Widely read:
Ujjal Das/AI-Generated Image
Reader’s question: From which month of the year does the Rs 1.25 lakh long-term capital gains tax exemption apply again? - Rajan P A
You've booked some profits from equity mutual funds or shares, and now you're wondering when the Rs 1.25 lakh long-term capital gains (LTCG) tax exemption becomes available again. Is it a year after your first sale? Or does it reset only in a particular month?
The answer is straightforward. The exemption resets at the start of every financial year, on April 1. It is linked to the financial year, which runs from April 1 to March 31, not to the date you sell your investments or the day you complete one year of holding.
Every financial year, the first Rs 1.25 lakh of eligible long-term capital gains from listed equity shares, equity-oriented mutual funds and specified business trusts (REITs and InvITs) is exempt from tax.
Two rules people often mix up
The confusion arises because investors often mix up two separate rules.
The first is the holding period. For listed equity shares and equity-oriented mutual funds, your gains qualify as long-term only if you have held the investment for more than one year.
The second is the annual exemption. Every financial year, the first Rs 1.25 lakh of your eligible long-term capital gains is exempt from tax.
These two rules serve different purposes. The holding period determines whether your gains are classified as long-term. The exemption determines how much of those long-term gains is tax-free in a financial year.
How the exemption works
Think of the Rs 1.25 lakh exemption as an annual tax-free limit for eligible long-term capital gains. This limit applies to your gains for the year after any losses in the same period have been set off. If your net long-term gains during a financial year stay within the limit, you won't pay any LTCG tax. Tax becomes payable only on net gains above Rs 1.25 lakh.
Suppose you sell equity mutual funds in December 2026 and realise long-term capital gains of Rs 1 lakh. Since your total LTCG for FY 2026-27 is below the Rs 1.25 lakh exemption limit, the entire Rs 1 lakh is tax-free.
Now assume you don't make any more equity sales before March 31. When the new financial year begins on April 1, 2027, your exemption resets automatically.
If you then sell more investments in May 2027 and realise another Rs 1 lakh in long-term capital gains, that amount is also tax-free, because it falls within the fresh Rs 1.25 lakh exemption available for FY 2027-28.
In other words, using the exemption in one financial year does not reduce or carry forward the exemption available in the next. It starts afresh every April 1.
What if your gains exceed Rs 1.25 lakh?
The exemption applies to your net eligible long-term capital gains for the financial year, not to each individual sale.
Suppose your net LTCG from all eligible equity investments during FY 2026-27 is Rs 2 lakh. The first Rs 1.25 lakh is exempt from tax. Only the remaining Rs 75,000 is taxable at the applicable LTCG tax rate.
So, even if you've made several redemptions during the year, it is your combined net long-term capital gain that determines whether you've crossed the exemption limit.
Planning a large redemption
If you are planning to redeem a large investment, the timing of your sale can affect your tax liability.
Suppose you expect to realise gains of around Rs 2 lakh. If your financial plan allows, selling part of the investment before March 31 and the rest after April 1 could spread the gains across two financial years. This lets you use the Rs 1.25 lakh exemption in both years and may reduce your overall tax liability.
This works only if it fits your goals. Tax should never be the reason you buy, hold or sell an investment. If a fund or stock no longer suits your financial goals or asset allocation, delaying a sale purely to save tax usually does more harm than good. Tax planning works best when it supports your investment strategy rather than dictates it.
Knowing how the tax rules work is only one part of the decision. The harder question is whether this is the right time to sell and what that means for the rest of your portfolio. Fund Advisor helps you make those decisions.
Make every redemption part of a bigger plan.
This article was originally published on July 22, 2026.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
