Capital gains tax is levied on the profit from selling capital assets including stocks, mutual funds, property, and gold. The gain is classified as short-term or long-term based on the holding period. Short-term gains are taxed at higher rates while long-term gains enjoy lower rates and indexation benefits. The cost of acquisition includes the purchase price plus any associated expenses like brokerage, registration, and stamp duty.

Different assets have different holding periods to qualify as long-term: Stocks and equity-oriented mutual funds require 12 months. Debt mutual funds require 36 months. Property (land and building) requires 24 months. Gold and gold ETFs require 36 months. Holding periods determine the applicable tax rate and whether you can claim indexation benefits.

Indexation allows you to adjust the purchase price for inflation using the Cost Inflation Index (CII) published by the Income Tax Department. This increases your cost basis, reducing the taxable gain. Indexation is available for long-term capital gains on debt funds, property, and gold when taxed under the 20% rate. The formula is: Indexed Cost = (CII of sale year / CII of purchase year) × Actual Purchase Cost.

To minimize capital gains tax: hold equity investments for over 12 months to qualify for LTCG rates, utilize the ₹1.25 lakh LTCG exemption on equity each year, consider tax harvesting by booking gains within the exemption limit annually, use indexation benefits for debt and property, and invest capital gains in specified bonds under Section 54EC to defer tax on property gains.