Capital gains — every legal way to save (or zero) your tax, by asset

Step 1 — Know your asset: holding period & rate

Every saving starts with whether your gain is short-term (STCG) or long-term (LTCG) — which depends on the asset. Since 23 July 2024 the rules were simplified to two holding periods (12 or 24 months) and mostly a flat 12.5% LTCG rate.

Rural agricultural land is not a "capital asset" at all — its sale is fully outside capital-gains tax.

Step 2 — The reinvestment exemptions (the 54-series): the big zero-tax routes

Reinvest the gain (or sale value) in a prescribed way and the tax on it is exempt. Choose one — or combine several.

• Section 54 — house → house. LTCG on a residential house → buy another house (1 year before or 2 years after) or construct within 3 years. Exempt to the extent the gain is reinvested; cap ₹10 crore. Once in a lifetime you may buy two houses if the gain is ≤ ₹2 crore. Lock-in: don't sell the new house for 3 years.
• Section 54F — any asset → house. LTCG on any long-term asset (plot, gold, unlisted shares) → buy/construct one residential house with the whole net sale consideration (proportionate if you invest part). Condition: you must not own more than one other house. Cap ₹10 crore.
• Section 54EC — gains → bonds. LTCG on land or building → invest in NHAI / REC / PFC / IRFC bonds within 6 months. Cap ₹50 lakh (overall, even across two years). 5-year lock-in.
• Section 54B — farm land → farm land. Gain on urban agricultural land used for 2 years → reinvest in new agricultural land within 2 years. For individuals & HUFs.
• Section 54D — compulsory acquisition of industrial land/building → reinvest in industrial land/building within 3 years.
• Section 54G / 54GA — shifting an industrial undertaking from an urban area to a non-urban area (54G) or to a SEZ (54GA) → reinvest in the new location's assets.
• Section 54GB — house → startup/SME. LTCG on a residential property → subscribe equity of an eligible manufacturing SME / DPIIT start-up which then buys new plant & machinery. Full exemption if the whole net consideration is used.
• Capital Gains Account Scheme (CGAS). Can't reinvest before your ITR due date? Park the amount in a CGAS account at a bank to keep the exemption alive until you buy/build. Miss this and the exemption is lost.

Step 3 — Losses: set-off & harvesting

• Set-off. Short-term losses offset both STCG and LTCG; long-term losses offset only LTCG. Unabsorbed capital losses carry forward 8 years (file your ITR on time to keep them).
• Tax-loss harvesting. Book losing positions to offset the gains you've realised — a legitimate, powerful lever for share/MF portfolios.
• Harvest the ₹1.25 lakh equity exemption every year. Sell and re-buy equity to realise up to ₹1.25 lakh of long-term equity gains tax-free each financial year (Sec 112A) — resets annually.

Step 4 — Cost, indexation & valuation levers (reduce the gain itself)

• Indexation choice for old property. For land/building bought before 23 Jul 2024, compute both ways — 20% with indexation vs 12.5% without — and pay the lower.
• Fair market value as on 1 April 2001. For assets acquired before 2001 you may substitute the FMV on 1-4-2001 as your cost — usually far higher, so the gain shrinks. Get a registered valuer's report.
• Cost of improvement + transfer expenses. Deduct brokerage, stamp duty, legal fees, and genuine improvement costs from the sale value.
• Section 50C safe harbour. If the sale price is below the stamp-duty value, the stamp value is deemed your sale value — unless the gap is within 10%. If it's higher, ask for a reference to the Valuation Officer.

Step 5 — Structuring & timing

• Joint ownership. A property held by co-owners — each co-owner computes their share and can separately claim 54 / 54F / 54EC and their own basic-exemption set-off. Splitting a sale across two spouses can double the ₹50 lakh 54EC and the exemptions.
• Use an HUF. An HUF is a separate assessee with its own exemptions — routing eligible family assets through it multiplies the reliefs.
• Split the sale across financial years. Realise gains in two years to use two years' ₹1.25 lakh equity exemption and manage slabs.
• Convert STCG to LTCG. Where the rate gap is large (e.g. equity: 20% STCG vs 12.5% LTCG), holding just past the 12/24-month line can cut the rate.
• Basic-exemption set-off. A resident whose other income is below the basic exemption limit can adjust LTCG/STCG against the unused exemption before applying the special rate.

Step 6 — Special & inherited assets

• Inherited / gifted assets. You inherit the previous owner's cost and holding period (Sec 49(1), 2(42A)) — so a recently-inherited house is usually already long-term, with indexation to 2001 available. No tax arises on inheriting; only on selling.
• Sovereign Gold Bonds. Hold to maturity → the capital gain on redemption is fully exempt (interest is taxable).
• Rural agricultural land. Not a capital asset → sale is fully outside capital gains.

Step 7 — Case-law-backed positions (advanced — get advice before relying)

• Depreciable long-term asset still gets 54EC / 54F. The Section 50 "short-term" fiction is only for computing the gain; the exemption still applies — CIT v. ACE Builders (P.) Ltd. (Bombay HC), widely followed.
• Date of agreement can fix the transfer / timeline. Where an agreement to sell and part-payment happened earlier, that date can be taken as the transfer date for the 54 timeline — Sanjeev Lal v. CIT (Supreme Court).
• "Purchase" includes booking & construction payments. Amounts paid to a builder for an under-construction flat count as purchase/construction — CIT v. T.N. Aravinda Reddy (Supreme Court).
• Holding period of an under-construction flat runs from allotment, not registration — CIT v. Vembu Vaidyanathan (Bombay HC; SLP dismissed), following CBDT Circulars 471/672.
• 54/54F investment in a close relative's name. Several High Courts have allowed the exemption where the new house is bought in the spouse's/relative's name out of the same funds — CIT v. Kamal Wahal (Delhi HC) and others (jurisdiction-dependent).
• Construction need not be fully complete in 3 years if substantial investment was made in time — held by several High Courts.

Asset-by-asset quick playbook

• Residential house → Section 54 (buy another house) · 54EC bonds (₹50L) · CGAS to buy time · indexation choice · split across co-owners.
• Plot / commercial / gold / unlisted shares → Section 54F (buy a house with the net proceeds). 54EC works only for land/building, not these.
• Listed shares / equity MF → the ₹1.25L annual exemption · loss harvesting · hold > 12 months for the lower LTCG rate.
• Debt mutual funds → taxed at slab (no LTCG break) — time redemptions across years to manage your slab.
• Crypto / VDA → flat 30%, no exemption or loss set-off — plan the year of sale only for slab of other income.

Don't get caught out

• New house under Sec 54/54F: don't sell it for 3 years; 54EC bonds are locked 5 years.
• 54F needs the whole net consideration reinvested (not just the gain), and you must not own more than one other house.
• The ₹50 lakh 54EC cap is an overall ceiling — you can't stack two years anymore.
• Park unused gains in CGAS before the ITR due date, or the exemption is gone.
• Capital gains attract advance tax — pay in the quarter you sell to avoid 234B/234C interest.