JASMINE KAUR HUDA
Assistant General Manager
Published on: Aug 7, 2026
Long-Term Capital Gains (LTCG) Exemption up to ā¹1.25 Lakh -Explained Simply
If you invest in shares or equity mutual funds, you've probably heard that Long-Term Capital Gains (LTCG) up to ā¹1.25 lakh are tax-free. While this is true, many taxpayers are still confused about how the exemption works and who can claim it.
Let's simplify the rule.
What is Long-Term Capital Gain (LTCG)?
Long-Term Capital Gain is the profit earned when you sell certain investments after holding them for the required period.
For listed equity shares, equity-oriented mutual funds, and units of business trusts, the gain is considered long-term if the investment is held for more than 12 months.
What is the ā¹1.25 Lakh Exemption?
Under Section 112A of the Income-tax Act, the first ā¹1.25 lakh of long-term capital gains in a financial year is exempt from tax for eligible equity investments. If your long-term capital gains exceed ā¹1.25 lakh, only the amount exceeding the exemption limit is taxable at 12.5% (plus applicable surcharge and cess).
The exemption limit was increased from ā¹1 lakh to ā¹1.25 lakh in the Union Budget 2024 and is applicable as per the prescribed provisions.
Example 1
Long-Term Capital Gain: ā¹1,10,000
Exemption Available: ā¹1,10,000
Tax Payable: Nil
Since your total LTCG is below ā¹1.25 lakh, no tax is payable.
Example 2
Long-Term Capital Gain: ā¹2,00,000
Exemption: ā¹1,25,000
Taxable LTCG: ā¹75,000
Tax @ 12.5%: ā¹9,375 (before surcharge and cess)
Which Investments Qualify?
The ā¹1.25 lakh exemption generally applies to:
- Listed equity shares
- Equity-oriented mutual funds
- Units of business trusts (REITs and InvITs)
These investments must satisfy the prescribed conditions, including payment of Securities Transaction Tax (STT), wherever applicable.
Important Points to Remember
- The ā¹1.25 lakh exemption is available every financial year.
- It applies only to long-term capital gains covered under Section 112A.
- If your gains exceed ā¹1.25 lakh, only the excess amount is taxable.
- Investors can legally reduce tax by planning their sales across different financial years (tax harvesting).
Common Misconception
Myth: If my LTCG is ā¹1.30 lakh, I have to pay tax on the entire ā¹1.30 lakh.
Reality: No. Tax is payable only on ā¹5,000 (ā¹1,30,000 ā ā¹1,25,000).
Final Thoughts
The ā¹1.25 lakh LTCG exemption is a significant tax benefit for investors in listed equity shares and equity mutual funds. Proper tax planning can help you maximize this exemption every financial year and reduce your tax liability legally.
Before selling your investments, calculate your expected long-term capital gains and plan your transactions wisely to make the best use of the exemption.