Definition of LTCG (Long Term Capital Gains Tax)
LTCG (Long Term Capital Gains Tax) is the tax applied on profits from the sale of capital assets held for more than a specified period. In India, for equity mutual funds and stocks, gains from holdings of more than 12 months are classified as long-term.
As of the Union Budget 2024, LTCG on equity and equity-oriented mutual funds is taxed at 12.5% without indexation on gains exceeding ₹1.25 lakh in a financial year. Before 2018, LTCG on equity was completely tax-free. This change significantly impacts FIRE planning, as large corpus withdrawals may trigger significant LTCG each year.
To minimize LTCG, investors use strategies like annual rebalancing within ₹1.25 lakh limits, harvesting gains gradually, and using tax-exempt instruments like PPF and ELSS alongside equity for a diversified portfolio.