Capital Gains Tax on Shares in India: STCG, LTCG and the Rules After Budget 2024

The rates, current as of FY 2026-27

Budget 2024 reset equity taxation, and those rates have carried forward unchanged. For listed equity shares and equity mutual funds:

Short-Term Capital Gains (STCG)

Holding period: 12 months or less. Tax rate: 20% under Section 111A.

This rose from 15% with effect from 23 July 2024. There is no basic exemption applied to it — 20% from the first rupee of gain.

Long-Term Capital Gains (LTCG)

Holding period: more than 12 months. Tax rate: 12.5%, on gains above Rs 1.25 lakh in a financial year.

The first Rs 1.25 lakh of long-term equity gains each year is tax-free. The rate rose from 10%, and the indexation benefit was removed for these assets.

The one line that decides everything

Twelve months. That is the entire boundary between paying 20% and paying 12.5%.

Sell on day 365 and you are short-term. Sell on day 367 and you are long-term, with a Rs 1.25 lakh cushion on top. The holding period is measured from the date of purchase to the date of sale, not by financial year.

This is the cheapest tax planning available to an equity investor and most people ignore it entirely. If you are sitting on a gain at eleven months, ask yourself whether the reason to sell now is strong enough to pay an extra 7.5 percentage points of tax for the privilege.

Worked example

You buy 200 shares at Rs 500 (Rs 1,00,000) and sell at Rs 800 (Rs 1,60,000). Gain: Rs 60,000.

Sold within 12 months (STCG): 20% of Rs 60,000 = Rs 12,000 tax.

Sold after 12 months (LTCG): the gain is below the Rs 1.25 lakh annual exemption, so — assuming no other long-term gains that year — Rs 0 tax.

Same trade. Same profit. Rs 12,000 of difference, decided by a calendar.

Now scale it. On a Rs 5,00,000 long-term gain: the first Rs 1.25 lakh is exempt, the remaining Rs 3.75 lakh is taxed at 12.5% = Rs 46,875. The same gain realised short-term would cost 20% of Rs 5,00,000 = Rs 1,00,000.

Harvesting the Rs 1.25 lakh exemption

The exemption is per financial year and it does not carry forward. If you do not use it, it is gone on 31 March.

A common and entirely legitimate practice is to sell enough long-held shares each year to realise roughly Rs 1.25 lakh of long-term gain, pay zero tax on it, and — if you still want the position — buy it back. Your cost basis resets higher, which reduces the taxable gain when you eventually exit for real.

Do this deliberately, keep records, and be aware that the repurchase carries market risk in the gap. It is a tax technique, not a free lunch.

Setting off losses — the part people leave on the table

Short-term capital loss can be set off against both short-term and long-term capital gains.

Long-term capital loss can be set off only against long-term capital gains.

Unabsorbed losses can be carried forward for eight assessment years — but only if you file your income tax return by the due date. Miss the deadline and you forfeit the carry-forward permanently.

That last sentence is worth more than most tax articles. A trader with a loss year who does not file on time has thrown away a shield that could have covered eight years of future gains.

What about dividends?

Dividends are taxed at your slab rate as income from other sources, and TDS applies above the threshold. The old Dividend Distribution Tax regime is gone — the tax now sits with you, not the company.

This matters for how you evaluate a high-dividend stock: a 4% dividend yield taxed at a 30% slab is an effective 2.8%. Our piece on dividends, bonuses, splits and buybacks covers what each actually does to your holding.

What is NOT capital gains

F&O income is business income, not capital gains. Different rules, different forms, different audit thresholds. If you traded derivatives this year, read F&O income and ITR filing instead — the capital gains rules on this page do not apply to it.

Intraday equity is speculative business income, also outside capital gains.

The practical checklist

- Know your holding period on every position before you sell. - Use the Rs 1.25 lakh long-term exemption every single year. - File on time, especially in a loss year, to preserve the carry-forward. - Download the capital gains statement your broker provides — it does the FIFO matching for you. - Reconcile against the AIS on the income tax portal before filing.

Disclaimer: This article is for general education and reflects rates as understood in July 2026. Tax law changes and individual circumstances differ. Consult a qualified chartered accountant or tax adviser before acting. Root Nivesh is a SEBI Registered Research Analyst and does not provide tax advice.