The Finance Bill 2026 has introduced important clarifications to the capital gains tax framework, addressing ambiguities that arose from the July 2025 tax changes. The key provisions include a grandfathering mechanism for investments made before 23 July 2025, an updated indexation methodology for real estate, and simplified holding period definitions for new-age assets.
Grandfathering for Pre-July 2025 Investments
The July 2025 changes had introduced uniform LTCG rates of 12.5% across asset classes but removed the indexation benefit for most assets except real estate. The Finance Bill 2026 now provides that for listed equity and equity mutual fund investments made before 23 July 2025, the cost of acquisition will be the higher of the actual purchase price or the fair market value as on 23 July 2025 (similar to the 31 January 2018 grandfathering). This ensures investors who held positions through the July 2025 transition are not penalised on gains that had already accrued under the old 10% LTCG regime.
Real Estate Indexation Update
For real estate held for more than 24 months, the Budget introduces a choice: pay 12.5% LTCG without indexation, or pay 20% LTCG with indexation using the Cost Inflation Index (CII). Taxpayers can compute their liability under both options and choose the lower amount. The CII for FY 2026-27 has been set at 363 (base year 2001-02 = 100).
This dual-option approach addresses the widespread criticism that removing indexation disproportionately affected real estate investors, where holding periods of 10-20 years are common and inflation-adjusted gains can be significantly lower than nominal gains.
Simplified Holding Periods
The Budget standardises holding periods across asset categories: 12 months for listed equity and equity-oriented mutual funds, 24 months for all other assets including debt mutual funds, real estate, gold, and unlisted equity. The confusing matrix of different holding periods for different asset classes (which previously ranged from 12 to 36 months) has been streamlined into these two categories.
What Investors Should Do
Review your portfolio for unrealised gains on positions acquired before July 2025. Calculate your potential tax liability under both the old and new regimes. For real estate transactions planned in FY 2026-27, run both the indexed and non-indexed calculations to determine the optimal route. If you are harvesting capital gains annually to utilise the 1.25 lakh LTCG exemption on equity, continue the practice as this exemption remains unchanged.
Source
Finance Bill 2026, Section 112A Amendments