Capital Gains Tax Rules for FY 25-26: Simplifying STCG and LTCG for Taxpayers

Taxpayers pay capital gains tax in various ways, from salaried employees investing in mutual funds to families selling inherited property or gold. The tax on capital gains depends on the nature of the asset and the holding period.

Sanjay Kumar, director at Nangia Global, explains, “Capital gains under the Income Tax Act are classified as short term or long term based on the prescribed holding period of the asset, with varying tax rates and exemptions across asset classes such as equity, real estate, and debt instruments.”

With Budget 2026 approaching, taxpayers’ expectations are growing for a simpler, more consistent capital gains framework that reflects today’s investment behavior while encouraging long-term wealth creation.

What are the Different Types of Capital Gains (LTCG, STCG)?

Abishek Soni, CEO and founder of Tax2Win, defines capital gains as the profits made when you sell assets like shares, mutual funds, property, or gold. These gains are categorized into two types based on the holding period of the asset.

Short-Term Capital Gains (STCG):

If an asset is sold within a short period, the gain is treated as STCG. For equity shares and equity mutual funds, this period is up to 12 months. STCG is taxed either at a fixed rate (such as on equity) or at your normal slab rate, depending on the asset.

Long-Term Capital Gains (LTCG):

If the asset is held for a longer period before selling, the gain is considered LTCG. For equity-related assets, gains after 12 months are long term. LTCG is usually taxed at a lower rate and, in some cases, offers indexation benefits.

What Are Experts’ Expectations from Budget 2026 in Terms of Capital Gain Tax Rule Changes?

Kumar points out that while recent policy initiatives have aimed at rationalizing capital gains taxation, certain inconsistencies remain. “In particular, the existing 36-month holding period for slump sale transactions to qualify as long-term capital assets is misaligned with the 24-month threshold applicable to most other assets, and aligning the same would enhance consistency,” says Kumar.

Kumar also suggests that from a business restructuring perspective, clarity on the taxation of contingent and deferred consideration in startup M&A and acqui-hire transactions by taxing such amounts at the time of actual receipt would better reflect commercial substance.

“Further, extending tax neutrality to fast-track demergers could enable efficient restructuring for small companies and intra-group entities, while reducing the procedural burden on the NCLT,” adds Kumar.

Kumar pitches for reducing the long-term capital gains rate. He suggests that a more pragmatic measure in Budget 2026 could be to enhance the exemption threshold beyond Rs 1.25 lakh.

Soni emphasizes that taxpayers expect simpler and more consistent capital gains rules, fewer changes in tax rates, and lower taxes on long-term gains to encourage long-term investment. Clearer rules would also make tax planning easier.