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

LTCG tax rules differ across stocks, mutual funds, gold and property, with different holding periods, tax rates and exemptions. Here is what investors need to know about the tax treatment of their investments under the current framework.

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.