Capital gains tax on shares: STCG and LTCG explained

When you sell listed shares, the profit is a capital gain. If you held the shares for 12 months or less, it is a short-term capital gain (STCG), taxed at 20% under section 111A. If you held them for more than 12 months, it is a long-term capital gain (LTCG), taxed at 12.5% under section 112A, but only on gains above ₹1.25 lakh in the year. Both rates apply when securities transaction tax (STT) is paid.

This guide is for returns for the financial year 2025-26 (AY 2026-27), under the Income-tax Act, 1961.

Capital gains tax on shares at a glance

Each row is explained below.

Short-term or long-term: the 12-month rule

What decides the rate is how long you held the shares before selling.

STCG on shares: section 111A

Short-term capital gain on listed equity shares is taxed at 20% under section 111A, if STT was paid when you sold. For sales before 23 July 2024, the rate was 15%.

Three rules matter here:

1. The gain is taxed at 20% whatever your slab. It does not matter if your other income falls in the 5% or 30% slab.
2. Residents can use the unused basic exemption limit. If your other income is below the basic exemption limit, a resident individual or HUF can use the gap to reduce the taxable STCG. A non-resident cannot.
3. No deductions against it. You cannot reduce STCG under section 111A with deductions under sections 80C to 80U.

Example 1. You bought 100 shares at ₹500 in January 2025 and sold them at ₹700 in September 2025, with STT paid. You held them for less than 12 months.

This assumes your other income already uses up your basic exemption limit and no surcharge applies.

LTCG on shares: section 112A

Long-term capital gain on listed equity shares is taxed at 12.5% under section 112A, on the part of your gains that is above ₹1,25,000 in the financial year. For sales before 23 July 2024, the rate was 10% above ₹1,00,000.

The conditions:

• STT must be paid when you sell.
• For equity shares, STT must also have been paid when you bought them, with some exceptions.
• There is no indexation. The Finance (No. 2) Act, 2024 removed it.
• You cannot claim deductions under sections 80C to 80U against this gain.
• The rebate under section 87A is not available on the tax on this gain.

Example 2. In FY 2025-26 your total long-term gain from listed shares, all with STT paid, is ₹3,00,000.

If your total long-term gain on shares for the year is ₹1,25,000 or less, there is no tax on it. If you file a return, the gain still goes in it.

Capital gains tax rates before and after 23 July 2024

The rates changed for sales on or after 23 July 2024. Every sale in FY 2025-26 falls after that date, so your return for AY 2026-27 uses the new rates.

So is capital gains tax on shares 12.5% or 20%? It is both: 20% for short-term gains and 12.5% for long-term gains.

Shares bought before 1 February 2018: the grandfathering rule

For listed shares bought before 1 February 2018, the law sets a special cost. This is called the grandfathering rule.

Your cost is the higher of:

1. what you actually paid, and
2. the lower of:
   • the fair market value on 31 January 2018, and
   • the price you sold at.

The fair market value is the highest price quoted on the stock exchange on 31 January 2018. If the share did not trade that day, it is the highest price on the last day before 31 January 2018 on which it traded.

Example 3. You bought a share for ₹100 in 2017. Its highest price on 31 January 2018 was ₹150.

Using the basic exemption limit against STCG

This rule helps people with low other income.

Example 4. Asha is a resident individual on the new tax regime. In FY 2025-26 her only other income is interest of ₹2,50,000, and she has STCG of ₹3,00,000 on listed shares under section 111A.

Her interest is within the exemption limit, so it is not taxed. See the next section on the rebate.

Is the section 87A rebate available on capital gains?

• LTCG under section 112A: no. The Income Tax Department says the rebate is not available on the tax on these gains.
• STCG under section 111A, new regime, from AY 2026-27 (FY 2025-26): no. The Finance Act, 2025 capped the new regime rebate at the tax worked out at slab rates, and the government's note on the Finance Bill, 2025 says the rebate is not available on tax on income taxed at special rates, such as gains under sections 111A and 112. In the old regime, the rebate can cover 111A tax if total income is up to ₹5 lakh. See 87A rebate on capital gains.

For a quick figure, use our capital gains tax calculator. If your income is near the rebate limit and you have share gains, ask a CA to work out the exact tax.

Surcharge and cess on capital gains

• Surcharge: if your income is high enough for a surcharge, the surcharge on tax on gains under sections 111A and 112A is capped at 15%, in both the old and the new regime. The higher 25% and 37% rates do not apply to this part.
• Cess: health and education cess of 4% is added on the tax plus surcharge.

Unlisted shares and equity mutual funds

Unlisted shares are long-term only if held for more than 24 months. The 20% and "12.5% above ₹1.25 lakh" rules of sections 111A and 112A apply only where STT is paid on the sale. Long-term gains on unlisted shares are taxed at 12.5% without indexation, and short-term gains are added to your other income and taxed at your slab rate.

Equity mutual fund units follow the same rules as listed shares: long-term after 12 months, 20% on short-term gains under section 111A and 12.5% above ₹1.25 lakh under section 112A, with STT paid on the sale. The ₹1.25 lakh limit is shared: it covers your total long-term gains from shares and equity fund units together. Debt funds and other funds have different rules, which this guide does not cover.

Losses on shares: set off and carry forward

A loss from selling shares is a capital loss. The rules:

• A capital loss cannot be set off against salary, interest or any other head of income.
• To carry a loss forward, you must file your return by the due date. If your return is late, you lose the carry forward. Our guide to belated returns and the late fee explains the rest.
• The reverse is allowed: a business loss, such as an F&O loss, can be set off against capital gains in the same year. Our F&O and intraday tax guide explains how.

Capital gains or business income?

If you buy and sell shares often, you may wonder whether the profit is capital gains or business income. Under CBDT Circular 6/2016, you may treat listed shares as stock-in-trade, and the profit is then business income. For listed shares held for more than 12 months, if you choose to treat the profit as capital gains, the tax officer will not dispute it. Once you choose, you follow the same stand in later years.

Intraday trades and F&O are not capital gains at all. They are business income, covered in our F&O and intraday tax guide.

Advance tax on capital gains

If your total tax for the year, including tax on share gains, is ₹10,000 or more, you have to pay advance tax: 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March.

There is one relief for capital gains. No interest under section 234C is charged on a shortfall caused by capital gains you could not estimate, if you pay the tax on them in the following instalments, or by 31 March if no instalment is left.

Which ITR form to file for capital gains

For the other conditions of each form, see which ITR form to file. If you also trade F&O, read our ITR-3 guide.

How to report share gains in your ITR

In ITR-2 and ITR-3, the capital gains schedule is Schedule CG. Long-term gains on listed shares and equity fund units sold with STT also go in Schedule 112A.

• Schedule 112A covers the sale of equity shares, equity fund units and business trust units on which STT is paid.
• For shares bought on or before 31 January 2018, you must enter the details of each scrip (each company's shares) separately.

Your broker can give you a capital gains statement for the year. Check your sales against the Annual Information Statement (AIS) on the e-filing portal before you file.

If you have already filed and left out a share sale, you can correct it with a revised return. If that time has passed, an updated return (ITR-U) may help.

Ways to pay less tax on share gains, legally

These are the options the law itself gives. None of them is right for everyone.

• Use the ₹1.25 lakh limit. Long-term gains on shares and equity fund units up to ₹1.25 lakh in a financial year are not taxed.
• Know the 12-month line. A gain on shares held for more than 12 months is taxed at 12.5% above ₹1.25 lakh, instead of 20%.
• Set off losses. A short-term capital loss reduces any capital gain. File on time so that unused losses carry forward.
• Section 54F. If you sell a long-term asset that is not a house and invest the sale value in one residential house in India (bought 1 year before or 2 years after the sale, or built within 3 years), part or all of the gain can be exempt. The exemption is in proportion to the amount invested, the investment counted is capped at ₹10 crore, and it may be denied if you already own more than one other house. Ask a CA before you rely on it.

Which law applies

This guide uses section numbers from the Income-tax Act, 1961, which governs the financial year 2025-26 and earlier. Sales from 1 April 2026 fall in tax year 2026-27, under the Income-tax Act, 2025, which uses different section numbers.

How FilingSetu can help

We file income tax returns with capital gains from shares, mutual funds and property.

• A chartered accountant checks every return before filing.
• We help you e-verify the return.
• You get a named manager, and the consultation is free.

See our ITR filing service

Frequently asked questions