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What is Long Term Capital Gain?

Any income that accrues from the sale of a capital asset (like shares, real estate, bonds, commodity etc.) is considered a capital gain and taxed as either short or long term capital gains (LTCG/STCG) depending on the holding duration. Here’s a break-down of LTCG and its tax implications.

Comparing LTCG to STCG – Inclusions and conditions:

Usually, the proceeds from any asset held for three years or less is considered a short term capital gain and taxed accordingly. Anything held for over three years is considered a long term capital asset. However, from FY 2017-18, this term was reduced to two years for certain assets like land, building and house, which means if you sell a house or property after holding it for two years or more, it will be considered as long term capital gain. In the case of equity investments, it is considered short term capital asset if held for less than a year and long term if held for more than 12 months.

Tax Applicability:

The below table explains the tax applicability of LTCG and STCG.

Mutual Funds:

Debt and equity mutual funds are subject to different kinds of taxes. Any fund that invests more than 65 per cent of its assets in equity is seen as equity fund, and if it holds more than 65 per cent in debt, then it is seen as a debt fund. Since 11 July 2014, short term gains from debt or debt oriented funds are added to the total income and then taxed according to your slab, while long term gains are taxed at 20 per cent with indexation. Indexation is done by applying the cost inflation index to adjust for inflation, and thus lowers the capital gains.

In the case of equity funds, short term gains are taxed at 15%, while long terms gains are taxed @10% if capital gain from equity is more than Rs. 1 lakh in a financial year. The below table explains the applicability of LTCG and STCG on equity and debt mutual funds




Equity Funds


10% if gains exceed Rs. 1 Lakh per financial year

Equity Fund Investment duration

 < 12 months

> 12 months

Debt Funds

As per the individual tax payer’s tax slab rates

20% with Indexation

Debt Funds Investment period

 < 36 months

 > 36 months


It is always advised to have a long term perspective while investing in mutual funds, whether it is equity or debt. Given the different treatment for different asset classes, do talk to your financial advisor in case of any doubt about whether a specific asset is considered a long or short term asset and the time frames involved. So, open an account today and begin your investment journey.

Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.I-Sec acts as a distributor to distribute Mutual Funds. AMFI Regn. No.: ARN-0845.Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Distribution of Mutual Fund is not exchange traded product. I-Sec. is just acting as a distributor and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism.


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