Section 197 — LTCG Rates FA2024 12.5pc

Section 197 — - TAX ON LONG-TERM CAPITAL GAINS

Section 197 is the substantive equivalent of 1961 s. 112 -- the GENERAL LTCG RATE provision. FA 2024 WATERSHED: PRE-23-JUL-2024 LTCG: 20% with indexation (using s. 72(2) indexed cost) for all assets. POST-23-JUL-2024 LTCG: 12.5% FLAT for ALL assets, with EXCEPTION FOR INDIVIDUAL / HUF on LAND / BUILDING acquired BEFORE 23-Jul-2024 -- assessee may CHOOSE between 20%-with-indexation OR 12.5%-flat, declare the LOWER. For NR transferors, FX-conversion under s. 72(6) preserves benefit (no indexation). Special rate for NR debentures of Indian co. (NOT being equity ref s. 198): 12.5% under s. 197(1)(b), unlisted securities being computed without the s. 72(6) foreign-exchange benefit (s. 197(4)); unlisted debentures transferred or redeemed on or after 23-Jul-2024 are deemed short-term (s. 76). Key point: post 23-Jul-2024, indexation generally WITHDRAWN; only land-building individual-HUF retain dual-modeling option.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on long-term capital gains

197.

(1) Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset which is chargeable under the head “Capital gains”, the tax payable by the assessee on the total income, subject to sub-sections (2), (3) and (4), shall be the aggregate of—

(a) income-tax payable on the total income as reduced by such long-term capital gains, had the total income, as so reduced, been his total income; and

(b) income-tax calculated on such long-term capital gains at the rate of 12.5%.

(2) In the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by long-term capital gains computed under sub-section

(1) is below the maximum amount which is not chargeable to income-tax, then,—

(a) such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax; and

(b) the tax on the balance of such long-term capital gains shall be computed at the rate as referred in sub-section (1).

(3) In the case of an individual or a Hindu undivided family, being a resident, in the case of transfer of a long-term capital asset, being land or building, or both, which was acquired before the 23rd July, 2024, the excess income-tax computed as per the following formula shall be ignored:— E=A–B where— E = excess income-tax to be ignored; A = income-tax computed under sub-section (1)(b); B = income-tax computed under sub-section (1)(b) taking the rate as 20% and the capital gains is computed by taking the cost of acquisition as “indexed cost of acquisition” and the cost of improvement as “indexed cost of improvement”.

(4) In the case of an assessee being a non-resident (not being a company) or a foreign company, the long-term capital gains arising from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which the public are substantially interested, shall be computed without giving effect to the provisions under section 72(6).

(5) Where the gross total income of an assessee includes any income arising from the transfer of a long-term capital asset, the gross total income shall be reduced by such income and the deduction under Chapter VIII shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(6) For the purposes of this section,—

(a) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(b) “listed securities” means the securities which are listed on any recognised stock exchange in India;

(c) “unlisted securities” means securities other than listed securities;

(d) “indexed cost of acquisition” and “indexed cost of improvement” shall have the meanings respectively assigned to them in section 72. Tax on long-term capital gains in certain cases.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 197	INCOME-TAX ACT, 1961 -- s. 112
LTCG flat 12.5% post 23-Jul-2024 (general)	1961 s. 112 [FA 2024]
20% with indexation -- pre 23-Jul-2024 era / land-building individual-HUF election	1961 s. 112(1) Proviso (FA 2024 transition)
NR unlisted securities / shares of closely held co. 10% (transfer before 23-Jul-2024) / 12.5%	1961 s. 112(1)(c)(iii)
Listed securities (other than s. 198 equity) 10% without indexation -- transfers before 23-Jul-2024 only; now 12.5% (s. 197(1)(b))	1961 s. 112(1) proviso
Indexation per s. 72(2) -- preserved for 20%-route	1961 s. 48 second proviso

FA 2024 WATERSHED

Section 197 implements FA 2024's flat-12.5%-without-indexation regime (effective 23-Jul-2024). Pre-23-Jul-2024 LTCG: 20% with indexation per s. 72(2). Post-23-Jul-2024 LTCG: 12.5% flat for ALL assets. EXCEPTION: INDIVIDUAL / HUF on LAND / BUILDING (or both) acquired BEFORE 23-Jul-2024: dual-modeling option -- (a) 20% with indexation (per s. 72(2) indexed cost computation) OR (b) 12.5% flat (without indexation); declare LOWER. The dual computation applies to individual / HUF land-building sellers.

WORKED EXAMPLES

EX 1 -- Individual selling apartment FY 2026-27: bought FY 2010-11 INR 50L; sells INR 2.5 cr. ROUTE A: 12.5% flat: CG = INR 2 cr; tax INR 25L. ROUTE B: 20% indexed: indexed cost = 50L * (CII 376/CII 167) = INR 1.13 cr; CG = INR 1.37 cr; tax INR 27.4L. LOWER = ROUTE A (INR 25L). EX 2 -- Same apartment but sold for INR 1.2 cr. ROUTE A: CG = INR 70L; tax INR 8.75L. ROUTE B: CG = INR 7L (1.2cr - 1.13cr); tax INR 1.4L. LOWER = ROUTE B (INR 1.4L). LOW-APPRECIATION cases favour 20%-indexed; HIGH-APPRECIATION cases favour 12.5%-flat. EX 3 -- Company selling commercial property FY 2026-27 (no individual / HUF election): only 12.5% flat applies; no indexation. EX 4 -- NR selling unlisted Indian-co debenture on or after 23-Jul-2024: gains are deemed short-term under s. 76, so s. 197 does not apply; indexation NOT available.

OTHER LTCG-CHARGEABLE CATEGORIES

(i) LISTED SECURITIES (other than equity / equity-MF / business-trust covered by s. 198): includes listed bonds / debentures / G-Sec / preference shares -- 12.5% flat (without indexation) under s. 197(1)(b) for transfers on or after 23-Jul-2024 (10% under the proviso to 1961 s. 112(1) before that date). (ii) NR DEBENTURES OF INDIAN CO. (non-equity): NR-investor, FX-conversion under s. 72(6); rate 12.5% (s. 197(1)(b)); unlisted debentures transferred or redeemed on or after 23-Jul-2024 are deemed short-term (s. 76). (iii) UNLISTED SHARES SOLD BY NR: 12.5% flat without indexation or foreign-exchange benefit (s. 197(1)(b) and (4)); 10% applied before 23-Jul-2024 under 1961 s. 112(1)(c)(iii). The rate turns on the character of the asset; STT-paid listed equity goes to s. 198 (12.5% with INR 1.25L exemption, separate regime).

PRACTICAL POINTS

(i) DUAL COMPUTATION -- individual / HUF on land-building pre-23-Jul-2024 acquisition: tax is computed under BOTH routes and the lower applies. (ii) HOLDING PERIOD -- 24 months for land/building; 12 months for listed securities / equity-MF / business-trust units; unlisted bonds / debentures transferred or redeemed on or after 23-Jul-2024 are short-term whatever the holding period (forced-STCG via s. 76 / s. 50AA). (iii) ROLLOVER EXEMPTIONS -- s. 82-86 (residential house / agricultural land / SEC bonds / specified-asset-to-residential) preserved alongside s. 197 rate calibration. (iv) NR / FX-CONVERSION -- s. 72(6) / s. 72(7) FX-mechanisms remain operative for NR investors. (v) INDEXATION TRANSITION -- assets acquired BEFORE 23-Jul-2024 retain indexation eligibility for individual/HUF land-building; post-23-Jul-2024 acquisitions: no indexation.

CROSS-REFERENCES

Section 67 -- CG charge.
Section 72 -- Mode of computation including indexation s. 72(2) and FX s. 72(6).
Section 76 -- Forced-STCG (MLDs / Specified MFs / unlisted bonds post 23-Jul-2024).
Section 90 -- Cost definitions including FA 2018 grandfathering for listed equity.
Section 196 -- STCG rates.
Section 198 -- LTCG STT-paid listed equity 12.5% (separate concession).
Sections 82-86 -- Reinvestment exemptions.
CBDT CII annual notification.

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