Capital Gains Tax Framework Ahead of Union Budget 2026

With the Union Budget scheduled for February 1, 2026, investors are closely tracking whether further changes will be made to capital gains taxation. For now, the existing framework remains governed by reforms introduced last year, which simplified tax rates and reduced reliance on indexation.

Capital gains tax continues to apply to profits arising from the sale of assets such as listed equity shares, mutual funds, property and other investments. The Economic Survey reiterated that holding period and asset class remain central to determining tax treatment.

Current Tax Structure for Short-Term Capital Gains

Short-term capital gains (STCG) continue to depend on both the asset type and applicable holding period. For listed equity shares, equity‑oriented mutual funds and units of business trusts where Securities Transaction Tax (STT) is paid, gains from assets sold within 12 months are taxed at a flat 20%.

This structure reflects the simplified rate regime introduced last year. Other categories, including real estate, unlisted shares and non‑equity investments, follow slab‑based taxation.

Long-Term Capital Gains Framework and Rates

Long-term capital gains (LTCG) apply when assets are held beyond the prescribed period, which is more than 12 months for listed equity shares and 24 months for property and several other asset classes. Under the current rules, listed equity shares, equity‑oriented mutual funds and units of business trusts attract a 12.5% tax on LTCG exceeding ₹1.25 lakh in a financial year.

Gains up to this threshold remain exempt. Other long‑term assets, including property and unlisted shares, also carry a 12.5% tax rate without indexation.

Transitional Rules for Older Assets

For assets acquired before legislative amendments effective from July 2024, transitional or grandfathering provisions continue to apply. These offer limited protection to taxpayers from unintended tax impact.

Indexation, however, is no longer the general rule for long‑term capital gains following the shift to lower uniform rates. Taxpayers dealing with legacy assets remain subject to these transitional safeguards.

Exemptions Available Under the Income Tax Act

The Income Tax Act continues to provide exemptions on long‑term capital gains when proceeds are reinvested in specified assets. These include residential property or notified bonds, subject to conditions under relevant sections.

These exemptions remain important tools for tax planning, especially for property transactions. They support tax‑efficient reinvestment for individuals meeting stipulated criteria.

Read More: India’s Net Direct Tax Collections Rise to ₹18.38 Lakh Crore in FY26 to Date.

Conclusion

Capital gains taxation continues to operate under last year’s simplified structure, with uniform rates and limited indexation. Short‑term and long‑term classifications remain dependent on asset type and holding period.

Exemptions on reinvestment provide continued relief for qualifying taxpayers. As the Union Budget approaches, potential adjustments to capital gains rules remain under watch.

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