| 📅 Updated as on: 08 June 2026 | ⚡ Capital gains rates may change with each Finance Act |
Section 45 of the Income Tax Act, 1961 was the provision every investor, property owner, and CA cited for capital gains. From 1 April 2026, Section 45 stands repealed. The Income Tax Act, 2025 replaces it with Section 67 — a restructured, consolidated capital gains charging section that incorporates the multiple deeming provisions that were scattered across old Section 45’s sub-sections into a single, cleaner framework.
The change is not just structural. The capital gains tax rates themselves changed — significantly — through the Finance Act 2024 with effect from 23 July 2024. Those rate changes are now embedded in the Income Tax Act 2025 as the base law. This means investors dealing with capital gains from Tax Year 2026-27 face both a new section number and, in some cases, substantially different rates than they were used to before July 2024.
This blog provides the complete comparison — old Section 45 vs new Section 67, the updated tax rates across all asset classes, the holding period rules, the reinvestment exemptions, and the critical grandfathering provision for property acquired before 23 July 2024.
Part 1 — The Old Law: Section 45, Income Tax Act 1961
| 📌 SECTION 45 — INCOME TAX ACT, 1961 — CAPITAL GAINS (Charging Provision) Section 45(1): Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head “Capital Gains” and shall be deemed to be the income of the previous year in which the transfer took place. Key deeming provisions (sub-sections of Section 45): Section 45(2): Conversion of capital asset into stock-in-trade — taxable in year of sale Section 45(3): Partner contributing capital asset to firm — FMV is deemed consideration Section 45(4): Distribution of capital asset by firm/AOP — taxable on firm/AOP Section 45(4A): Specified fund dissolution — gains taxable on specified person Section 45(5): Compulsory acquisition — taxable in year of receipt of compensation OLD RATES (before Finance Act 2024 changes on 23 July 2024): STCG on listed equity (STT paid): 15% (Section 111A) LTCG on listed equity (STT paid): 10% above Rs.1,00,000 (Section 112A) LTCG on other assets: 20% with indexation (Section 112) LTCG on debt mutual funds: As per slab rate (from 1 Apr 2023) Holding periods (old): Listed securities/equity MFs: 12 months (LTCG threshold) Unlisted securities, land/building: 24 months (LTCG threshold) Other assets (gold, jewellery, etc.): 36 months (LTCG threshold — now 24 months) |
Part 2 — The New Law: Section 67, Income Tax Act 2025
| 📌 SECTION 67 — INCOME TAX ACT, 2025 — CAPITAL GAINS (Charging Provision) Section 67(1): Any profits or gains arising from the transfer of a capital asset during a tax year shall be chargeable to income-tax under the head “Capital Gains” and shall be deemed to be the income of the tax year in which the transfer takes place. Subject to exemptions under Sections 82 to 89 of the new Act. All deeming provisions from old Section 45(2) to 45(5) consolidated into Section 67. Capital asset definition: Section 2(22) (was Section 2(14) of old Act) LTCA definition: Section 2(67) (was Section 2(29A) of old Act) Tax rates under new Act (Finance Act 2024 changes — effective 23 July 2024 — now base law): NEW RATES — Section 196 (STCG on equity): STCG on listed equity and equity-oriented mutual funds (STT paid): 20% (Changed from 15% by Finance Act 2024 w.e.f. 23 July 2024) NEW RATES — Section 197 (LTCG on non-equity assets): LTCG on all assets OTHER than equity/equity MFs: 12.5% without indexation (Changed from 20% with indexation by Finance Act 2024) EXCEPTION: Land/building acquired BEFORE 23 July 2024: Taxpayer can choose LOWER of: (a) 12.5% of LTCG without indexation, OR (b) 20% of LTCG with indexation (CII-based) NEW RATES — Section 198 (LTCG on equity): LTCG on listed equity and equity-oriented MFs (STT paid): 12.5% (Changed from 10% by Finance Act 2024) Exemption: LTCG up to Rs.1,25,000 per year — NIL (Exemption limit raised from Rs.1,00,000 by Finance Act 2024) NOTE: Indexation benefit REMOVED for most assets from 23 July 2024 under new Act. NOTE: Debt mutual funds remain taxable at slab rate (no LTCG benefit). |
Part 3 — Complete Rate Comparison Table
Note: Rates shown below reflect Finance Act 2024 changes (effective 23 July 2024) which are now codified in the Income Tax Act 2025 as base law:
| Asset Type | Old Rate | New Rate | Section (New Act) | Changed? |
| STCG — Listed equity (STT paid) | 15% | 20% | Section 196 | Yes |
| LTCG — Listed equity (STT paid) | 10% above Rs.1L | 12.5% above Rs.1.25L | Section 198 | Yes |
| LTCG exemption — Equity | Rs.1,00,000 | Rs.1,25,000 | Section 198 | Yes |
| LTCG — Non-equity assets | 20% with indexation | 12.5% without indexation | Section 197 | Yes |
| LTCG — Property (pre 23 Jul 2024) | 20% with indexation | Lower of: 12.5% (no CII) or 20% (with CII) | Section 197 proviso | Special |
| STCG — Non-equity/property | Slab rate | Slab rate | Slab rate | No |
| LTCG — Debt mutual funds | Slab rate (from 1 Apr 2023) | Slab rate | Slab rate | No |
| STCG — Unlisted equity | Slab rate | Slab rate | Slab rate | No |
| LTCG — Unlisted equity | 20% with indexation | 12.5% without indexation | Section 197 | Yes |
| LTCG — Gold/jewellery (24 months+) | 20% with indexation | 12.5% without indexation | Section 197 | Yes |
| Health & Education Cess | 4% on tax | 4% on tax | Unchanged | No |
| Surcharge on LTCG (equity) | Capped at 15% | Capped at 15% | Unchanged | No |
Part 4 — Section Mapping: Old Act vs New Act
| Provision | Old Act — Section | New Act — Section | Status |
| Capital Gains charging provision | Section 45 | Section 67 | Same (restructured) |
| Capital asset definition | Section 2(14) | Section 2(22) | Changed (number only) |
| Long-term capital asset | Section 2(29A) | Section 2(67) | Changed (number only) |
| Short-term capital asset | Section 2(42A) | Included in Section 2(22) | Changed |
| Computation of capital gains | Section 48 | Section 68 equivalent | Changed (number) |
| Cost of acquisition | Section 49 | Section 69 equivalent | Changed (number) |
| STCG on equity (Section 111A) | Section 111A | Section 196 | Changed |
| LTCG general (Section 112) | Section 112 | Section 197 | Changed |
| LTCG on equity (Section 112A) | Section 112A | Section 198 | Changed |
| Exemption — Residential house (54) | Section 54 | Section 85 | Changed |
| Exemption — Agricultural land (54B) | Section 54B | Section 86 | Changed |
| Exemption — Bonds (54EC) | Section 54EC | Section 87 | Changed |
| Exemption — Any asset to house (54F) | Section 54F | Section 85 | Changed |
| Holding period — Listed equity | 12 months | 12 months | No Change |
| Holding period — Property | 24 months | 24 months | No Change |
| Holding period — Other assets | 36 months (pre-2023) | 24 months | No Change |
| Deeming provisions (45(2)-(5)) | Sections 45(2) to 45(5) | Consolidated in Section 67 | Changed |
Part 5 — Key Changes Explained
Change 1: STCG on Equity — 15% to 20%
Short-term capital gains on listed shares and equity-oriented mutual fund units (where Securities Transaction Tax is paid) were taxed at 15% under old Section 111A. From 23 July 2024 (Finance Act 2024), the rate increased to 20%. This rate is now codified in Section 196 of the Income Tax Act 2025.
This change affects all short-term equity trades — shares held for less than 12 months. Day traders and short-term investors face a one-third higher tax rate than they did before July 2024. The STT payment requirement continues — without STT, short-term gains are taxed at slab rate.
| ✅ ACTION: For short-term equity traders: Update your tax computation model to 20% STCG under Section 196. Review whether short-term trading strategies remain efficient at the higher rate. |
Change 2: LTCG on Equity — 10% to 12.5%, Exemption 1L to 1.25L
Long-term capital gains on listed equity and equity-oriented mutual funds (STT paid, held 12+ months) were taxed at 10% above Rs.1,00,000 under old Section 112A. From 23 July 2024, the rate increased to 12.5% and the exemption limit increased to Rs.1,25,000.
The increase in exemption limit partially offsets the rate increase for smaller investors. For gains up to Rs.1,25,000 per year — zero tax in both regimes. Above that, the 12.5% rate (Section 198) applies to the amount exceeding Rs.1,25,000.
| ✅ ACTION: For equity investors: Plan capital gains harvesting up to Rs.1,25,000 per year to stay within the exemption. Use the higher exemption limit strategically — this is Rs.25,000 more than the old limit. |
Change 3: Indexation Removed for Most Assets — 20% with CII to 12.5% without
This is the most significant and most debated change. Under old Section 112, long-term capital gains on property, gold, jewellery, debt funds, and unlisted securities attracted tax at 20% with the benefit of indexation (using the Cost Inflation Index). Indexation allowed taxpayers to inflate the cost of acquisition for inflation, reducing the taxable gain significantly.
From 23 July 2024, indexation is removed. The rate is now 12.5% but applied to the full unadjusted gain (no CII benefit). Whether the taxpayer is better or worse off depends on how long the asset was held and how much inflation-adjusted reduction indexation would have provided.
For assets held for very long periods (15-30 years), indexation provided enormous benefit. For assets held for shorter periods (3-7 years), the lower 12.5% rate often produces a smaller tax bill even without indexation.
| ⚠️ IMPORTANT: Critical: The grandfathering rule for land and building acquired BEFORE 23 July 2024 — see below. |
Change 4: Grandfathering for Property Acquired Before 23 July 2024
Recognising that removal of indexation could cause genuine hardship for long-held properties, the Finance Act 2024 included a special provision for land and building acquired before 23 July 2024.
For such property, the taxpayer can choose whichever option produces a LOWER tax liability:
Option A: 12.5% of LTCG without any indexation benefit
Option B: 20% of LTCG with indexation (CII applied to cost of acquisition)
The taxpayer must compute LTCG under both methods and pay tax at whichever is lower. This grandfathering provision is available only for land and building — not for gold, jewellery, or unlisted securities acquired before 23 July 2024.
| ✅ ACTION: For any property sale (land or building) acquired before 23 July 2024: Compute LTCG under BOTH methods. Choose the one producing lower tax. Your CA should run this computation before the sale or at ITR filing. |
Change 5: Reinvestment Exemptions — Same Rules, New Section Numbers
The reinvestment exemptions that were under old Sections 54, 54B, 54EC, and 54F continue under the new Act but with new section numbers. The substantive conditions — investment amount, time limits, asset type, and lock-in periods — are unchanged:
- Section 85 (old Section 54): Exemption on LTCG from residential house reinvested in new residential house — 2 years to purchase, 3 years to construct
- Section 85 (old Section 54F): LTCG from ANY long-term asset invested in ONE residential house — full net consideration must be invested for full exemption
- Section 86 (old Section 54B): Agricultural land LTCG reinvested in new agricultural land within 2 years
- Section 87 (old Section 54EC): LTCG (land/building) invested in NHAI/REC/specified bonds within 6 months — Rs.50 lakh cap per year
| ✅ ACTION: No change in reinvestment exemption rules — only section numbers changed. Update your ITR and tax working references from old to new section numbers for Tax Year 2026-27 claims. |
Part 6 — Holding Periods: What Changed
The holding period rules are largely unchanged. Key clarification:
- Listed equity shares and equity MFs: 12 months. LTCG threshold unchanged.
- Unlisted shares and units: 24 months. LTCG threshold unchanged.
- Land and building (residential, commercial): 24 months. Unchanged.
- Other capital assets (gold, jewellery, art): 24 months. Was 36 months before Finance Act 2023 — the 24-month reduction continues under new Act.
- Debt mutual funds: No LTCG benefit — taxed at slab rate regardless of holding period (from April 2023, continues under new Act).
Part 7 — Action Checklist
- Update all tax computation templates: Replace Section 45 with Section 67 for capital gains chargeability for Tax Year 2026-27.
- Update rate references: Section 111A (15%) -> Section 196 (20%) | Section 112A -> Section 198 (12.5%, Rs.1.25L exemption) | Section 112 -> Section 197 (12.5% no indexation).
- For property sales (land/building acquired before 23 July 2024): Always compute both options — with and without indexation — and choose the lower tax.
- Update reinvestment exemption references: Section 54 -> 85 | Section 54F -> 85 | Section 54B -> 86 | Section 54EC -> 87.
- Review short-term equity trading strategies — STCG now 20% vs 15% previously.
- Capital gains up to Rs.1,25,000 per year on equity: Zero tax. Use this limit for annual harvesting.
- Pre-Tax Year 2026-27 gains: Still reported under old Act sections in AY 2026-27 ITR.
Key Takeaways
- Section 45 replaced by Section 67 of the Income Tax Act, 2025 with effect from 1 April 2026.
- All deeming provisions from old Section 45(2) to 45(5) consolidated into Section 67 — cleaner structure, same substantive coverage.
- STCG on listed equity: Now 20% under Section 196 (was 15%). Applies from 23 July 2024.
- LTCG on listed equity: Now 12.5% under Section 198 (was 10%). Exemption limit: Rs.1,25,000 (was Rs.1,00,000).
- LTCG on non-equity assets (property, gold, etc.): 12.5% WITHOUT indexation under Section 197 (was 20% WITH indexation).
- Grandfathering: For land/building acquired before 23 July 2024 — choose lower of 12.5% without CII or 20% with CII.
- Reinvestment exemptions (54, 54B, 54EC, 54F) continue under new Act Sections 85-87. Same rules, new section numbers.
- Holding periods unchanged: 12 months (equity), 24 months (property, unlisted, others).
Frequently Asked Questions
| Q: I sold equity shares in May 2026 after holding for 18 months. What tax applies? A: Long-term capital gains (held more than 12 months) on listed equity shares with STT paid. Gains up to Rs.1,25,000 in Tax Year 2026-27 — zero tax. Gains above Rs.1,25,000 — taxable at 12.5% under Section 198 of the Income Tax Act, 2025. Add 4% health and education cess. No indexation available on equity gains. Q: I sold my flat in April 2026 which I bought in 2012. Do I get indexation benefit? A: Since the flat was acquired before 23 July 2024 and held for more than 24 months, you get the grandfathering benefit. Compute LTCG under BOTH methods: (a) 12.5% of gains without indexation, and (b) 20% of gains with Cost Inflation Index benefit. Pay whichever produces lower tax. For a flat bought in 2012 and sold in 2026, the CII multiple is significant — likely making Option B (20% with indexation) produce lower tax. Always run the actual computation with your purchase price and CII numbers. Q: I have gold ETF units held for 3 years. LTCG or STCG? A: Long-term capital gains — gold ETF units held for more than 24 months qualify as long-term capital assets. Tax under Section 197 at 12.5% without indexation. No grandfathering benefit for gold/gold ETFs — the special property provision applies only to land and building. Q: I invested in equity mutual funds through SIP since 2019. How are my gains taxed? A: Each SIP instalment is treated as a separate investment for holding period calculation. Units redeemed will be assessed FIFO (First In First Out) by default. Units from 2019 SIPs held more than 12 months = LTCG. Tax at 12.5% under Section 198 on gains above Rs.1,25,000 for the year. Plan your redemptions to stay within the Rs.1,25,000 annual exemption limit where possible. Q: Which old section do I cite in my AY 2026-27 ITR (FY 2025-26 income)? A: For AY 2026-27 ITR (covering capital gains from April 2025 to March 2026), cite old Act sections: Section 45 for chargeability, Section 111A for STCG on equity (20%), Section 112A for LTCG on equity (12.5%), Section 112 for other LTCG (12.5% without indexation, or grandfathering for pre-23 July 2024 property). New Act sections (67, 196, 197, 198) apply only to capital gains from Tax Year 2026-27 (April 2026 onwards). |
| Section 45 -> Section 67 | Effective: Tax Year 2026-27 (transfers from 1 April 2026) STCG — Listed equity: 20% (Section 196) | Was 15% under Section 111A LTCG — Listed equity: 12.5% (Section 198) | Exemption: Rs.1.25L | Was 10%/Rs.1L LTCG — All other assets: 12.5% WITHOUT indexation (Section 197) | Was 20% with CII Grandfathering: Land/building pre-23 Jul 2024 — choose lower of 12.5% no-CII or 20% with-CII Reinvestment exemptions: Sections 85, 86, 87 (old 54, 54B, 54EC, 54F) — same rules Holding periods unchanged: 12 months (equity) | 24 months (property, others) Deeming provisions from 45(2)-(5) all consolidated into Section 67 |
⚠ DISCLAIMER This article is published for general informational and educational purposes only and does not constitute legal, tax, financial, or investment advice. Capital gains tax rates, holding periods, exemption limits, and section references are based on the Income Tax Act 2025 and Finance Act 2026 as understood on the date of publication. Tax rates on capital gains are subject to change by Finance Acts and CBDT notifications. The special grandfathering provision for property acquired before 23 July 2024 involves individual calculations — always compute both options with actual figures. Readers are strongly advised to consult a qualified Chartered Accountant before making any investment, divestment, or tax planning decisions relating to capital gains. For professional support: info@fimaco.in | fimaco.in.