Made profits on Apple or Nvidia shares? Here’s whether you can claim the ₹1.25 lakh tax exemption in India

Finance Minister Nirmala Sitharaman recently indicated that the government will hear investors’ views on long-term capital gains (LTCG) tax during upcoming Budget consultations, bringing equity taxation back into focus.

The discussion comes amid calls for tax relief, foreign investor outflows and concerns over the competitiveness of Indian equities.

Those who put money in stocks and equity-oriented mutual funds are liable to pay tax on profits earned from selling them, though the applicable rate depends on whether the gains are short-term or long-term in nature.

Long-term capital gains on eligible investments held for more than 12 months are exempt from tax up to ₹1.25 lakh in a financial year.

Does ₹1.25L tax exemption apply to foreign stocks?

Indian investors who have made gains on global stocks such as Apple, Tesla and Nvidia may assume that the same exemption applies to their overseas investments. But, is that the case?

The one word answer to that question is no. “The exemption of ₹1.25 lakh is available on certain long-term gains from qualifying Indian equity investments only and it does not benefit US-listed stocks,” according to Gaurav Makhijani, Managing Partner at Makhijani Gera & Associates LLP.

How are LTCG and STCG on foreign stocks calculated?

The taxable capital gain on overseas shares is calculated by subtracting the cost of acquisition and eligible transfer-related expenses from the sale proceeds. Investors must also apply the prescribed foreign-exchange conversion rules to determine the gains in Indian rupees.

Unlike listed Indian stocks, which require a holding period of 12 months and above for gains to qualify as long-term, shares listed on foreign exchanges are subject to a 24-month holding period to be considered as LTCG.

Accordingly, gains from foreign shares held for 24 months or less are classified as short-term capital gains and taxed at the investor’s applicable income tax slab rate. Shares held for more than 24 months qualify for long-term capital gains taxation at 12.5%, without indexation.

Where ₹1.25L tax exemption does not apply?

The ₹1.25 lakh annual long-term capital gains (LTCG) tax exemption under Section 112A does not apply in the following cases:

• Sovereign gold bonds (SGBs): The ₹1.25 lakh exemption does not apply to SGBs traded or sold on a stock exchange which are taxed at 12.5% for long-term or slab rates for short-term without this exemption.
• Other non-qualifying assets: Gains from assets that do not meet the eligibility (such as foreign assets) and securities transaction tax (STT) conditions specified under Section 198.

Although Finance Minister Nirmala Sitharaman’s willingness to hear views on LTCG tax has raised expectations of possible relief, her comments do not amount to an announcement that the government intends to scrap the tax.

In a parliamentary written response on July 20 this year, Minister of State for Finance Pankaj Chaudhary said there was no proposal under consideration to abolish LTCG tax for domestic or retail investors.