Why do so many complications arise when it comes to taxation of capital gains? Treatment of capital gains is different in case of financial assets and real assets. Assets like equities, mutual funds and bonds that do not have physical form are referred to as financial assets. Other assets like gold, property that have physical form are called real assets. For example in case of equity shares and equity mutual funds, the definition of long term capital means a holding period of more than 12 months. But, in case of property, the definition of capital gains means a holding period of more than 36 months. Similarly, long term gains on equity and equity funds are entirely tax-free while long term gains on property are not tax-free. In case of equity and equity mutual funds, the short term capital gains are taxed at a concessional rate of 15% while in case of property short term gains are taxed at your peak tax rate. Now we come to an interesting question. What happens if I had purchased a property 25 years back and sell it at a profit today in the year 2018? Would I still be required to pay the capital gains tax on the full profit made by me? The answer is “No”. It is here that one needs to understanding the concept of indexation.