Section 197, Income-tax Act 2025: Tax on long-term capital gains

What was Section 112, and where did it go in the 2025 Act?

Section 112 of the Income-tax Act 1961 is the general charge on long-term capital gains, the one that catches every long-term asset except the listed-equity gains carved out into Section 112A. The Income-tax Act 2025 carries it forward and re-addresses it as Section 197, titled "Tax on long-term capital gains". The rules move across intact; only the number on the door is new. Its close neighbour, Section 198, is the old 112A for listed equity, and Section 196 is the old 111A for short-term listed-equity gains.

The tax itself changed once, and recently. For decades Section 112 charged 20% with indexation, meaning your purchase cost was first inflated by a government index so you were taxed only on the real gain. Budget 2024 replaced that with a flat 12.5% and removed indexation for every transfer on or after 23 July 2024. So the figure many sellers still carry in their heads, 20% with indexation, is the old regime; the current default is 12.5% on the plain gain, with one roll-back for land and buildings covered further down.

The 2025-Act number (197) and its title, "Tax on long-term capital gains", are published in the official Income-tax Act 2025 text on incometaxindia.gov.in.

Which assets does Section 197 cover, and which go elsewhere?

Almost every long-term asset a person owns, apart from listed equity. Section 197 is the default long-term charge, and the way to read it is by exception: if a gain does not qualify for the listed-equity rule in Section 198, it lands here.

Section 197 taxes the long-term gain on:

• Land and buildings: a plot, a flat, a shop, agricultural land outside the exempt rural definition, and commercial property.
• Gold and jewellery, whether physical metal, coins or gold held in demat form, and other collectibles.
• Unlisted shares, including shares of a private company and start-up ESOPs sold before the company lists.
• Listed bonds and debentures, which turn long-term after 12 months, and units of a debt fund bought before 1 April 2023.
• Foreign shares and overseas assets, which never had the listed-equity concession because no Indian STT is paid on them.

What is not here: long-term gains on Indian listed shares, equity mutual funds and business-trust units where STT was paid go to Section 198 at 12.5% above a ₹1.25 lakh yearly exemption. Short-term gains on any of these assets are not in Section 197 at all; they are added to your income and taxed at slab rates, except STT-paid listed equity, which has its own 20% rate in Section 196. A separate rule, Section 76 (the old Section 50AA), deems some holdings short-term whatever the holding period, so their gain is slab-taxed and never reaches the 12.5% here: units of a debt or money-market mutual fund bought on or after 1 April 2023, market-linked debentures, and unlisted bonds or debentures redeemed, matured or transferred on or after 23 July 2024.

The rate: 12.5% with no indexation

12.5% of the plain gain, with no indexation, for any sale on or after 23 July 2024. The gain is simply your sale value less what you actually paid, less allowable transfer costs like brokerage or stamp duty on the sale. There is no annual exemption to subtract first: unlike listed equity, the very first rupee of a Section 197 gain is taxable.

Budget 2024 made the switch, and the table shows both sides of the 23 July 2024 line so you can see what moved. The date that decides which column applies is the date of transfer, not the date you bought the asset.

Removing indexation is a real trade-off. For a fast-appreciating asset the flat 12.5% is usually the lighter tax; for an asset that only kept pace with inflation, the old 20% with indexation could work out lower, which is exactly why the land-and-building roll-back below exists.

The special roll-back for land and buildings bought before 23 July 2024

One group of sellers keeps a choice. If you are a resident individual or a Hindu Undivided Family selling land or a building that you acquired before 23 July 2024, you pay the lower of two figures: 12.5% on the plain gain, or 20% on the gain after indexing your cost. The law computes both and simply ignores any excess of the 12.5% tax over the 20%-with-indexation tax, which comes to the same thing as letting you pay whichever is smaller.

The gate is narrow, and every word of it matters. It is only for a resident individual or HUF, so a company, a firm, an LLP or a non-resident gets the flat 12.5% with no roll-back. It is only for land or a building, so gold, unlisted shares and debt funds are excluded even for a resident individual. And it is only for property bought before 23 July 2024; anything acquired on or after that date gets the flat 12.5% whoever sells it. The roll-back is a ceiling, never a floor: if the 12.5% figure is already lower, that is what you pay.

The comparison uses the cost inflation index published by the government to work out the indexed cost for the 20% leg. Worked example 2 below runs both legs end to end.

When does an asset become long-term?

Hold it longer than 24 months, and for listed securities longer than 12 months. Budget 2024 collapsed a tangle of different holding periods into just these two, so the old 36-month test for gold and debt is gone. Get on the wrong side of the line and the gain is short-term, which for these assets means slab-rate tax, not the 12.5% here.

This is the trap that costs the most. A short-term gain on property, gold or unlisted shares does not get any 12.5% or 20% special rate; it is stacked on your other income at your normal slab, which can reach 30%. Only STT-paid listed equity has a special short-term rate, the 20% of Section 196. Debt funds bought on or after 1 April 2023 and market-linked debentures are treated as short-term however long you hold them, under Section 76 (the old Section 50AA).

How a resident absorbs the basic exemption limit

A resident whose other income is below the basic exemption limit can fill the gap with these gains before the 12.5% bites. If your salary, pension and interest for the year do not use up the basic exemption, the unused slice is set against your Section 197 gain, and only the balance is taxed. This relief is for resident individuals and HUFs; a non-resident is taxed on the full gain with no absorption.

A quick illustration on the new regime, where the basic exemption is ₹4,00,000. A retiree has ₹2,00,000 of pension and interest and a ₹5,00,000 long-term gain on gold. The ₹2,00,000 of other income leaves ₹2,00,000 of the basic exemption unused, which absorbs ₹2,00,000 of the gain. Only the remaining ₹3,00,000 is taxed at 12.5%, giving ₹37,500 plus 4% cess, so ₹39,000 in all. Without the absorption the tax would have been on the full ₹5,00,000.

Absorption uses whichever basic exemption applies to you: ₹4,00,000 on the new regime for TY 2026-27, or the age-based old-regime limit if you have opted out. It is separate from, and smaller in reach than, the listed-equity ₹1.25 lakh exemption, which Section 197 gains never get.

How to work out the tax, step by step

The same five steps for every Section 197 asset:

• Confirm the gain is long-term: more than 24 months of holding, or more than 12 months for a listed security. If it is short-term, stop here; it is slab-rate income, not a Section 197 gain.
• Work out the gain: sale value, less what you actually paid, less transfer costs such as brokerage or the stamp duty and legal fees on the sale.
• Apply any reinvestment relief you qualify for (the old Sections 54, 54F or 54EC), which reduces the taxable gain before the rate is applied.
• For a resident with other income below the basic exemption limit, reduce the gain by the unused slice of that limit.
• Tax the balance at 12.5%, then add 4% cess. For a resident individual or HUF selling pre-23-July-2024 land or a building, also compute the 20%-with-indexation figure and pay the lower of the two.

There is no ₹1.25 lakh exemption to subtract at any point; that step exists only for listed equity under Section 198.

How reinvestment reliefs can reduce the taxable gain

Before the 12.5% is applied, three long-standing reliefs can shrink the gain, and they work on both the old and the new regime because they are capital-gains exemptions, not the Chapter VIII deductions that the new regime switches off. The 2025 Act re-homes them in its capital-gains chapter, but the conditions carry over.

• Old Section 54: on the sale of a residential house, the long-term gain is exempt to the extent you buy or build another residential house within the allowed window (one year before to two years after for a purchase, three years for construction).
• Old Section 54F: on the sale of any other long-term asset, such as gold, a plot or unlisted shares, the gain is exempt in proportion to how much of the whole net sale value you reinvest in one residential house, provided you do not own more than one other house.
• Old Section 54EC: on the sale of land or a building, up to ₹50,00,000 of the gain is exempt if you put it into notified bonds (such as NHAI or REC) within six months, and hold them for five years.

These reliefs come with lock-ins and holding conditions of their own, and breaking them pulls the exempted gain back into tax. The ₹50,00,000 bond ceiling is a per-taxpayer limit that also spans two financial years for a single sale, so you cannot double it by splitting across the March year-end.

Setting off and carrying forward a long-term loss

A long-term capital loss can be set off only against a long-term capital gain, never against salary, business income or a short-term gain. That is the mirror image of the ring-fence around the 12.5% rate. A short-term capital loss is more flexible: it can be set off against either short-term or long-term gains.

Whatever you cannot use this year carries forward for up to eight tax years, and a carried-forward long-term loss still sets off only against future long-term gains. The catch that trips people up: you must file your return by the due date to carry a loss forward. Miss the deadline and the loss is lost, even though you filed the return. This is the basis of harvesting a loss before 31 March to shelter gains booked the same year.

Why the Section 156 rebate will not wipe out this tax

The rebate that makes ordinary income up to ₹12 lakh tax-free on the new regime (the old Section 87A, now Section 156) does not touch Section 197 gains, because they are special-rate income. The Finance Act 2025 put this beyond doubt: the rebate is worked out on your normal income only, so even a taxpayer whose salary tax is fully rebated still pays 12.5% on a long-term gain from property, gold or unlisted shares.

One relief does apply in your favour at the top end. Surcharge on long-term capital gains is capped at 15%, so the steeper surcharge slabs that hit very high incomes do not apply to these gains. A high earner who would otherwise face a 25% surcharge on other income still pays only the 15%-capped surcharge on the Section 197 gain.†

Section 156 is the 2025-Act home of the 87A rebate; the 15% surcharge ceiling on all long-term capital gains carries over from the Finance Act 2022 position.†

Which ITR form do you file, and how do you report each sale?

Most people with these gains file ITR-2 (no business income) or ITR-3 (with business or professional income), and report each sale in Schedule CG, the capital-gains schedule. For each asset you enter the sale value, the cost, and the transfer expenses; for pre-23-July-2024 land or a building you also enter the indexed cost so the utility can compute the 20% leg and apply the lower-of relief for you.

The simple ITR-1 and ITR-4 do not accept these gains at all. The only capital gain those forms take, from AY 2025-26, is a small long-term listed-equity gain up to ₹1.25 lakh under Section 198. The moment you have a property, gold or unlisted-share gain, or any capital loss to carry forward, you are on ITR-2 or ITR-3.

Reconcile Schedule CG against your Annual Information Statement (AIS) before filing. Property sales, on which 1% TDS is deducted at source, and large gold or unlisted-share transactions are reported to the department, and a mismatch is a common trigger for a notice.

What you should actually do about Section 197

Watch the 24-month line before you sell. The single largest avoidable cost here is turning a long-term gain into a short-term one by selling a few weeks early, because a short-term gain on property, gold or unlisted shares is taxed at your slab rate, up to 30%, instead of 12.5%. On a ₹10,00,000 gain that is the difference between ₹1,25,000 and as much as ₹3,00,000. If you are within a month or two of crossing 24 months, waiting is usually the cheapest tax planning you will ever do.

For property, protect the roll-back. The lower-of 20%-with-indexation option is available only to a resident individual or HUF on land or a building bought before 23 July 2024. If that describes you, keep the acquisition documents that prove the pre-2024 date and your cost, because that option can be worth lakhs on a property that only kept pace with inflation, as the worked example shows. Selling in a year you have become non-resident, or holding the property in a company, throws the option away.

Use the reliefs the rate does not give you. There is no ₹1.25 lakh yearly exemption on these assets, so the levers that remain are the reinvestment reliefs and the basic-exemption absorption. A resident with little other income can shelter a slice of the gain up to the basic exemption limit for free, and a property seller can move up to ₹50,00,000 into 54EC bonds within six months to defer that much gain entirely. Run your own figures in the income-tax calculator before you commit to a sale date.

Worked examples

Section 197 FAQs

Related