduced in 1992 (Finance Act 1992, based on the Chelliah Committee) ─ LTCG at 20% with indexation for many assets to neutralise inflation.

2004 – Landmark Investor-Friendly Reform 

• Introduced in Union Budget FY: 2004-2005 ─ Effective October 1, 2004 (Finance Act 2004)
• LTCG on listed equities and equity-oriented mutual funds (held for more than 12 months) is fully exempt, provided Securities Transaction Tax (STT) is paid on transactions.
• STCG (≤12 months, STT-paid): Concessional flat rate of 10% 

2008 – STCG Rate Adjustment

• STCG on listed equities (STT-paid) increased from 10% to 15%.
• LTCG remained exempt (subject to STT paid)

2008–2017 – 0% LTCG Era Continues

• Stable regime: STCG at 15%, LTCG exempt (0%) for STT-paid listed equities/MF equity funds.

2018 – Reintroduction of LTCGT (Union Budget 2018)

• Effective FY2019 
• LTCG (>12 months): 10% flat rate on gains exceeding ₹1 lakh per year (no indexation).
• Grandfathering: For holdings as of  January 31, 2018, cost is taken as the higher of actual cost or FMV (Fair Market Value) on that date (protecting pre-2018 gains).
• STCG remained 15%.

2018–2023 – Stability with Minor Tweaks

• No major rate/holding changes for equities.
• Clarifications on loss set-off, carry-forward and derivatives.

2024 – Major Recalibration (Union Budget 2024)

• Effective from July 23, 2024.
• Holding periods simplified: Listed equities/equity-oriented funds ─ 12 months for LTCGT (unchanged).
• STCGT (≤12 months, STT-paid): Increased to 20% (from 15%).
• LTCGT (>12 months): Increased to 12.5% on gains exceeding ₹1.25 lakh per financial year (from the previous ₹1 lakh; no indexation).
• Grandfathering from 2018 continued.
• Broader changes (like indexation removed for most non-financial assets, but equities unaffected beyond the rate hike).

2025–2026 – Current Regime (No Changes Post-2024)

• As of February 2026 (FY2026), the equity regime remains unchanged from the 2024 updates
• Listed Equity Shares / Equity-Oriented Mutual Funds (STT-paid):

             -STCG (≤12 months): 20% 
             -LTCG (>12 months): 12.5% on gains exceeding ₹1.25 lakh per FY (no indexation)

• Debt Mutual Funds (non-equity orientated, post-1 April 2023 purchases): 

              -All gains at slab rates (no LTCG/STCG distinction and indexation)

• Real Estate / Property: 

               -Holding > 24 months for LTCG at 12.5%; no indexation; transitional choice for pre-23 July 2024 acquisitions
               -Old rate 20% with indexation if lower. 
               -STCG at slab rates ≤24 months

Significant Recent Changes (2024–2026)

Uniform LTCG Rate (from Budget 2024)

• 12.5% (no indexation) standardised across most assets (equities, property, gold, etc.), 
• With transitional relief for pre-July 23, 2024, property acquisitions (option for old 20% with indexation if beneficial).

Buyback Taxation (Effective April 1, 2026 – Budget 2026)

• Proceeds from share buybacks are now treated as capital gains for shareholders (on profit only: buyback price minus cost basis), not deemed dividends.  
• Non-promoters: Taxed at standard STCG (20%)/LTCG (12.5% > ₹1.25 lakh) rates.
• Promoters: An Additional levy applies (effective at ~22% for corporate promoters and ~30% for non-corporate) to prevent tax avoidance. 
• This rationalises the regime (post-2024 dividend treatment) and benefits retail investors by taxing only gains.

Holding Periods (Unchanged post-2024)

• 12 months for listed financial assets (equities, bonds, etc.); 
• 24 months for others (unlisted shares, real estate, gold).

Sovereign Gold Bonds (SGBs)

• Budget 2026 Change (Effective April 1, 2026): Tax-free capital gains on maturity/redemption are now limited to original subscribers (primary issuance via RBI) who hold till maturity.  
• Secondary market purchases (after April 1, 2026) lose this exemption; gains are taxed under standard LTCG rules (12.5%, assuming a holding period).  
• Premature withdrawals/sales remain taxable as before, but the change discourages secondary market trading while preserving the benefit for long-term primary holders.

Conclusions

Overall, the 2004–2018 era exemption in LTCGT helped to some extent to lead India's equity market boom and made it globally a ‘bright spot’─ enjoying EM scarcity premium. But the 2018 reintroduction of LTCGT (soon after DEMO) and the 2024 hikes (both STCGT & LTCGT) reflect a shift toward revenue mobilisation and discouraging short-term speculation while encouraging long-term investing. But still, India's current equity LTCG rate (12.5%) remains competitive globally, with a generous exemption threshold, especially benefitting small retail investors.