Capital Gains Tax on Shares: STCG & LTCG Rates, Calculation, and Exemptions

What are Capital Gains & Capital Gains Tax on Shares?

Capital gains refer to the profit earned when you sell shares at a price higher than their purchase cost. For example, if you buy shares for ₹50,000 and later sell them for ₹70,000, the ₹20,000 profit is considered a capital gain.

Capital Gains Tax on Shares is the tax levied on this profit. The tax treatment depends on how long you held the shares before selling them.

• Listed Shares: If listed equity shares are sold within 12 months of purchase, the profit is treated as a Short-Term Capital Gain (STCG). If they are sold after 12 months, the profit is treated as a Long-Term Capital Gain (LTCG).
• Unlisted Shares: On the contrary, if unlisted equity shares are held for less than 24 months, the profit is treated as Short-term Capital Gain (STCG). If they are held for 24 months, the profit is treated as Long-term Capital Gain (LTCG)

The applicable tax rate varies based on this holding period and the type of shares sold.

Short-Term Capital Gain Tax on Shares (STCG): Rates & Holding Period

If you sell equity shares listed on a stock exchange within 12 months (listed) or 24 months (unlisted) of buying them, you may either gain a short-term capital gain (STCG on shares) or experience a short-term capital loss (STCL). A short-term capital gain on shares occurs when you sell shares at a price higher than what you bought them for. Short-term capital gain tax on shares are subject to a 20% capital gain tax rate.

Long-Term Capital Gain Tax on Shares (LTCG): Rates & Exemption Limit

If you sell equity shares listed on a stock exchange after holding them for more than 12 months (listed) or 24 months (unlisted), you may either realize a long-term capital gain (LTCG) or a long-term capital loss (LTCL).

If a seller earns a long-term capital gain tax on shares of more than Rs.1.25 lakhs from the sale of equity shares or equity-oriented units of a mutual fund, the profit will be subject to a long-term capital gains tax rate of 12.5% on shares, along with applicable cess.

Note: Long-term capital gains up to Rs 1.25 lakhs are exempt from tax.

Key Changes introduced in Capital Gains Reporting for (AY) 2025–26

• Inclusion of Long-Term Capital Gains (LTCG) in ITR-1 and ITR-4
  Previously, taxpayers with any LTCG were required to file more complex forms like ITR-2 or ITR-3. Now, individuals with LTCG up to ₹1.25 lakh from listed equity shares or equity mutual funds under Section 112A can file using the simpler ITR-1 (Sahaj) or ITR-4 (Sugam) forms, provided there are no carried forward losses.
• Segregation of Capital Gains Based on Transaction Date
  The updated ITR forms now require taxpayers to report capital gains separately for transactions executed before and after July 23, 2024. This change aligns with the revised capital gains tax rules introduced in the Union Budget 2024, which, among other things, reduced the LTCG tax on real estate to 12.5% without indexation from the previous 20% with indexation.
• Reporting of Buyback Proceeds as Deemed Dividends
  From October 1, 2024, proceeds received from the buyback of shares by domestic listed companies are to be treated as deemed dividends. The updated ITR forms require these proceeds to be reported under 'Income from Other Sources.' Additionally, the capital gains schedule should reflect zero sale proceeds, allowing the cost of acquisition to be claimed as a capital loss, which can be carried forward for up to eight assessment years.
• Enhanced Capital Gains Reporting in ITR-7
  For trusts, NGOs, and other institutions filing ITR-7, there is now a requirement to disclose capital gains separately for transactions before and after July 23, 2024. This change ensures accurate tax calculations in light of the revised capital gains tax rules.
• Increased Threshold for Asset and Liability Reporting
  In the ITR-2 form, the threshold for mandatory reporting of assets and liabilities has been raised to ₹1 crore. This adjustment aims to reduce the compliance burden for taxpayers with assets below this threshold.

Capital Gains Tax on Shares in 2026 – Key Tax Implications

Capital gains tax on shares is levied based on the nature of the gain. Given below are the details of capital gain tax rates for FY 2025-26 on shares -

Short term Capital Gain Tax Rate on Shares

Under section 111A of the Income Tax Act, 1961, a 20% tax rate is applicable on short-term capital gain tax on listed equity shares, excluding surcharge + cess. Slab rate will be applicable on other short term assets. As compared with long-term capital gains on shares, short-term capital gains get preferential tax treatment.

Long term Capital Gain Tax Rate on Shares

A 12.5% long-term capital gains (LTCG) tax rate is generally applicable on long-term capital gains arising from the transfer of capital assets. However, the tax treatment may vary depending on the type of asset and the date of transfer.

Long-Term Capital Gains Tax Rates

Tax on Equity and Debt Mutual Funds

Capital gains taxation differs for equity and debt mutual funds. A mutual fund is generally treated as an equity-oriented fund if at least 65% of its investible funds are invested in domestic equity shares.

Note: Capital gains arising from debt mutual fund units acquired on or after 1 April 2023 are taxed at the investor's applicable income tax slab rate, irrespective of the holding period. Such gains do not qualify for long-term capital gains taxation.

How to Calculate Short-Term Capital Gains Tax on Equity Shares?

The short-term capital gain on listed shares is the profit earned on the transfer of shares that are owned for one year or less time. Profit on transfer of unlisted shares held for not more than 24 months will be treated as short-term capital gain on shares. Its computation is done using the formula:

For Example: In October 2023, Mr.Aman bought 250 shares of a publicly traded firm for Rs.38,750, at a rate of Rs.155 per share. After 5 months, he sold them for Rs.48,000.

Here’s how the STCG on shares will be calculated -
Sales value: Rs.48,000
Brokerage at 0.5%: Rs.240
Purchase price: Rs.38,750
Therefore, Kuldeep's short-term capital gain is:

Rs.48,000 - (Rs.38,750 + Rs.240) = Rs.9,010
Tax on STCG on shares is calculated at 15%. Therefore, STCG tax will be 9010*15% = Rs.1351.5

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How to Calculate Long Term Capital Gain on Shares (LTCG)?

Long-term capital gain tax on listed shares is the profit earned on the transfer of shares owned for more than a year. Profit on transfer of unlisted shares held for more than 24 months will be treated as long-term capital gain. Its computation is done using the formula:
Long-term capital gains on shares = Final sale price – (indexed cost of acquisition + indexed improvement cost + cost of transfer)

For Example: Aman bought shares for Rs.100 on September 30th, 2022, and sold them for Rs.120 on December 31st, 2023. The stock value stood at Rs.110 on January 31st, 2023.

Out of the total capital gains of Rs.20 (i.e., 120-100), Rs.10 (i.e., 110-100) is considered non-taxable. The remaining Rs.10 is subject to taxation as capital gains at a rate of 10% without indexation.

Short-term and Long-term Capital Loss from Equity Shares

Short-term Capital Loss (STCL)

Short-term losses from selling stocks can offset short-term or long-term gains from any asset. If not fully offset, they can be carried forward for eight years to offset gains during that period.

If you have a short-term capital gain/loss and you want to carry forward your losses, you must mandatorily file an ITR.

Long-term Capital Loss (LTCL)

Long-term gains over Rs Rs.1.25 lakhs are taxed at 12.5%, and losses from listed equity shares or mutual funds can now be carried forward.

Long-term losses can be set off against other long-term gains but not short-term gains. These losses can also be carried forward for up to eight years. Filing returns on time is crucial for utilizing these provisions.

What is Securities Transaction Tax (STT)?

STT applies to all equity shares bought or sold on a stock exchange. The tax consequences mentioned earlier apply specifically to shares listed on a stock exchange. Transactions on a stock exchange are subject to STT, thus these tax implications only pertain to shares for which STT is paid.

Grandfathering Clause Formula

A grandfathering clause is a clause under which an old rule continues to be effective in certain existing situations for the ease and comfort of individuals. However, the new rule is applicable to all future cases.

The cost of acquisition is determined as given below -

• Value 1. Fair Market Value as of 31st January 2018 and the Actual Selling Price of Whichever is lower.
• Value 2. Value 1 or Actual Purchase Price, whichever is higher.
• Long Term Capital Gain = Sales Value - Cost of Acquisition (calculated above)

Tax liability = LTCG of 1.25 lakh is exempt in a year. So, tax liability will be 12.5% (plus the surcharge and cess) of the amount after deducting Rs.1.25 lakhs from the total capital gain.

What are the Securities Transaction Tax Rate in India?

The Securities Transaction Tax rates in India are given in the below table -

What is the Eligibility for Tax Relief in Long-Term Assets?

For equity and equity-based investments such as mutual funds, the investors should hold the assets for two or more years. Then only they are eligible to get tax relief under the umbrella of long-term capital gain shares. Given below are the qualification years required to be considered a long-term asset. Moreover, it showcases that the bonds should be held for at least one year, real estate properties need to be held for at least two years to qualify as long-term capital assets.

If you have any capital gain from the sale of shares, you must report such income in ITR-2. ITR filing is mandatory in case of such capital gains, even if the income of the individual is below the basic exemption limit.

The ITR filing for FY 2025-26 has begun. Start filing your ITR now to avoid last minute rush and penalties and ensure faster refund.

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