Income Tax Act 2025: Section 197 for Tax Year 2026-27

Tax on long-term capital gains

[Section-197 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 197(1) of Income Tax Act 2025

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) and (3), 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%.

Section 197(2) of Income Tax Act 2025

197(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).

Section 197(3) of Income Tax Act 2025

197(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 is 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 clause (b) of sub-section (1);
• B = income-tax computed under clause (b) of sub-section (1) 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.

Section 197(4) of Income Tax Act 2025

197(4) 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.

Section 197(5) of Income Tax Act 2025

197(5) In this section,—

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

FAQs on Section 197 of Income Tax Act 2025

What does Section 197 deal with under the Income Tax Act, 2025?
Section 197 governs the taxation of long-term capital gains arising from certain types of assets where securities transaction tax (STT) is applicable.

What types of assets are covered under Section 197(1)?
It applies to long-term capital gains from transfer of:

• Equity shares in a company,
• Units of an equity oriented fund, or
• Units of a business trust,
  where the transaction is chargeable to STT under Chapter VII of the Finance (No. 2) Act, 2004.

What is the tax rate on long-term capital gains under Section 197(1)?
Long-term capital gains on such assets exceeding ₹1,00,000 are taxed at 10%.

Is any exemption limit provided for long-term capital gains under Section 197?
Yes. Gains up to ₹1,00,000 in a financial year are exempt from tax. Only the amount exceeding ₹1,00,000 is taxed at 10%.

Is indexation benefit allowed on long-term capital gains under this section?
No. Indexation benefit is not available for gains taxed under Section 197.

Does the section apply to residents as well as non-residents?
Yes. Section 197 applies to all assessees, including both residents and non-residents.

Are deductions under Chapter VIII allowed from such long-term capital gains?
No. Deductions under Chapter VIII are not allowed from such long-term capital gains. They can be claimed only on the gross total income reduced by such gains.

What happens if the transaction is carried out in an International Financial Services Centre (IFSC)?
As per Section 197(3), if the transaction is on a recognised stock exchange in an IFSC and is settled in foreign currency, the concessional rate does not apply.

Can the basic exemption limit be adjusted against such gains for resident individuals and HUFs?
No specific provision under Section 197 allows this adjustment. Only the exemption of ₹1,00,000 is permitted.

What is meant by “equity oriented fund” in this section?
The term “equity oriented fund” has the same meaning as assigned under Section 198 of the Act.