Grandfathering Rule for LTCG: How the 31 January 2018 Value Works

Last verified: June 2026, against the Income Tax Act and Budget 2025 provisions cited below. Figures apply to FY 2025-26 (AY 2026-27). General information, not personal tax advice.

If you bought shares or equity mutual funds before 2018 and sold them recently, the grandfathering rule can dramatically cut your capital-gains tax by protecting the gains you made up to 31 January 2018. Here is exactly how it works.

Why grandfathering exists

Long-term capital gains (LTCG) on listed equity were tax-free until the 2018 Budget reintroduced the tax. To avoid taxing gains that accrued before the rule existed, the law “grandfathered” those gains — anything you made up to 31 January 2018 is shielded.

The cost-of-acquisition rule

For equity shares/equity mutual funds bought before 1 February 2018, your cost of acquisition for LTCG is taken as the higher of:

  1. the actual cost you paid; and
  2. the lower of (a) the fair market value (highest quoted price) on 31 January 2018, and (b) the actual sale price.

In plain terms: gains built up to 31 Jan 2018 are not taxed; only gains after that date are.

Worked example

You bought a share for ₹100 in 2015. Its price on 31 Jan 2018 was ₹250. You sell it now for ₹400. Grandfathered cost = higher of ₹100 and (lower of ₹250 and ₹400 = ₹250) = ₹250. Taxable LTCG = ₹400 − ₹250 = ₹150, not ₹300. The ₹150 gain that accrued up to 31 Jan 2018 is protected.

Current LTCG rules it plugs into

After Budget 2024, equity LTCG is taxed at 12.5% beyond an annual exemption of ₹1.25 lakh (for holdings over 12 months). Grandfathering still applies to pre-2018 purchases when you compute the gain. For the full picture see our capital gains on stocks guide.

What it applies to

Listed equity shares and equity-oriented mutual funds/ETFs bought before 1 February 2018. It does not apply to assets bought on or after that date, nor to debt funds or property.

Second example: when grandfathering creates no gain

You bought shares in 2015 for ₹1,00,000. On 31 January 2018 they were worth ₹2,50,000, and you sell them in 2026 for ₹2,00,000. Cost of acquisition = higher of actual cost (₹1,00,000) and the lower of FMV (₹2,50,000) and sale price (₹2,00,000) = ₹2,00,000. Your taxable gain is nil, even though you doubled your money — and you cannot claim a loss either.

How to find the 31 January 2018 value

  • For listed shares: the highest price quoted on a recognised exchange on 31 January 2018.
  • For equity mutual funds: the NAV on 31 January 2018.
  • Your broker’s or registrar’s capital gains statement usually shows it; check it before filing.

Reporting it in your ITR

Schedule 112A asks for each grandfathered holding separately (or consolidated per scrip): ISIN, units, sale price, actual cost and the 31 January 2018 value. Mistakes here are a common reason for defective-return notices. Tax on the final long-term gain is 12.5% above the ₹1.25 lakh annual exemption — see the capital gains calculator.

What changes under the Income-tax Act, 2025

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Returns for FY 2025-26 (AY 2026-27) are still filed under the old Act, old section numbers and old forms. From tax year 2026-27 onwards, section numbers and many form numbers change — for example, Form 16 becomes Form 130, Forms 15G/15H merge into Form 121, Form 26QB becomes part of Form 141 and Form 10E becomes Form 39. The underlying rules discussed here were largely carried over; only the references change.

FAQs

Is grandfathering affected by the new Income-tax Act?

No. The 31 January 2018 cost rule was carried into the Income-tax Act, 2025 with the same effect.

What date is used for grandfathering?

31 January 2018 — the fair market value on that date is central to the cost calculation.

Does grandfathering make old shares fully tax-free?

No. Only the gains up to 31 Jan 2018 are protected; gains after that date are taxable.

Does it apply to shares bought in 2020?

No. It applies only to purchases before 1 February 2018.

A
ArunPersonal Finance Editor
Arun writes and maintains every review and calculator on CreditSmart, cross-checking each figure against issuer MITC documents, RBI notifications and official rate sheets before publication. He accepts no affiliate commissions or issuer compensation.

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