Capital Gains Tax on Shares: Short-Term vs. Long-Term Tax Rates & Calculation

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What are Capital Gains Tax on Shares?

Capital gains are profits from capital assets such as investment properties, shares, homes, cars, bonds, stocks, and even collectibles. It includes almost everything you own and recorded at the time of depreciation in ITR.

For example: If you sell a car. Then, the car is considered a fixed asset or capital asset. The capital gains on selling a car are the ‘profit’ earned on the capital asset’s value. It attracts taxes only if it is used for business purposes. It doesn’t attract tax if it is used for a personal purpose. If you find capital gain taxes intimidating, you can hire a professional CA to help you plan and save taxes on capital gains.

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Short-term Capital Gain Tax on Sale of Shares

If you sell equity shares listed on a stock exchange within 12 months 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 gains on shares are subject to a 20% capital gain tax rate.

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Key Changes introduced in ITR forms 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.

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Long-term Capital Gain Tax on Sale of Shares

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

Before the introduction of Budget 2018, gains from the sale of equity shares or equity-oriented units of mutual funds held for the long term were exempt from taxation. In other words, no tax was levied on profits from the sale of long-term equity investments.

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.

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Capital Gains Tax on Shares in 2025 – Key Tax Implications

The holding time of the assets is important to evaluate the tax implications. It would be best if you calculated capital gains separately for different types of assets. Plus, the tax slab rate differs for short-term and long-term equity investments. Capital gains on shares form part of equity and equity mutual fund types of assets.

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 gain tax rate is applicable on long-term capital gain on shares without indexation.
For investors who want to determine the levied taxes on long-term gains, the Cost Inflation Index (CII) is a new term they must know. The Income Tax Department notifies this number for tax calculation on long-term gains in a specific financial year. Using this number, the investors can calculate the indexed cost of a capital asset. It also carries information related to the inflation-adjusted price of a particular asset.
The CII number is 363 for FY 2024-25. Here is the list of CII values for different financial years -

Note: Don’t forget that tax benefits on capital gains are not available for NRIs (Non-Resident Indians).

Here is the summary of Capital Gain Tax Rates on Different Types of Assets -

Given below are the tax rates for capital gains arising in case the transfers happened before 23/07/2024.

For the transfers that happened on or after July 2024 tax on Capital Gains are to be taxed as follows

Tax on Equity and Debt Mutual Funds

Capital gains on the sale of debt and equity funds are treated differently. Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund and vice versa.

Note:

For transfers that happened before 23/07/2024 - 12.5% tax without indexation with an exemption limit of Rs.1,25,000

Note: Effective April 1, 2023, capital gains from the sale of Debt Mutual Funds, Market-Linked Debentures, and Unlisted Bonds or Debentures are classified as short-term, regardless of the holding period. These gains are taxed as per the applicable income tax slab rates.

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LTCG and STCG Rates in 2023-24 and 2024-25 - Comparison

Budget 2024, announced on 23rd July 2024, brought about certain changes in the long-term and short-term capital gains tax rates and holding periods. Given below is a table showing the comparison between the capital gains tax rates in FY 23-24 and FY 24-25.

Taxation for mutual funds

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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

Manually calculating your capital gains can be confusing and time-consuming. But don’t worry! You can say no to the calculation stress by letting our tax experts help you out.

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

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.

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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.

However, post-Budget 2018 amendments, long-term gains over Rs 1 lakh are taxed at 10%, and losses from listed equity shares or mutual funds can now be carried forward.

From April 1, 2018, onwards, 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.

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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.

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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 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.

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What are the Securities Transaction Tax Rate in India?

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

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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 23-24 is almost here, and it's time to buckle your shoes. Filing your ITR now can help you expedite your refund and also make sure you never miss out on any deductions available.

Don’t know how ot maximize your tax savings on capital gains or find taxes intimidating? Don’t worry! Our tax experts have got you covered. From tax planning to tax filing, our tax experts provide end-to-end tax solutions for your needs. Simply connect with us, tell us your concern and let our CAs handle the rest. Book an Online CA now!

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