Capital Gains Tax on Shares: Short-Term and Long-Term Capital Gains Tax on Shares Sold?

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 15% long term 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.

However, the Financial Budget of 2018 changed this exemption. From that point forward, if a seller earns a long-term capital gain tax on shares of more than Rs.1 lakh 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 10% on shares, along with applicable cess.

Capital Gain from Shares in 2024 - 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 15% 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 10% 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 331 for FY2022-23. 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 -

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

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.

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)

Before Budget 2018, long-term losses from equity shares cannot be carried forward or adjusted. This was because long-term gains from listed equity shares were tax-exempt, so losses couldn't be utilized either.

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 10% (plus the surcharge and cess) of the amount after deducting Rs.1 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, and non-equity mutual funds need to be held for at least three years to qualify as 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.

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