Short-Term Capital Gain Tax on Shares: Section 111A (2025)

What is short-term capital gain?

Short-term capital gain (STCG) is the profit that arises when you sell a short-term capital asset. An asset is categorized as short-term or long-term based on the period for which you hold the asset.

According to the Income Tax Act, assets like equity shares are considered short-term capital assets if they are sold within 12 months of purchase. If you sell them before the 12-month period ends, any profit you make is taxed as STCG.

Short- term capital gains of listed equity shares are currently taxed at 20%, with effect from 23rd July, 2024. In order to find the STCG tax rate on shares, the gains earned through them are split into 2 categories, namely–

• STCG Under Section 111A
• STCG Not Under Section 111A

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What are Short-Term Capital Assets?

Capital assets are classified as short-term or long-term based on their holding period. The table below lists the holding periods for different asset types, which determine their classification. In other words, any capital asset that has been held by an individual for a short term that is less than 12 months or 24 months (depending on the nature of the asset) is termed a short-term capital asset.

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STCG under Section 111A of the Income Tax Act: Applicability & Tax Rate

Applicability

• Gains from the sale of equity shares listed on a recognised stock exchange.
• Gains from the sale of equity-oriented mutual funds listed and transacted through a recognised stock exchange.
• Gains from the sale of equity-oriented mutual funds, listed equity shares, or units of recognised business trusts.

Non-Applicability

• Gains from the sale of unlisted equity shares (i.e., not listed on a recognised stock exchange).
• Gains from the sale of non-equity shares (such as preference shares).
• Gains from debt-oriented mutual funds.
• Gains from bonds, debentures, and government securities.
• Gains from assets other than shares, such as property, gold, or other capital assets.

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Key Updates in ITR Forms for Reporting STCG & LTCG (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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Tax Rates under Section 111A

• If the securities are sold before 23rd July 2024, the gains are taxed at 15% (no indexation benefit).
• If the securities are sold on or after 23rd July 2024, the gains are taxed at a higher rate of 20%, still without indexation.

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Can Basic Exemption Limit Be Applied to STCG under Section 111A?

The basic exemption limit is the maximum amount that shall not be taxable. Such limit is INR 2.5 lacs, but for senior citizens(60 years or more but less than 80), it is INR 3 lacs and INR 5 lacs for super-senior citizens(80 years of age and above). Thus, the tax rate is nil for income within these specified limits.

There are certain rules for income adjustment against the basic exemption limit. According to this, resident individuals and HUF can adjust the STCG u/s 111A against the basic exemption limit. However, such adjustment is possible only after adjusting other income. In other words, the order of adjustment shall be as follows:

1. income other than STCG
2. STCG other than STCG u/s 111A, i.e., on sale of property, debt-oriented funds, etc.
3. STCG u/s 111A

Non-resident individuals/HUF can adjust all income specified in i) and ii) above except for STCG u/s 111A.

Certain illustrations on the above rules:

• a) Mr. A has a salary income of INR 1,80,000 p.a. and has earned an interest of INR 4000 from a savings bank account after considering a deduction under 80TTA. Since his total income, i.e., INR 1,84,000 (1,80,000 + 4,000), is lower than the basic exemption limit, Mr. A has no tax liability.
• b) Mr. B has an STCG of INR 4 lacs from the sale of a property. Can he adjust the STCG against the basic exemption limit?
  Yes, Mr. B can adjust STCG against the basic exemption limit of INR 2.5 lacs and pay tax on the remaining INR 1.5 lacs.
• c) Suppose Mr. B in the above illustration was 61 years old. Is there any change in the tax treatment?
  Yes. Mr. B’s basic exemption limit then shall be INR 3 lacs. The tax shall be discharged on a balance of INR 1 lac.
• d) Mr. C, a resident individual, earns STCG of INR 2 lacs on the sale of equity shares on NSE and has no other income. Can he claim the exemption limit on such STCG?
  As a resident individual, he can claim the exemption limit for STCG under section 111A. Therefore, he is not required to discharge any tax.
  Suppose he was a non-resident, then he would not be allowed to claim the exemption limit for such STCG and shall be required to pay a tax of 15% on such STCG under section 111A.
• e) Mr. D (resident and 59 years old) earns a monthly pension of INR 5,000. He purchased shares of XYZ Ltd. in January 2020 and sold the same in March 2020 (sold on NSE and STT levied). Such a sale gave rise to an STCG of INR 1.5 lacs. Apart from pension income and gain on the sale of shares, he has also made an STCG on property sale amounting to INR 1.3 lac. What is his tax liability for the year 2020-21?
  Mr. D has these three incomes:
  STCG referred to in 111A- INR 1.5 lacs
  Other STCG (sale of the property)- INR 1.3 lac
  pension income- INR 60,000

Hence, he shall first adjust INR 60,000 against the basic exemption limit of INR 2.5 lacs. Then INR 1.3 lac against the remaining INR 1.9 lacs (2.5 lacs-60,000). STCG on the sale of equity shares shall be adjusted at the end against the balance INR 60,000 (1.9 lacs- 1.3 lacs). Therefore, he is required to discharge tax @ 15% on the balance STCG of INR 90,000 (1.5 lacs- 60,000) along with a cess of 4%.

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Can the 80C to 80U deduction be adjusted against the STCG referred to in section 111A?

No, the deductions under 80C to 80U cannot be allowed from the STCG referred to in section 111A. However, such deductions are allowed against STCG other than that covered u/s 111A.

E.g.,

• a) Suppose you have STCG from the sale of equity-oriented mutual funds and investment in FD. In that case, you cannot claim a deduction of such investment in FD available under section 80C against the STCG arising from the sale of equity funds under section 111A.
• b) Suppose it was debt funds instead of equity funds in the above example. Then, you can adjust the 80C deduction amount against such STCG.
• c) Mr. D (resident and 59 years old) purchased shares of XYZ Ltd. in January 2020 and sold the same in March 2020 (sold on NSE and STT is levied). Such a sale gave rise to an STCG of INR 1.5 lacs. Apart from STCG, he does not have any other income. He has invested INR 1.5 lacs in the Public Provident Fund and wants to claim a deduction of such amount under section 80C. Can he do so?
  In the given case, Mr. D cannot claim such a deduction under 80C against the STCG as it is a gain referred to in section 111A. Therefore, his taxable income will be INR 1.5 lacs which can be adjusted against the basic exemption limit.
• (d) When an individual sells listed equity shares or mutual funds that they have held for up to 12 months at a loss, it is considered a Short-Term Capital Loss (STCL). The Indian Income Tax rules allow taxpayers to set off STCL from one capital asset against Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) from another capital asset. This means that if an individual has incurred an STCL from the sale of one capital asset, they can use it to offset gains from the sale of another capital asset within the same financial year.
  In addition, a taxpayer can carry forward any remaining STCL for up to 8 years and use it to set off against future STCG and LTCG only. However, it is important to note that the carry forward can only be done for losses incurred in the previous years and not the current year.
  Overall, the tax laws in India provide a system for individuals to offset their capital gains with capital losses, which can help reduce their tax liability. Understanding the rules for setting off and carrying forward losses can benefit taxpayers who want to make the most of their investments while minimizing their tax obligations.

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How to Report Short-Term Capital Gains (STCG) in Your Income Tax Return (ITR)?

If you’ve earned short-term capital gains from the sale of equity shares or equity-oriented mutual funds, it is mandatory to report them while filing your ITR.

Declare Gains under Capital Gains Schedule:
Report your STCG under the ‘Capital Gains’ section of your ITR form. Use Schedule CG in ITR-2 or ITR-3 (depending on your income sources).

• Mention Full Details of Transactions:
  Include details such as the sale value, purchase cost, and net gain. If multiple transactions are involved, provide a consolidated summary or itemized details, as applicable.
• Ensure STT Disclosure:
  Declare that Securities Transaction Tax (STT) was paid on the transactions. STT is a key eligibility requirement for availing the concessional tax rate under Section 111A.
• Choose the Right ITR Form:
  • Use ITR-2 if you have capital gains but no income from business/profession.
  • Use ITR-3 if you also have business or professional income.
  • ITR-1 (Sahaj) cannot be used if you have capital gains.
• Pay Advance Tax (if applicable):
  If your total tax liability (including STCG tax) exceeds ₹10,000 in a year, make sure to pay advance tax on time to avoid interest penalties.

File your ITR with the tax experts and report your short-term capital gain accurately. File Today

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