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:
- the actual cost you paid; and
- 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.
FAQs
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.
