LTCG Tax on Equity in India: What Changed in Budget 2024 and What It Means for Your Portfolio

Last Updated on April 22, 2026 by Hemant Beniwal

“In this world nothing can be said to be certain, except death and taxes.”
– Benjamin Franklin

In February 2018, when the government first introduced 10% LTCG tax on equity, I wrote a short post asking: is this really so bad? The reaction was dramatic. Clients called. Messages flooded in. The market fell sharply on Budget day. “God, why us?” was the sentiment everywhere.

The answer then was: no, it is not that bad. Stay invested.

Budget 2024 raised LTCG on equity again – from 10% to 12.5%. STCG went from 15% to 20%. The exemption limit rose slightly from Rs 1 lakh to Rs 1.25 lakh. And again, the same question: is this really so bad?

The answer is still the same. Let me explain why – and more importantly, what actually changed and what you need to know.

What Budget 2024 Actually Changed

The Union Budget 2024, presented on July 23, 2024, made the following specific changes to capital gains taxation on equity:

These changes are effective for transactions on or after July 23, 2024. Gains realised before that date are governed by the old rates.

Why Long-Term Investors Should Stay Calm

Let me put this in numbers that matter.

A senior executive who has been running SIPs for 15 years has accumulated a corpus of, say, Rs 2 crore. A significant portion of this is unrealised LTCG – gains built over many years of compounding. Under the new regime, gains above Rs 1.25 lakh in any financial year are taxed at 12.5%.

At 12.5%, Rs 10 lakh of long-term capital gain costs Rs 1.25 lakh in tax. Compare that to the same Rs 10 lakh earned as salary or fixed deposit interest – taxed at 30%+ for most senior executives. The LTCG rate, even at 12.5%, represents a substantial concession compared to what the same money would cost if earned as income.

The argument that “equity has lost its tax advantage” deserves scrutiny. Before 2018, equity gains were completely tax-free after one year. That zero-tax regime was exceptional by any global standard. At 12.5%, India still taxes equity LTCG below the US (20%), UK (18-24%), and most other major economies. The advantage relative to other asset classes and income types remains large.

What About Dividend Mutual Funds?

The dividend distribution tax (DDT) that existed until March 2020 has been abolished. Since April 2020, dividends from all mutual funds – equity or debt – are taxable directly in the investor’s hands at their applicable income tax slab rate.

This is an important change that many investors still haven’t fully absorbed. If you are in the 30% tax bracket and hold a dividend-option equity mutual fund, every dividend you receive is taxed at 30% – far worse than the 12.5% LTCG you would pay if you held the growth option and redeemed selectively.

My view from 2018 stands and is now stronger: growth option in equity mutual funds is almost always better than dividend option for anyone in a tax-paying bracket. Dividends are just forced redemptions with a higher tax cost.

What Has Not Changed

For long-term investors, several things remain true. Equity continues to be the most tax-efficient wealth-building asset class in India for those who stay invested. ELSS funds still qualify for Section 80C deduction up to Rs 1.5 lakh, with a 3-year lock-in. The compounding engine inside an equity mutual fund – which works on pre-tax returns for decades – is unaffected by any tax rate on gains at redemption.

The strategic implication is unchanged: hold quality equity funds for 10-20 years, use the Rs 1.25 lakh annual LTCG exemption systematically to harvest gains tax-free, and let compounding do most of the work.

Tax Harvesting: Using the Rs 1.25 Lakh Exemption Wisely

One strategy worth knowing: at the end of every financial year, if your unrealised LTCG is within Rs 1.25 lakh, consider redeeming and immediately reinvesting. This resets your cost basis to the current price. Over 15-20 years of doing this annually, you can eliminate a significant portion of your eventual tax liability – completely legally, using the exemption the government has provided.

This is especially relevant for investors approaching retirement with large accumulated equity positions. Working with an advisor to sequence redemptions across financial years – keeping LTCG under Rs 1.25 lakh per year wherever possible – can save meaningful amounts in tax without disrupting the portfolio’s overall structure.

My view from 2018 has not changed. 10% was reasonable. 12.5% is also reasonable. India taxes equity LTCG far more leniently than most countries. The government will almost certainly raise it further over time. That is not a reason to exit equity. It is a reason to plan well.

Equity still compounds. Taxes don’t change that. They just take a slightly larger slice of a significantly larger pie.

Focus on things under your control. Tax rates are not one of them. Staying invested is.

You cannot control what the government taxes. You can control how long you stay invested.