When it comes to equities and equity funds, the definition of long term capital gains is a holding period of more than 1 year. Here equity funds are classified as any fund that has holding of more than 65% in equities. Therefore, equity funds for tax purposes include diversified equity funds, index funds, sectoral funds, thematic funds, balanced equity funds and even arbitrage funds. The challenge is that indexation will not be available. For example, even if you sell shares after 20 years, the tax will be imposed at a flat rate of 10% on the capital gains. The only benefit that you will get is a basic exemption of Rs.1 lakh and any capital gains above the level of Rs.1 lakh will be taxable at 10%. The worry is that this could really impact your financial plan since you are likely to realize your gains at the end of 15-20 years from now and the capital gains component will be huge at that point of time.