Capital gains tax, and the holding periods that change everything

The same profit can be taxed at two very different rates depending on how long you held. Knowing the boundaries is worth more than most investment decisions.

By Raj Mohan

19 Aug 2026 · 3 min read · tax, investing, capital-gains

Capital gains tax turns on one question: how long did you hold it? The holding period thresholds differ by asset class, and crossing one can change the rate on the entire gain.

Short term versus long term

Every asset has a threshold. Sell before it and the gain is short term; sell after it and the gain is long term, generally at a lower rate.

Short-term equity gains are taxed at a flat concessional rate. Long-term equity gains are taxed at a lower rate, with an annual exemption on the first slice of gains.

The exemption most people leave unused

Long-term equity gains carry an annual exemption. Gains up to that limit each financial year are tax-free — and the allowance does not carry forward. Unused, it is simply gone on 31 March.

Tax harvesting uses it deliberately: sell enough of a long-term holding each year to realise gains up to the exemption, then buy back immediately. Your holding is unchanged, but your cost basis has been reset upward, so future gains are smaller. Done every year, this can remove a large amount of tax from a long holding period.

Check current rules on same-day repurchase before relying on this.

Set-off and carry-forward

Losses are an asset, and most people throw them away.

• Short-term losses offset both short- and long-term gains.
• Long-term losses offset only long-term gains.
• Unabsorbed losses carry forward for eight assessment years — but only if you file your return by the due date.

That last clause is the one that costs money. A late return forfeits the carry-forward permanently.

Property has its own machinery

Property gains have historically been eligible for indexation of cost, and for exemptions where the proceeds are reinvested in another residential property or in specified bonds within defined windows. Both the indexation rules and the reinvestment provisions have been amended in recent years, and the treatment can differ depending on the acquisition date.

This is one area where the rules genuinely have changed enough that old guidance is actively misleading — verify before transacting.

Compute a gain

Three practical habits

1. Record every purchase date and cost. Reconstructing a decade of SIP instalments at sale time is genuinely painful.
2. Sell in the right financial year. Splitting a large sale across two years can use two annual exemptions.
3. Remember each SIP instalment is a separate purchase. A three-year SIP has 36 different acquisition dates, and the most recent instalments may still be short term.

Open the capital gains calculator

Published by FinClamp. This guide is information, not financial advice — see the disclaimer.