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Capital Gain on Sale of Securities – Listed Shares, Mutual Funds, Bonds, and Market-Linked Instruments

Tax Treatment of Capital Gains on Equity Shares, Debt Mutual Funds, REITs, Bonds, and Other Securities Under the Income Tax Act

Capital gains on securities — listed equity shares, mutual fund units, bonds, debentures, and market-linked instruments — have specific tax treatment under the Income Tax Act that differs significantly from gains on immovable property. Following the Finance Act 2024 amendments, the tax rate on Short Term Capital Gains on equity (Section 111A) has been increased to 20%, and the LTCG exemption threshold under Section 112A has been raised to Rs 1.25 lakh per year at a 12.5% flat rate. The taxation of debt mutual fund gains was changed by the Finance Act 2023 — debt MF gains are now taxed at slab rates regardless of holding period (no LTCG benefit).

Our advisory on capital gains on securities covers all instrument types — listed and unlisted equity, equity mutual funds, debt mutual funds, hybrid funds, ETFs, REITs, InvITs, and bonds. We advise on the grandfathering provisions for pre-January 2018 gains on equity, the set-off of capital losses, and accurate reporting in Schedule CG and Schedule 112A of the income tax return. See also our Capital Gain Overview and tax exemption planning services.

Our Capital Gain Advisory for Securities

Listed Equity Shares – LTCG (Section 112A)

Advisory on LTCG tax at 12.5% (post-Finance Act 2024) on listed equity shares and equity MF units held more than 12 months, with Rs 1.25 lakh annual exemption and grandfathering of pre-January 31 2018 gains.

Listed Equity Shares – STCG (Section 111A)

Advisory on STCG tax at 20% (post-Finance Act 2024) on listed equity shares and equity MF units held 12 months or less — where STT was paid at the time of purchase and sale.

Equity Mutual Funds

Capital gain computation and tax advisory for equity mutual fund redemptions — classification as STCG (12 months or less) or LTCG (above 12 months), applicable rates under Sections 111A and 112A, and reporting in Schedule 112A.

Debt Mutual Funds

Advisory on capital gains on debt mutual fund redemptions — post-Finance Act 2023, all gains (regardless of holding period) are taxed at slab rates as STCG. No LTCG indexation benefit available for debt MF purchased after 1 April 2023.

REITs, InvITs, and Bonds

Advisory on capital gains on Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), tax-free bonds, and corporate bonds — including holding period, applicable rates, and special provisions for zero-coupon bonds.

Unlisted Shares and ESOPs

Capital gain computation on sale of unlisted shares (24-month threshold, 12.5% LTCG or slab rate STCG) and ESOP exercise and sale — including perquisite tax at exercise and capital gain on subsequent sale.

Our Approach

  • Identifying the security type, holding period, and applicable Section (111A, 112A, 112, or slab rate)
  • Computing total LTCG across all equity instruments to assess the Rs 1.25 lakh exemption threshold
  • Applying the grandfathering computation for pre-January 31 2018 equity holdings under Section 112A
  • Computing set-off of short term and long term capital losses against respective gains
  • Preparing Schedule CG and Schedule 112A data accurately for ITR filing
  • Advising on tax-loss harvesting strategies to optimise the annual capital gain tax position

Benefits of Our Advisory

  • Rs 1.25 lakh annual LTCG exemption on equity is correctly applied — never left unclaimed
  • Grandfathering computation for pre-2018 equity holdings ensures no avoidable LTCG on historic unrealised gains
  • Capital loss set-off advice reduces net tax on securities gains
  • Accurate Schedule 112A preparation prevents mismatches with pre-filled ITR data from SEBI/broker sources
  • Debt MF slab rate treatment correctly applied — no inadvertent LTCG rate claims post-April 2023
  • ESOP taxation handled correctly — perquisite at exercise and capital gain on subsequent sale clearly separated

Why Choose Us?

  • Specialist knowledge of post-Finance Act 2024 rates and Finance Act 2023 debt MF changes
  • Experience with large equity portfolios — multiple transactions, bonus shares, rights issues, corporate actions
  • Grandfathering computation for long-standing equity holdings
  • Accurate Schedule 112A and Schedule CG preparation
  • Advisory on tax-loss harvesting strategies within the current financial year

Frequently Asked Questions

What is the LTCG tax rate on equity shares after the Finance Act 2024?
Following the Finance Act 2024 (effective from 23 July 2024), Long Term Capital Gains (LTCG) on listed equity shares and equity mutual fund units — held for more than 12 months with STT paid — are taxed at 12.5% without indexation under Section 112A, with an annual exemption of Rs 1.25 lakh (increased from Rs 1 lakh). Gains up to Rs 1.25 lakh per year are exempt. Gains above Rs 1.25 lakh are taxed at the flat rate of 12.5%.
What is the grandfathering provision for equity LTCG?
The grandfathering provision under Section 112A protects gains accrued on listed equity shares and equity MF units up to 31 January 2018. For assets acquired before 1 February 2018, the cost of acquisition for LTCG computation is taken as the higher of: (a) the actual cost; or (b) the Fair Market Value (FMV) as on 31 January 2018 (last traded price on that date) — but not exceeding the actual sale price. This means gains that had accrued before 1 February 2018 are effectively exempt from the LTCG tax introduced by the Finance Act 2018.
How are debt mutual fund gains taxed after the Finance Act 2023?
Following the Finance Act 2023, debt mutual funds with less than 35% equity exposure — purchased on or after 1 April 2023 — are taxed at slab rates regardless of the holding period. The earlier benefit of LTCG at 20% with indexation (available for debt MF held more than 3 years) was removed. Debt mutual funds purchased before 1 April 2023 and held for more than 3 years continue to be taxed at 20% with indexation under the old provisions (grandfathered).
What is the holding period for LTCG on equity shares and mutual funds?
For listed equity shares, preference shares, zero-coupon bonds (listed), and units of equity-oriented mutual funds — the threshold for long term classification is 12 months. Assets held for more than 12 months qualify for LTCG. Assets held for 12 months or less are STCG. For unlisted shares, the threshold is 24 months. For other securities (debentures, bonds, units of non-equity MF held before April 2023), the threshold is also 24 months for LTCG.
Can I set off LTCG on equity against other capital losses?
LTCG on equity (Section 112A gains) can be set off against Long Term Capital Losses from any other capital asset (other than losses on specified assets where set-off is restricted). It cannot be set off against short term capital losses from the same year. Unabsorbed LTCG loss can be carried forward for 8 assessment years and set off only against LTCG in future years. Short Term Capital Losses can be set off against both STCG and LTCG in the same year.

Optimise Your Capital Gain on Securities

Expert advisory on equity, mutual fund, debt MF, and bond capital gains — computation, exemption, and ITR filing.

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F.A.Q.

It includes all yearly requirements such as filings, actuarial valuation, audits, and maintaining proper records.

Yes, regular compliance is required to maintain approval and tax benefits.

It helps determine the exact gratuity liability and required funding for the trust.

 

Yes, trusts must file necessary returns and maintain financial records as per regulations.

Non-compliance can lead to penalties, loss of tax benefits, or cancellation of approval.

Trustees and the employer are responsible for ensuring proper compliance.