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Income-tax Act 202519 September 20268 min read

Capital Gains Under the Income-tax Act, 2025: The Rates, Where Sections 54 and 54F Went, and Why Buybacks Changed Again

The biggest financial moments of a family's life are taxed here, under a new Act, with one rule that has flipped twice in two years.

In short
  • Under the Income-tax Act, 2025, an asset is long-term if held for more than 24 months, or 12 months for listed securities and equity-fund units.
  • Short-term gains on STT-paid equity are taxed at 20% (section 196), long-term at 12.5% above ₹1,25,000 (section 198), and other long-term gains at 12.5% (section 197), with the old 20%-with-indexation limit kept for land and buildings bought before 23 July 2024.
  • Sections 54, 54EC and 54F are now sections 82, 85 and 86, and from 1 April 2026 buyback proceeds are capital gains again, with an additional tax for promoters.
A small wooden model of a house with a red door beside a set of keys on a tablePhotograph: Tierra Mallorca / Unsplash

Capital gains is the part of income tax that ordinary families meet at the biggest moments of their lives: selling a parent's flat, cashing out shares after ten years, selling a plot to buy a home closer to work.

From tax year 2026-27, those moments are taxed under the Income-tax Act, 2025. The rates are the ones fixed in July 2024, the exemptions have new numbers, and one change made by the Finance Act, 2026 turns an earlier rule on its head.

Short-term or long-term

Under section 2(101), an asset is short-term if it was held for not more than 24 months before it was sold. For a listed security, a unit of an equity-oriented fund, a UTI unit or a zero-coupon bond, the period is 12 months. Anything held longer is long-term.

A few assets are short-term whatever the holding period. Among them are depreciable assets sold out of a block (section 74), market-linked debentures and units of specified mutual funds acquired on or after 1 April 2023, and unlisted bonds and debentures transferred on or after 23 July 2024 (section 76).

Listed shares, equity fundsshort-termlong-termLand, building, othersshort-termlong-term0 months12 months24 months36 months
Section 2(101) draws the line at 12 months for listed securities and 24 months for everything else.

The rates

  • Short-term, listed equity or equity-fund units, STT paid: 20%, under section 196 (was 111A).
  • Long-term, same assets: 12.5% on gains above ₹1,25,000 in the year, under section 198 (was 112A).
  • Long-term, everything else: 12.5%, without indexation, under section 197 (was 112).
  • Other short-term gains are added to income and taxed at the slab rates.

The land-and-building exception

Section 197(3) protects one group. A resident individual or HUF selling land or a building acquired before 23 July 2024 pays the lower of:

  • 12.5% of the gain without indexation; and
  • 20% of the gain with indexation.

It isn't an option to be chosen. The Act simply ignores the excess. Indexation survives mainly for this purpose, and the cost inflation index is still notified by the Central Government each year under section 72(8).

Where the exemptions went

The exemptions have moved but kept their shape:

  • Section 82 (was 54): long-term gain on a residential house, reinvested in one residential house in India, bought one year before or two years after, or built within three years. If the gain is not more than ₹2 crore, the taxpayer may instead buy or build two houses, once in a lifetime. Cost above ₹10 crore is ignored.
  • Section 86 (was 54F): long-term gain on any other asset, reinvested in a residential house, in proportion to the sale consideration invested. It isn't available to someone who already owns more than one other house. The same ₹10 crore cap applies.
  • Section 85 (was 54EC): long-term gain on land or building, invested within six months in specified bonds, up to ₹50 lakh, locked in for five years.
  • Section 83 (was 54B): agricultural land replaced within two years.

For sections 82, 83 and 86, money not reinvested before the return is filed, and no later than its due date, has to be deposited in the scheme the Central Government notifies. Otherwise the exemption is lost. Section 85 has no deposit route: the bonds must be bought within the six months.

Every exemption keeps its old conditions. The only thing the new numbers change is the section a return, a working paper or an advisor's letter has to cite.

Buybacks are capital gains again

This is the change most people have missed.

Under the 1961 Act from October 2024, and under the 2025 Act as first enacted, a company buying back its own shares was treated as paying a dividend. The Finance Act, 2026 reversed that from 1 April 2026. It omitted the dividend clause, section 2(40)(f), and substituted sub-sections (2) and (3) of section 69. The difference between the shareholder's cost and the buyback price is capital gains again, in the year of the buyback.

For promoters, section 69(2) adds an additional income-tax on top of the capital gains tax:

  • a domestic company that is a promoter: 2% extra on short-term gains taxed under section 196 and 9.5% on long-term gains under section 197 or 198;
  • any other promoter: 10% and 17.5% on those same gains.

Two valuation rules that still bite

  • Stamp duty value. Under section 78 (was 50C), if land or a building is sold for less than its stamp duty value, the stamp duty value is taken as the sale price, unless it is not more than 110% of the actual consideration.
  • Old assets. For an asset held before 1 April 2001, the cost may be taken as its fair market value on that date, capped for land and buildings at the stamp duty value then. For listed equity bought before 1 February 2018, the 31 January 2018 high price still protects gains made before that date.

Work out your own

Try it

Short-term or long-term, and how much tax?

Long-term: held 101 months, gain ₹35,00,000, tax ₹4,37,500

Long-term: 12.5% under section 197. Because the land or building was bought before 23 July 2024, section 197(3) also caps the tax at 20% of the gain with indexation. Enter your indexed cost to compare.

Before surcharge and cess, and before any exemption under sections 82 to 86.

Income-tax Act, 2025, sections 2(101), 72, 196, 197 and 198, as amended by the Finance Act, 2026. Nothing you type leaves this page.

Where this comes from

The law is the Income-tax Act, 2025 as amended by the Finance Act, 2026: sections 2(22), 2(101), 69, 72, 74, 76, 78, 82 to 86, 90, and 196 to 198, including the Finance Act's substitution of section 69(2) and (3) and omission of section 2(40)(f) from 1 April 2026. It applies from tax year 2026-27. Sales in 2025-26 and earlier were taxed under the 1961 Act.

Questions this answers

What is the long-term capital gains tax rate under the Income-tax Act 2025?

12.5% under section 197, and 12.5% on gains above ₹1,25,000 for STT-paid listed equity and equity-fund units under section 198.

What is the new section for section 54?

Section 82 of the Income-tax Act, 2025. Section 54F is now section 86, section 54EC is section 85, and section 54B is section 83.

Is indexation still available under the new Act?

Its main use is for a resident individual or HUF selling land or a building acquired before 23 July 2024, where section 197(3) caps the tax at 20% of the indexed gain.

How is a share buyback taxed from 1 April 2026?

As capital gains again, after the Finance Act, 2026 substituted section 69(2) and (3). Promoters pay an additional income-tax under section 69(2).

When is a listed share a long-term capital asset?

When it has been held for more than 12 months before the sale, under section 2(101).

Look up any section

The Income-tax Act 2025 section finder lists every 1961 TDS and TCS section with its 2025 section and Table serial, the rate and threshold as enacted, and the page of the Act, with a TDS rate chart and a TCS rate chart.