The ₹1 lakh LTCG exemption under Section 112A allows the first ₹1,00,000 of long-term capital gains from listed equity shares, equity MFs, and equity-oriented ETFs to be tax-free per financial year. Gains above ₹1 lakh are taxed at 10% (no indexation) plus surcharge + cess.
Worked INR example
FY 2024-25: you sell ₹5 lakh of HDFC Top 100 MF units held for >1 year. Original cost ₹3 lakh. LTCG = ₹2 lakh. Tax computation: exempt up to ₹1 lakh; taxable ₹1 lakh × 10% = ₹10,000 + 4% cess = ₹10,400 total tax. If you had sold ₹4 lakh and harvested ₹1 lakh LTCG, tax = ₹0 — this is the basis for annual tax-loss / gain-harvesting strategies.
When to use
- Year-end tax harvesting — sell winners up to ₹1 lakh LTCG, reinvest next day to reset cost
- Couple-level optimisation — each spouse gets a separate ₹1 lakh allowance
- Stagger redemptions across FYs to maximise multiple ₹1 lakh slabs
SEBI / tax caveat
Exemption applies only if STT was paid at both buy and sell (Sec 112A condition). Unlisted shares and most debt MFs do not qualify. Budget 2024 retained 10% rate but raised the exemption threshold to ₹1.25 lakh from 23 July 2024 — verify the latest threshold each FY.