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

Updated on: 21 Feb, 2025 02:20 PM

Capital gains are the profits arising from the sale of properties (movable or immovable). The equity market has become one of the most popular investment options nowadays. However, investing in equity indicates potentially high profits as well as losses. These profits are subject to tax under the Income Tax Act, and the losses can be carried forward to future years. The tax on profit from the sale of shares can be classified into short-term capital gains tax on shares and long-term capital gain tax on shares. The effective long-term capital gain tax rate on shares in India is 12.5% (without indexation benefit)) plus surcharge and cess if the total income in the year exceeds Rs.1.25 lakhs. This guide explains all that you need to know about capital gains tax on shares and how to calculate tax on shares sold.

Budget 2025 Updates

As per Budget 2025, the income tax rebate u/s 87A has been increased to Rs.60,000, making an income upto Rs.12 lakhs as tax-free under the new tax regime. However, this increased rebate is not applicable on special grade incomes such as ‘Capital Gains’.


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.


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.


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.

Case Study

Mrs. Geeta had capital gains worth Rs.90,000 from the sale of equity-oriented mutual funds in FY 23-24. She was looking to save taxes on this amount. Upon consulting Tax2win’s tax experts, she found out that long-term capital gains upto Rs.1.25 lakhs are exempted from tax as per the Income Tax Act.


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 -

CII number Financial Year
363 2024-25
348 2023-24
331 2022-23
317 2021-22
301 2020-21
289 2019-20
280 2018-19

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.

Tax Type Condition Applicable Tax
Long-term capital gains tax (LTCG) Sale of:
- Listed Equity shares (If STT has been paid on the purchase and sale of such shares)
- units of equity-oriented mutual fund (If STT has been paid on the sale of such units)
12.5% over and above Rs 1.25 lakh
Others 20%
Short-term capital gains tax (STCG) When Securities Transaction Tax (STT) is not applicable Normal slab rates
When STT is applicable 20%

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

Tax Type Condition Applicable Tax
Long-term capital gains tax (LTCG) Sale of:
- Listed Equity shares (If STT is paid on the purchase and sale of such shares)
- units of an equity-oriented mutual fund (If STT is paid on the sale of such units)
12.5% over and above Rs 1.25 lakh
Land or Building or Both Two options are available to individual and HUF taxpayers:
  • 12.5% without indexation
  • 20% with indexation
Other persons:
  • 12.5 % without indexation
Others 12.5%
Short-term capital gains tax (STCG) When STT is not applicable Normal slab rates
When STT is applicable 20%.

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.

Funds Acquired on or before 1 April 2024 Acquired after 1 April 2024
Short-Term Capital Asset Long-Term Capital Asset Short-Term Capital Asset Long-Term Capital Asset
Debt Funds At slab rate 10% without indexation or 20% with indexation whichever is lower At slab rates At slab rates
Equity Funds 15% 10% over and above Rs 1 lakh without indexation* 20% 12.5% over and above Rs 1.25 lakh without indexation*

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.


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

Product Before After
Period of holding Short Term Long Term Period of holding Short Term Long Term
Equity oriented MF units > 12 months 15.00% 10.00% > 12 months 20.00% 12.50%
Specified Mutual funds which has more than 65% in debt > 36 months Slab rate Slab rate > 24 months Slab rate Slab rate
Equity FoFs > 36 months Slab rate Slab rate > 24 months Slab rate 12.5%
Overseas FoF > 36 months Slab rate Slab rate > 24 months Slab rate 12.5%
Gold Mutual Funds > 36 months Slab rate Slab rate > 24 months Slab rate 12.5%

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:

Short-term capital gains tax on shares = Final sale price - (cost of acquisition + improvement cost + cost of transfer)

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.

Capital Gains Tax Worries?

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.


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.


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 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 -

Taxable Securities Transaction Securities Transaction Tax Rate in India Person Responsible Value for STT
Delivery-based purchase of equity share 0.1% Purchaser Purchase Price
Delivery-based sale of an equity share 0.1% Seller Sale Price
Delivery-based sale of a unit of oriented mutual fund 0.001% Seller Sale Price
Sale of equity share or unit of mutual fund 0.025% Seller Sale Price
Sale of option in securities 0.0625% Seller Option Premium
Sale of exercised option in securities 0.125% Purchaser Settlement Price
Sale of futures in securities 0.0125% Seller Futures Price
Sale of unit of ETFs 0.001% Seller Sale Price
Sale of unlisted shares included in IPO 0.2% Seller Sale Price
Purchase of units of equity-oriented mutual funds NIL Purchaser Not Applicable

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.

tax relief in Long-Term 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!


Frequently Asked Questions

Q- What is LTCG?

The full form of LTCG is Long Term Capital Gains. It represents the profit earned on the shares trading.


Q- How are capital gain taxes calculated?

A 20% tax rate is applicable on short-term capital gain on shares chargeable to securities transaction tax under section 111A, excluding some surcharge + cess. As compared with long-term capital gains on shares, short-term capital gains on shares get preferential tax treatment. Whereas a 12.5% tax rate is applicable on long-term capital gain on shares without indexation.


Q- How much capital gain is tax-exempted?

The first Rs.1.25 lakhs in LTCG (Long-Term Capital Gains) on equity-based investments is considered tax-free under section 112A of the Income Tax Act, 1961.


Q- How to avail of up to 1 lakh tax exemption on LTCG?

In LTCG on equity shares, the initial earned Rs.1.25 lakhs are liable for tax relief under the Income Tax Act of India. However, the capital gain above Rs.1.25 lakhs is subject to taxation at a 12.5% rate + underlying surcharge and cess rates.


Q- How to avoid capital gains tax on shares?

Up to Rs.1.25 lakhs, long-term capital gains on shares under section 112A are tax-free.


Q- What is the tax-free limit on LTCG in 2023?

Hopefully, the tax exemption on LTCG on shares in 2024 will be the same as it is for 2023, i.e., Rs.1.25 lakhs in a financial year. Use Tax2win’s Tax Planning Optimizer to plan your taxes in advance before filing your ITR for the current FY.


Q- Which ITR Form is filed for capital gain on shares?

Individual taxpayers need to file an ITR-2 form to report their capital gains income to the Income Tax Department on the sale of equity shares.


Q- What happens if the sale of shares is treated as business income?

The profit or loss from sale of shares can either be treated as income from business or as income from capital gains, depending on the nature of the sale of individual taxpayer.

For individuals engaging in substantial share trading, such as day traders or those active in Futures and Options, their income is typically categorized as income from a business. Consequently, they are obligated to file an ITR-3, where their share trading income is reported under 'income from business & profession.' If you are a substantial share trader with business income from the sale of shares, you can get help from a professional CA to file your ITR-3.


Q- What are the major changes brought about in the taxation of capital gains by the Finance (No.2) Bill, 2024?

The taxation of capital gains is now simpler and more rational. This rationalization and simplification involve five main aspects:

  • Holding periods are now simplified to just one year and two years.
  • Rates are standardized for most assets.
  • Indexation is removed for easier calculation, and the rate is reduced from 20% to 12.5%.
  • Residents and non-residents are treated equally.
  • Roll over benefits remain unchanged.

Q- What is the date when the new taxation provisions come into force?

The new provisions for the taxation of capital gains come into effect on July 23, 2024, and apply to any transfers made on or after that date.


Q- How has the holding period been simplified?

Previously, there were three holding periods to consider an asset a long-term capital asset. Now, the holding period has been simplified to two periods: one year for listed securities and two years for all other assets.


Q- Please elaborate on the change in the rate structure for STT paid capital assets?

The rate for short-term STT paid listed equity, equity-oriented mutual funds, and units of business trusts (Section 111A) has increased from 15% to 20%. Similarly, the rate for these assets for the long-term (Section 112A) has increased from 10% to 12.5%.


Q- Who will benefit from the change in rate from 20% (with indexation) to 12.5% (without indexation)?

The reduction in the rate will benefit all categories of assets. In most cases, taxpayers will benefit significantly. However, where the gain is limited compared to inflation, the benefit may be minimal or absent in a few cases. Budget 2024 has Retained the indexation benefit for properties purchased before 1.4.2001. However, the indexation benefit has been removed for the properties purchased after 1.4.2001.


Q- Can the taxpayer continue to avail the rollover benefits on capital gains?

Yes, the rollover benefits remain unchanged. Taxpayers can still take advantage of these benefits under the IT Act. This means that taxpayers who want to save on long-term capital gains tax, even with the lower rates, can continue to use the rollover benefits if they meet the applicable conditions.


Q- After removing indexation benefit in budget 2024, what would be the Cost of Acquisition as on 1.4.2001 for properties purchased prior to 2001?

For properties (land, buildings, or both) purchased before April 1, 2001, the cost of acquisition as of April 1, 2001, shall be the:

  • Cost of acquisition of the asset to the assessee; or
  • Fair market value of the asset as of April 1, 2001, not exceeding the stamp duty value, wherever available.

Example:

S.No. Particulars Amount
1. Cost of acquisition of property in 1990 5 lakhs
2. Stamp duty value as on 1.4.2001 10 lakhs
3. FMV of the property as on 1.4.2001 12 lakhs
4. Sale consideration
(Property sold on or after 23.7.2024)
1 crore
5. Cost of acquisition as on 1.4.2001
(lower of stamp duty value or FMV)
10 lakhs
6. Indexed cost of acquisition in FY 2024-25 = 10x363/100 = 36.3 lakhs 36.3 lakhs
LTCG (old) Tax (old) @20% LTCG (New) Tax (New) @12.5%
63.7 lakhs 12.74 lakhs 90 lakhs 11.25 lakhs

The taxpayer will have the option to avail roll over benefits for saving of tax.