LTCG Tax in India FY 2024-25:
New ₹1.25 Lakh Exemption Fully Explained
Budget 2024 made a significant change to Long-Term Capital Gains (LTCG) tax for equity investors — raising the annual exemption from ₹1 lakh to ₹1.25 lakh. This guide explains everything: what changed, the new rates, how to calculate your liability, and how to use LotSight to optimise before March 31.
From FY 2024-25 onwards, equity LTCG up to ₹1.25L per year is 100% tax-free. Gains above that are taxed at 12.5% (raised from 10%) with no indexation benefit.
What is LTCG on equity?
Long-Term Capital Gains (LTCG) arise when you sell equity shares or equity-oriented mutual fund units that you held for more than 12 months. The profit from this sale is your LTCG.
For example: You bought 100 shares of Reliance at ₹2,000 in January 2023 and sold them at ₹2,800 in February 2024 (held 13 months). Your LTCG = (₹2,800 − ₹2,000) × 100 = ₹80,000.
New LTCG tax rates from FY 2024-25 (Budget 2024)
| LTCG Amount | Tax Rate (FY 2024-25) | Old Rate (before FY 24-25) |
|---|---|---|
| Up to ₹1,25,000 | 0% (Exempt) | 0% (up to ₹1L) |
| Above ₹1,25,000 | 12.5% | 10% |
+ Surcharge + 4% Health & Education Cess applicable on the tax amount. Effective rate for most retail investors: ~13%.
What about STCG (Short-Term Capital Gains)?
If you sell equity held for 12 months or less, it's Short-Term Capital Gains (STCG). Budget 2024 also changed the STCG rate:
- → STCG is taxed at 20% (up from 15% before Budget 2024), under Section 111A.
- → No exemption limit for STCG — the first rupee of short-term gains is taxable.
The grandfathering clause (Section 112A)
LTCG tax on equity was introduced in Budget 2018. To protect investors from retrospective taxation, a grandfathering provision was added: gains accrued up to January 31, 2018 are treated as cost of acquisition (fair market value on 31 Jan 2018), so only gains after that date are taxable.
In practice: if you bought a stock before 2018 and still hold it, your cost basis for LTCG purposes is the higher of (a) your actual purchase price or (b) the stock's price on January 31, 2018. LotSight handles this automatically if the purchase date in your tradebook predates February 1, 2018.
How is FIFO applied to LTCG?
Indian income tax law requires the First-In-First-Out (FIFO) method for equity lot matching. This means when you sell shares, the oldest shares you bought are considered sold first. This affects whether a gain is LTCG or STCG, and which lots' cost prices are used.
Example: You bought 50 shares of Infosys in March 2022, then 50 more in August 2023. If you sell 50 shares in April 2024, FIFO means the March 2022 lot is sold — making it LTCG (held 25 months). If average cost were used, the analysis would be different.
How to optimise your ₹1.25L LTCG exemption
Since the first ₹1.25L of LTCG is tax-free each year, many traders purposely sell long-term holdings to "harvest" this exemption — then immediately rebuy. This resets your cost basis to the current market price, reducing future tax liability. This strategy is called LTCG harvesting.
- Works best when markets are up (gains to harvest)
- Must rebuy to maintain your investment position
- Do it before March 31 each year for that FY's exemption
- Works for equity MF redemptions too (Section 112A)
LotSight's LTCG Optimizer shows you exactly which holdings to partially sell and in what quantity to use your full ₹1.25L exemption — without accidentally triggering STCG.
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