LTCG Tax on Equity India 2026: Rules, Calculation & Grandfathering

LTCG Tax on Equity India 2026: Long‑term capital gains on listed equity shares and equity‑oriented mutual funds are taxed at 10% on gains exceeding ₹1,00,000 in a financial year, without the benefit of indexation. For investments purchased before 1 February 2018, the cost of acquisition is determined using the grandfathering rule: the higher of the actual cost and the market value as on 31 January 2018, but not exceeding the sale price. Short‑term gains are taxed at 15%.

AI Summary: LTCG Tax Rules for Equity

• Holding period >12 months qualifies as LTCG; ≤12 months is STCG taxed at 15%.
• LTCG up to ₹1 lakh per year is exempt; gains above that are taxed at 10% (plus surcharge and cess).
• Grandfathering protects gains accrued up to 31‑Jan‑2018 for older investments.
• Tax harvesting – selling and rebuying to book up to ₹1 lakh profit each year – is perfectly legal and reduces future liability.
• Use the Wealth Wallet to track unrealised gains and plan tax harvesting.

1. What is LTCG Tax on Equity India 2026?

Long‑Term Capital Gains (LTCG) tax on equity is the tax levied on profits from selling listed equity shares or equity‑oriented mutual funds held for more than 12 months. The current tax rate is 10% on gains exceeding ₹1,00,000 in a financial year, without the benefit of indexation. This means the first ₹1 lakh of profit from long‑term equity sales each year is completely tax‑free. Gains are calculated as the difference between the sale price and the cost of acquisition (adjusted for grandfathering if applicable). No TDS is deducted; you must compute and pay the tax yourself.

2. LTCG vs STCG on Equity: Know the Difference

Clearly, holding for the long term not only reduces the tax rate but also gives a handsome annual exemption. This is the primary reason why equity is a favourite for long‑term wealth creation.

3. Grandfathering Rule: How It Protects Pre‑2018 Gains

When LTCG tax was reintroduced in Budget 2018, a grandfathering clause was added to protect gains that had accrued up to 31 January 2018. For equity shares and mutual funds purchased before this date, the cost of acquisition is taken as:

Cost = Higher of (Actual Purchase Price, Fair Market Value as on 31‑Jan‑2018), but not exceeding the Sale Price.

This effectively means that any appreciation before 31‑Jan‑2018 is tax‑free. Only gains from 1‑Feb‑2018 onward are considered. The FMV is usually the highest traded price on that date. For mutual funds, it’s the NAV on 31‑Jan‑2018. Use the Wealth Wallet to store purchase dates and automatically determine if grandfathering applies.

4. How to Calculate LTCG on Equity

Example without grandfathering:

Bought shares for ₹2,00,000 on 1‑Mar‑2020. Sold for ₹5,00,000 on 1‑Apr‑2026. Holding >12 months. LTCG = ₹3,00,000. Exempt = ₹1,00,000. Taxable = ₹2,00,000. Tax at 10% = ₹20,000 (+ cess).

Example with grandfathering:

Bought shares for ₹80,000 on 1‑Jun‑2017. FMV on 31‑Jan‑2018 = ₹1,20,000. Sold on 1‑May‑2026 for ₹2,50,000. Cost = Higher of ₹80,000 and ₹1,20,000 (but not more than ₹2,50,000) = ₹1,20,000. LTCG = ₹2,50,000 – ₹1,20,000 = ₹1,30,000. Exempt ₹1,00,000. Taxable ₹30,000. Tax = ₹3,000.

5. Tax Harvesting: Save Up to ₹10,000 Every Year

Tax harvesting involves selling a portion of your equity holdings to realise long‑term gains up to ₹1 lakh each financial year, and immediately repurchasing the same shares or funds. This books the profit, but since it’s within the exemption limit, you pay zero tax. The repurchase resets your cost basis, so future gains will be calculated from the new, higher price. Over many years, this can save lakhs in taxes. Example: You have an unrealised gain of ₹3L. Sell units worth ₹1L profit in March, pay no tax, rebuy in April. Your new cost is now higher, reducing future taxable gain. Track this strategy with the Wealth Wallet.

6. Common Mistakes When Calculating LTCG

• Ignoring grandfathering: Not applying the FMV as on 31‑Jan‑2018 for old holdings can inflate your taxable gain.
• Not using the ₹1 lakh exemption: Forgetting to harvest gains up to the limit each year is leaving money on the table.
• Mixing LTCG with STCG: Remember that the ₹1 lakh exemption is only for long‑term gains; short‑term gains are fully taxed at 15%.
• Not accounting for securities transaction tax (STT): STT is already paid on equity trades and doesn’t directly affect LTCG computation, but ensure you include the correct cost (purchase price inclusive of brokerage).
• Not maintaining records: Keep contract notes and mutual fund statements to prove holding periods and costs.

7. Does LTCG Tax Apply to Equity Mutual Funds?

Yes. Equity‑oriented mutual funds (those investing at least 65% in Indian equities) are treated the same as listed shares for LTCG tax purposes. The same 10% rate above ₹1 lakh and grandfathering rules apply. Fund houses do not deduct tax at source; the investor is responsible for reporting and paying the tax. International equity funds and fund of funds are treated as debt funds for tax purposes, so different rules (20% with indexation after 2 years) apply. Know your fund type before calculating.

8. How INDwallet Tools Help You Plan LTCG Tax

• Wealth Wallet: Tracks all your equity holdings, unrealised gains, and grandfathering dates.
• SIP vs Lumpsum Simulator: Project how your monthly SIPs will grow and estimate future LTCG.
• Old vs New Tax Simulator: Add your capital gains to see the overall tax impact and choose the right regime.
• Investment Wallet: Log all buy and sell transactions to automatically compute holding periods.

9. Decision Framework: When to Sell for Optimal Tax

• If your total LTCG this year is ₹80,000: Sell more if you have additional unrealised gains to push the realised gain to exactly ₹1 lakh. Pay zero tax.
• If your LTCG is ₹2.5 lakh: Consider selling only a part to keep realised gain at ₹1 lakh. Defer selling the rest to next year.
• If you need to liquidate a large position: Try to spread sales across financial years to maximise the ₹1 lakh exemption each year.
• If you have short‑term gains: There’s no exemption; it’s often better to hold until 12 months pass, unless the investment thesis has changed.

10. Explore More Tax & Investment Guides

• Capital Gains Tax India 2026 – Complete guide (equity, debt, property).
• Old vs New Tax Simulator – Compare regimes with gains.
• SIP vs Lumpsum India – Which strategy gives better post‑tax returns?
• Wealth Wallet – Track all investments and gains.
• SIP Calculator India – Plan your long‑term equity investments.