How to Adjust STCG and LTCG Against Basic Exemption Limit Under Both Old and New Tax Regimes: Complete Guide for FY 2024–25

---

Introduction

Tax planning plays a vital role in managing your income and investments efficiently. In India, capital gains—especially Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG)—are common among taxpayers due to increased participation in equity markets, mutual funds, and property investments. A key question that arises is: Can STCG and LTCG be adjusted against the basic exemption limit under both the old and new tax regimes?

The answer is yes, but with conditions.

This comprehensive article will explain:

• What STCG and LTCG are
• The concept of basic exemption limits
• Whether and how these gains can be adjusted under both tax regimes
• Real-life examples for better clarity
• Expert tax-saving strategies
• Do’s and Don’ts for investors
• FAQs for common queries

Let’s begin with the fundamentals.

---

What is Capital Gain?

Capital gain arises when you sell a capital asset (like shares, property, gold) at a price higher than its cost of acquisition. Based on the holding period, capital gains are classified into:

1. Short-Term Capital Gain (STCG)

• Equity-oriented STCG (Section 111A): Gains from selling listed shares or equity mutual funds within 12 months are taxed at 15%.
• Other STCG: Gains from other assets like property or unlisted shares are taxed at normal slab rates.

2. Long-Term Capital Gain (LTCG)

• Equity-oriented LTCG (Section 112A): Gains above ₹1 lakh from listed shares or equity mutual funds held for more than 12 months are taxed at 10% without indexation.
• Other LTCG: Gains from property, debt mutual funds, gold, etc., are taxed at 20% with indexation (Section 112).

---

Understanding Basic Exemption Limits

The basic exemption limit is the minimum threshold of income up to which no tax is charged.

Old Regime (FY 2024–25):

• Individuals below 60 years: ₹2.5 lakh
• Senior citizens (60–79 years): ₹3 lakh
• Super senior citizens (80+ years): ₹5 lakh

New Regime (FY 2024–25 onwards):

• All taxpayers: ₹3 lakh
• Budget 2024 Update: The new regime now has a standard deduction and higher rebate under Section 87A for income up to ₹7 lakh.

Note: The choice of regime must be made while filing your ITR.

 

---

Can Capital Gains Be Adjusted Against Basic Exemption Limit?

YES, under certain conditions:

1. Resident Individuals Only

Non-resident individuals (NRIs) cannot avail of this benefit.

2. Applies to Specific Sections

• STCG under Section 111A
• LTCG under Section 112A

Other capital gains (like property or gold) are not eligible for this benefit in the same way.

3. Unused Exemption Limit Can Offset Gains

If your total income excluding capital gains is below the exemption limit, you can use the remaining exemption to offset STCG or LTCG.

---

Examples: How It Works

Case 1: Individual with Low Salary and STCG

Mr. Arjun, Age 35

• Salary Income: ₹1.5 lakh
• STCG under 111A: ₹1.5 lakh

Old regime exemption limit: ₹2.5 lakh

Calculation:

• ₹1.5 lakh of salary fully covered by exemption
• Remaining ₹1 lakh exemption used to offset STCG
• Taxable STCG = ₹0.5 lakh
• 15% tax on ₹0.5 lakh = ₹7,500

Savings: By adjusting, Arjun saves tax on ₹1 lakh.

---

Case 2: LTCG from Listed Shares

Ms. Priya, Age 29

• No other income
• LTCG from listed shares: ₹3 lakh

New regime exemption limit: ₹3 lakh

Exemption Usage:

• Entire basic limit goes toward LTCG
• LTCG up to ₹1 lakh is already exempt under Section 112A
• Next ₹2 lakh adjusted against exemption limit

Result:

• Total LTCG taxable = ₹0
• Tax payable = ₹0

---

Case 3: Senior Citizen Investor

Mr. Gupta, Age 66

• Pension Income: ₹2.4 lakh
• STCG under 111A: ₹1.5 lakh

Old regime limit for seniors: ₹3 lakh

Exemption usage:

• ₹2.4 lakh used for pension
• Remaining ₹60,000 offsets STCG

Taxable STCG = ₹90,000

• Tax @15% = ₹13,500

Tax savings from adjustment = ₹9,000

---

Adjustment Hierarchy: How to Apply the Limit

The order of applying the basic exemption limit is:

1. First to normal income (e.g., salary, interest)
2. Then to STCG (111A) or LTCG (112A) if any limit remains

Important: There is no law-mandated order between STCG and LTCG. You can choose whichever helps reduce tax more.

 

---

Comparison: Old vs. New Tax Regime for Capital Gains

Feature	Old Regime	New Regime
Basic Exemption	₹2.5L–₹5L (age-wise)	₹3L (all)
Deductions allowed?	Yes (80C, 80D, etc.)	Limited
Can offset capital gains?	Yes	Yes
Better for?	Seniors, those with deductions	Simpler incomes

Tip: If capital gains are your only or main income, the new regime may offer similar or better results due to lower slabs and simplified rules.

---

When Adjustment is Not Allowed

• If you're an NRI
• For LTCG not covered under Section 112A (e.g., land, building)
• When capital gains are from debt funds after new tax rules (no indexation allowed from FY 2023–24)
• STCG not under 111A (e.g., on property or gold)

---

Planning Strategies to Save Tax on Capital Gains

1. Book Gains Below Exemption Limit Annually

Split asset sales across financial years to stay within ₹1 lakh LTCG exemption.

2. Invest in Capital Gains Bonds

Under Section 54EC, reinvest LTCG into NHAI or REC bonds to avoid tax (max ₹50 lakh).

3. Use Basic Exemption Wisely

Retired individuals with low income should use the basic limit to sell shares every year tax-free.

4. Harvest Capital Gains

Sell and repurchase shares to reset cost and book tax-free gains up to ₹1 lakh every year.

5. Choose the Right Regime

Before filing ITR, compare both regimes for optimal results. Use calculators or consult your CMA or CA.

---

Practical Checklist Before You File Returns

• [ ] Classify your capital gains (STCG vs LTCG)
• [ ] Identify gains under Section 111A and 112A
• [ ] Compute your other income
• [ ] Apply the exemption limit first to other income
• [ ] Adjust the remaining exemption toward capital gains
• [ ] Recalculate tax liability under both regimes
• [ ] Choose the regime that gives the lowest total tax

---

Do’s and Don’ts

Do’s

• Use exemption limits effectively every year
• Keep detailed records of purchases and sale transactions
• Track holding periods carefully
• Reassess your tax regime annually

Don’ts

• Don’t assume exemption applies to all capital gains
• Don’t forget to report exempt LTCG (up to ₹1 lakh) in ITR
• Don’t apply indexation benefits where not allowed
• Don’t miss deadlines for reinvestment (if claiming exemption)

---

Frequently Asked Questions (FAQs)

Q1. Can I adjust STCG from gold against the exemption limit?

No. STCG on gold is taxed as per normal slab rates and not under Section 111A.

---

Q2. Does the LTCG ₹1 lakh exemption apply after or before the basic exemption?

You can first use the basic exemption limit, then apply the ₹1 lakh LTCG exemption.

---

Q3. What happens if I switch between regimes next year?

You can choose a regime every year if you're a salaried individual. For those with business income, switching is restricted.

---

Q4. Do I need to file ITR even if my capital gains are under exemption?

Yes. If LTCG exceeds ₹2.5 lakh or STCG exceeds limits, ITR filing is mandatory, even if tax payable is zero.

---

Q5. Can I claim deductions (80C, 80D) on capital gains?

No. Capital gains under Section 111A and 112A cannot be reduced by deductions under Chapter VI-A.

---

Conclusion: Smart Tax Planning Can Save Thousands

Understanding how to optimize your basic exemption limit can lead to significant tax savings, especially if your income is within the lower or moderate range. Whether you’re a young investor, a retired individual, or a salaried employee, making informed choices between old and new regimes is essential.

Key Takeaway: Capital gains under Section 111A and 112A can indeed be adjusted against the basic exemption limit—but the benefit applies only to resident individuals and needs careful income structuring.

Make this part of your annual tax planning checklist and consult a CMA or tax expert when in doubt.