LTCG vs STCG — what every investor must know

You sold some mutual fund units last month. Or maybe you’re thinking about selling. Either way, someone at work mentioned that the tax you pay depends on how long you held the investment — and now you’re wondering if you made a mistake by selling too early.

You probably did. Here’s why.

The One Rule That Changes Everything

The Indian tax system treats your investment gains differently based on a single factor: how long you held the asset before selling.

Hold for a shorter period, pay more tax. Hold longer, pay less. This is the entire game. Everything else is detail.

The short-term version is called Short-Term Capital Gains (STCG). The long-term version is Long-Term Capital Gains (LTCG). The boundary between them — the point where “short” becomes “long” — depends on what you invested in.

What Counts as Long-Term?

For equity mutual funds and stocks listed on NSE or BSE, the holding period that separates short from long is one year. Hold for 12 months or more, you get the lower LTCG rate. Sell before that, STCG kicks in.

For debt mutual funds, it used to be three years — but as of April 2023, debt fund gains are taxed at your income slab rate regardless of holding period. So the LTCG/STCG distinction no longer applies to debt funds. File that away.

For real estate and gold, the cut-off is two years (post the 2024 Budget changes, indexation benefits on real estate were removed, but the long-term holding period itself remains two years).

Stick to equity for now — that’s where most salaried investors in their 30s have their money.

The Numbers That Actually Matter

Here’s where it gets concrete. Say you’re a software engineer in Pune earning ₹85,000/month. You invested ₹1,20,000 in a Nifty 50 index fund on Groww two years ago. Today it’s worth ₹1,68,000. Your gain is ₹48,000.

Now you want to sell. Here’s what the tax looks like depending on when you sell.

Scenario	Holding Period	Tax Rate	Tax Paid
Sell before 12 months	Short-term	20%	₹9,600
Sell after 12 months	Long-term	12.5%	₹6,000
LTCG exemption applied	Long-term (under ₹1.25L)	0%	₹0

Wait — that last row. This is the part most people don’t know.

The ₹1.25 Lakh Exemption Is a Gift. Use It.

Every financial year, your first ₹1,25,000 of long-term capital gains from equity is completely tax-free. Not 12.5%. Zero.

So in the Pune example above, your ₹48,000 gain is entirely within that ₹1.25 lakh limit. You owe nothing — provided you held for over 12 months.

This exemption resets every April 1st. Which means a simple but powerful move exists: book gains up to ₹1.25 lakh every year, reinvest the money, and reset your cost basis. This is called tax harvesting — you’re deliberately realising gains to use your free exemption before it lapses.

Say you have ₹6,00,000 invested in an HDFC Nifty 50 Direct plan on Kuvera and it’s grown to ₹8,40,000 — gains of ₹2,40,000. If you sell everything in one shot, you pay 12.5% on ₹1,15,000 (the amount above the exemption), which is roughly ₹14,375 in tax. But if you had done partial sells across two financial years, harvesting ₹1.25 lakh each time, your tax bill would be exactly ₹0.

Same investment. Same gains. Different timing. Different tax.

What About STCG — When Does It Bite?

Short-term capital gains on equity are taxed at 20% flat (revised in the July 2024 Budget from the earlier 15%). That’s steep — especially if you’re in the 30% income tax slab, because STCG on equity is not added to your income; it’s taxed separately at 20%.

The real trap is panic selling. Markets drop 8% in a week, you sell your Zerodha holdings that you bought 9 months ago, and you not only crystallise a loss but — if you had gains elsewhere — you’d have handed over 20% of those to the government prematurely.

The rule: don’t sell equity before 12 months unless you genuinely need the money. Volatility isn’t a reason to sell. It’s noise.

Frequently Asked Questions

Is LTCG tax in India applicable on SIP investments too?

Yes. Each SIP instalment is treated as a separate purchase with its own holding period. So if you’ve been doing a ₹5,000/month SIP in a Mirae Asset Flexi Cap fund, the units bought in April 2023 become long-term in April 2024, but units bought in March 2024 only become long-term in March 2025. When you redeem, the oldest units are sold first (FIFO — first in, first out).

What is the LTCG tax rate in India for FY 2024-25?

For equity mutual funds and listed stocks, LTCG is taxed at 12.5% on gains above ₹1.25 lakh per financial year. This rate was updated in the Union Budget 2024.

Do I need to file ITR if my LTCG is below ₹1.25 lakh?

If equity LTCG is your only capital gains income and it’s within ₹1.25 lakh, you owe no tax on it — but you may still need to file an ITR-2 depending on your total income. If your salary exceeds the basic exemption limit, you file regardless.

Can STCG losses be set off against LTCG?

Yes. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG. Both can be carried forward for 8 assessment years if you file your return on time.

Is gold ETF taxed the same as equity mutual funds?

No. Gold ETFs are treated as non-equity assets. Gains are added to your income and taxed at your slab rate — whether you hold for 2 years or 2 months. The 12.5% LTCG rate and ₹1.25 lakh exemption do not apply to gold ETFs.