Capital Gains Tax on Shares in India: Rules, Rates
Hold a listed share for more than 12 months and your profit is a long term capital gain, taxed at 12.5%, with the first Rs 1.25 lakh of such gains in a financial year exempt. Sell within 12 months or less and the profit is a short term capital gain, taxed at 20%.
A capital gain is simply your sale value minus your acquisition cost, and the tax rate depends only on how long you held the shares, not on how much you earn from your job. That single idea removes most of the confusion around equity taxation in India.
This guide covers the two holding periods, the rates for FY 2026-27, what costs you may subtract, how losses are carried forward, and why intraday and derivatives income sits in a different tax box.
What exactly gets taxed when you sell shares
Tax is triggered by a sale, not by a rise in price. If a stock you bought at Rs 300 is quoting at Rs 900 today, you owe nothing. Unrealised gains are invisible to the Income Tax Department.
Each sale is a separate event with its own holding period, worked out on a first in, first out basis when you have bought the same stock in several tranches.
Dividends are not capital gains. They are added to your total income and taxed at your slab rate.
Short term or long term? Where the 12 month line falls
Long term capital gain
Listed shares and equity mutual fund units held more than 12 months qualify as long term. The rate is 12.5% and the first Rs 1.25 lakh of such gains in a financial year is exempt. That exemption is per person per year and does not carry forward if unused.
Short term capital gain
Held for 12 months or less, the gain is taxed at 20%. There is no exemption slab here. A trader who churns positions every few weeks pays the higher rate on every rupee of profit.
Debt funds sit outside this system
Units of debt mutual funds bought on or after 1 April 2023 are specified mutual funds under Section 50AA. Gains are taxed at your slab rate however long you hold them, with no indexation. Our explainer on how mutual fund returns are taxed covers the comparison.
Rates and thresholds at a glance
| Income type | Holding period | Tax rate | Exemption or set-off note |
|---|---|---|---|
| Listed equity, long term | Over 12 months | 12.5% | First Rs 1.25 lakh a year exempt |
| Listed equity, short term | 12 months or less | 20% | No exemption slab |
| Equity mutual fund units | Same 12 month line | 12.5% or 20% | Shares the Rs 1.25 lakh limit |
| Debt fund units bought after 1 Apr 2023 | Any | Your slab rate | Section 50AA, no indexation |
| Intraday equity | Not applicable | Slab rate | Speculative business income |
| Futures and options | Not applicable | Slab rate | Non-speculative business income |
A worked example: two sales in the same financial year
Suppose you made two exits during the year.
- You bought 400 shares at Rs 620 in May 2024, a cost of 400 x 620 = Rs 2,48,000. You sold in August 2026 at Rs 985, for Rs 3,94,000. Held over 12 months, so the gain of Rs 1,46,000 is long term.
- You bought 150 shares at Rs 1,100 in April 2026, a cost of Rs 1,65,000, and sold in October at Rs 1,340, for Rs 2,01,000. Held six months, so the gain of Rs 36,000 is short term.
Now the tax. On the long term side, Rs 1,46,000 minus the Rs 1,25,000 exemption leaves Rs 21,000 taxable at 12.5%, which is Rs 2,625. On the short term side, Rs 36,000 at 20% is Rs 7,200.
Total tax is Rs 2,625 plus Rs 7,200 = Rs 9,825, before cess. The smaller gain produced almost three times the tax of the bigger one. Holding period, not profit size, did that.
Which costs can you subtract from your gain?
You may reduce your gain by the direct expenses of buying and selling. You may not reduce it by everything your broker charges.
- Allowed: brokerage, exchange transaction charges, SEBI turnover fees, GST on those charges and stamp duty.
- Allowed: the full purchase price, including brokerage paid at the time of buying.
- Not allowed: Securities Transaction Tax. STT is specifically excluded as a deductible expense against capital gains.
- Not allowed: demat annual maintenance charges, subscription fees for research tools, or interest on a personal loan you used to buy shares.
STT still hits your pocket even though you cannot claim it. Equity delivery attracts 0.1% on both the buy and sell side of turnover, and intraday attracts 0.025% on the sell side. On a Rs 3,94,000 sale, delivery STT alone is Rs 394.
What happens to losses, and how long can you carry them?
Most beginners waste their losses. A short term capital loss can be set off against both short term and long term gains. A long term capital loss can only be set off against long term gains.
Anything left over carries forward for eight assessment years. There is one condition people miss: the carry forward is allowed only if you file your return by the due date. File late and the loss is gone for good.
Intraday, F&O and the errors that cost the most
Intraday equity profit is speculative business income. Futures and options profit is non-speculative business income, reported in ITR-3, and it can be set off against other business income. Speculative losses carry forward for four years, not eight.
Both are taxed at your slab rate, and audit provisions can apply depending on turnover. If you are shorting for a few days rather than investing, the mechanics in our piece on short selling explain why the position almost never qualifies as long term.
Three mistakes repeat. Selling in early April rather than late March, which pushes a gain into the next year for no reason. Booking a large gain in one shot instead of splitting it across two financial years to use the exemption twice. And forgetting that ELSS funds have a three year lock-in, so those units cannot be sold to harvest a loss.
A plain risk note: tax rules change with each Finance Act, and your situation may involve residency status or split adjusted cost. Confirm your numbers against your broker’s capital gains statement.
Frequently Asked Questions
Do I have to pay tax if I never sell my shares?
No. Indian capital gains tax applies only when you sell or transfer the shares. Paper profits on a holding you keep are not taxed, however large they grow. This is why long term investors often pay very little tax for years, then a single large amount in the year they finally exit a position.
How is the cost calculated if I bought the same stock at different prices?
Shares are matched on a first in, first out basis. The earliest units you bought are treated as sold first, which sets both the cost and the holding period. Your broker’s capital gains report applies this automatically, but check it against your own records when you have many tranches.
Is the Rs 1.25 lakh exemption available for every stock separately?
No. It is a single annual limit covering all your long term gains from listed shares and equity fund units combined, for you as an individual taxpayer. Two adults in one family each get their own Rs 1.25 lakh limit, which is one reason long term holdings are often kept in separate names rather than a single account.
Does STT reduce my capital gains tax?
No. STT is not deductible as a cost of acquisition or transfer while computing capital gains. You pay it anyway, at 0.1% on both legs of a delivery trade. It bites hardest in options, where the exercised or assigned rate of 0.15% applies to settlement value rather than premium.
Do I need to file ITR-3 just because I sold some shares?
Only if you have business income such as intraday or derivatives trading. Pure delivery based buying and selling is reported as capital gains, usually in ITR-2. Mixing the two in one year means the business income form applies to your whole return.
Key Takeaways
- The 12 month holding period is the single switch that decides whether you pay 12.5% or 20% on listed equity gains.
- Rs 1.25 lakh of long term gains per financial year is exempt, per person, and unused room does not carry forward.
- Brokerage, GST, stamp duty and exchange charges reduce your gain; STT does not.
- Debt fund units bought on or after 1 April 2023 are taxed at your slab rate with no indexation, so equity and debt are not comparable on gross returns alone.
- File your return by the due date or you lose the right to carry forward capital losses for the next eight years.
- Intraday is speculative business income with a four year loss carry forward; F&O is non-speculative business income reported in ITR-3.
