Capital Gains Tax on Shares: STCG, LTCG, Tax Rates & Calculation Guide

Last Updated on July 7, 2026

A share is an important financial instrument that represents the ownership of the company and enables individuals to participate in the development of the business. People buy stocks to obtain profits through their earnings and appreciation in the value. However, buying or selling shares might have some tax implications depending on the nature of the transactions, holding period, and other factors. It is necessary to be aware of the tax implications of shares to make proper financial management and decision-making.

What Are Shares?

Shares constitute ownership units in a business, which signify the level of involvement of the holder in the firm. Individuals or firms acquire the right to dividends, appreciation of the value of the business, and, at times, the right to vote on matters pertaining to the corporation when they acquire shares. Companies issue stocks to raise money for conducting business, which can be broadly classified into equity and preference shares.

What is Capital Gain?

Capital gain implies the profit realised when a capital asset is disposed of at a price higher than the original purchase price of such an asset. Capital assets may be stocks, property, mutual funds, bonds, and many others.

In most cases, the gain is computed through the subtraction of the purchase price and qualifying costs from the sale price of the asset. The capital gain is either short-term or long-term based on the period of holding the asset.

Capital Gains Tax On Shares

Taxation of capital gain on stocks is described as the imposition of tax on the profit made upon selling or transferring shares where the sale price exceeds the cost incurred in purchasing the stock.

1. Definition: Capital gains are the profits made by investors upon disposing of shares at a cost higher than the purchase cost.
2. Short-term capital gains (STCG): Short-term capital gains are gains derived when the share is sold within the required holding period.
3. Long-term capital gains (LTCG): Long-term capital gains are the gains derived when the shares have been held for a period greater than the holding period stipulated.
4. Differentiation in taxation: The taxation of short-term and long-term gains can be different depending on the type of shares and tax law restrictions.
5. Capital gains calculation involves subtracting the cost incurred from the sale price.
6. The impact of transaction type: Tax consequences may vary for listed shares, unlisted shares, and specific transaction types.
7. Importance of tax planning: A comprehensive understanding of capital gains taxes enables investors to assess tax obligations, enhance financial planning, and ensure adherence to pertinent tax laws while making investment choices.

What is the Holding Period for Shares?

Asset Type	Short Term	Long Term
Listed equity shares	Up to 12 months	More than 12 months
Unlisted equity shares	Up to 24 months	More than 24 months
Preference shares (listed)	Up to 12 months	More than 12 months
Equity mutual fund units	Up to 12 months	More than 12 months

The holding period is counted from the date of allotment or purchase to the date of transfer/sale, not the calendar year. Getting this wrong changes whether STCG or LTCG applies, directly affecting the tax rate.

Current Capital Gains Tax Rates on Shares (Post Budget 2024)

Type of Share	Holding Period	Gain Type	Tax Rate
Listed equity shares (with STT)	Up to 12 months	STCG	20%
Listed equity shares (with STT)	More than 12 months	LTCG	12.5% (above ₹1.25 lakh exemption)
Unlisted equity shares	Up to 24 months	STCG	Slab rates
Unlisted equity shares	More than 24 months	LTCG	12.5% without indexation
Equity mutual funds (with STT)	Up to 12 months	STCG	20%
Equity mutual funds (with STT)	More than 12 months	LTCG	12.5% (above ₹1.25 lakh exemption)
Debt mutual funds (post April 2023)	Any period	Capital Gain	Taxed at applicable slab rates

Note: The above rates apply to transfers made on or after 23 July 2024, as per the Finance (No. 2) Act, 2024. For transfers made between 1 April 2024 and 22 July 2024, the earlier rates generally applied 15% STCG and 10% LTCG (above the ₹1 lakh exemption) for listed equity shares and equity-oriented mutual funds.

STT – Why It Matters for Capital Gains Tax

Securities Transaction Tax (STT) is levied at the time of buying and selling shares on recognised stock exchanges. The current STT rates are:

• Equity delivery (buy): 0.1%
• Equity delivery (sell): 0.1%
• Equity intraday (sell only): 0.025%
• Futures (sell): 0.02%
• Options (sell): 0.1% on premium

STT is directly relevant to capital gains because the concessional LTCG rate of 12.5% and STCG rate of 20% apply only when STT has been paid on the transaction. Shares sold off-market without STT attract different rates; unlisted share treatment applies instead.

Intraday Trading – Not Capital Gains, Speculative Business Income

Intraday share trading (buying and selling the same share on the same day without taking delivery) is not treated as capital gains under Indian tax law. It is classified as speculative business income under Section 43(5) of the Income Tax Act.

This means:

• Intraday profits are taxed at slab rates — not STCG or LTCG rates
• Intraday losses can only be set off against other speculative income
• Intraday losses cannot be set off against salary, capital gains, or other non-speculative income
• Losses can be carried forward for 4 years (not 8 years like capital losses)

Many retail traders assume intraday profits are taxed at the 20% STCG rate. This is incorrect and leads to significant underreporting or overreporting of tax liability.

Futures & Options (F&O) – Non-Speculative Business Income

F&O trading is classified as non-speculative business income distinct from both capital gains and intraday/speculative income. Key implications:

• Taxed at individual slab rates
• F&O losses can be set off against any income except salary
• Losses carried forward for 8 years and set off against non-speculative business income
• Turnover for F&O is calculated differently — the absolute sum of profits and losses per trade
• If F&O turnover exceeds ₹10 crore (₹1 crore without digital threshold), a tax audit applies

F&O traders must file ITR-3, not ITR-2. This is one of the most common ITR form selection errors.

Grandfathering Clause

Grandfathering Clause relating to Capital Gains Tax on Shares is a provision made to exempt gains accruing before the implementation of the tax on capital gains on some of the share investments.

1. Definition: This provision protects gains earned before a particular date from taxation under new tax legislation.
2. Need for making this provision: The clause is made in order to protect investors from the tax on the appreciation of the share price before the introduction of long-term capital gains tax.
3. Application of the clause: This provision applies to the listed equity shares, equity-oriented mutual fund, and units of business trust bought before January 31, 2018.
4. Fair Market Value (FMV): The acquisition value of the investment under the clause will be taken as the Fair Market Value till January 31, 2018.
5. Advantage to the investors: The clause makes the tax liability lower by excluding the gain made before the specified date.
6. Relevance of the provision in tax planning: Knowledge about the grandfathering clause will help in computing capital gains and avoiding unnecessary tax liabilities while filing taxes.

Exemptions From Capital Gains Tax On Shares

Exemptions from capital gains tax on shares could be offered subject to certain rules and regulations stipulated by relevant tax legislation. Some of the advantages that arise from exemption include minimising the tax payable and enhancing proper tax planning.

1. Limits-based exemptions: According to relevant tax laws, some of the capital gains could be exempt within certain limits.
2. Inclusion of investments in approved financial products: Investors could enjoy tax exemptions if the capital gains are invested in certain types of assets.
3. Transaction type: Based on the type of share and relevant tax regulations, certain types of transactions might qualify for tax exemptions.
4. Certain tax sections: Exemptions from taxes could depend on certain conditions stipulated in relevant tax laws and regulations.
5. Documentation: Investors who want to take advantage of exemptions should have proper documentation in order to satisfy tax requirements.
6. Importance of tax planning: Proper tax planning requires an understanding of the exemptions to help minimise tax burden and maximise returns on investments.

Calculation of Capital Gains Tax on Shares (Illustration)

Capital gains tax on shares is based on the profit made on the sale of shares after deducting the cost of acquisition and allowable expenses.

Formula:

Capital gain is defined as the sales value less the purchase value and allowable expenses.

Illustration:

• Number of shares purchased: 1,000.
• Cost price of one share: ₹100.
• Cost of acquisition of shares: ₹1,00,000.
• Sale price of one share: ₹160.
• Sales proceeds: ₹1,60,000.
• Brokerage and commission are ₹5,000.

Capital gain = ₹1,60,000 – ₹1,00,000 – ₹5,000.

Capital gain = ₹55,000.

This capital gain of ₹55,000 is considered to be a capital gain and is taxed appropriately. Taxation of shares depends on various aspects, including the period during which the asset was held and whether the gain is a short-term or long-term capital gain.

Loss On Shares

Capital loss from the sale of shares means the amount of loss incurred when the sale price of shares is lower than the price at which shares were bought, along with allowable expenses. It is important to understand the tax consequences of capital losses in order to plan taxes effectively.

1. Meaning: A capital loss is described as a situation where the selling price of shares is lower than the cost of acquiring such shares, along with related expenses.
2. Types of capital losses: There are two types of capital losses, including short-term capital loss (STCL) and long-term capital loss (LTCL).
3. Offset of short-term capital losses: Short-term capital losses can generally be offset against short-term as well as long-term capital gains according to tax laws.
4. Offset of long-term capital losses: Long-term capital losses can only be offset against long-term capital gains.
5. Carry-forward rules: Unabsorbed capital losses can be carried forward up to 8 assessment years under Section 74 of the Income Tax Act
6. Tax planning considerations: Awareness of capital loss laws will help individuals reduce tax liability.

Consequences of Non-Compliance

Share tax duty noncompliance might cause legal, financial, and regulatory issues for taxpayers. To guarantee compliance and avoid problems, tax obligations must be disclosed and paid right away.

1. Financial effects: Failure to declare or pay the tax on the transaction of shares might lead to fines imposed according to the applicable tax laws.
2. Interest on tax arrears: The unpaid tax might accrue interest costs, thus increasing the overall financial burden.
3. Tax notifications and investigations: Tax notifications, evaluations, or comprehensive investigations from the government due to the incorrect or failed reporting of share-related transactions.
4. Additional tax duties: Tax forms filled incorrectly or incompletely may lead to unexpected additional tax duties.
5. Legal effects: The violation of the law may result in legal and other regulatory proceedings.
6. Reputation damage: The sustained violation of the law may damage the financial reputation and delay any further financial projects.

Understanding tax obligations and maintaining correct reporting can help reduce hazards and guarantee correct compliance management. Kanakkupillai could be consulted by people as well as companies for professional advice on tax compliance and business-related problems.

Which ITR Form to Use for Share Transactions?

Taxpayer Type	Correct ITR Form
Salaried + only STCG/LTCG from listed shares	ITR-2
Any capital gains + business/F&O income	ITR-3
Only intraday trading income	ITR-3
Company holding shares	ITR-6

Filing ITR-1 when you have capital gains is a common error. ITR-1 does not have a schedule for capital gains. The return will either be rejected or result in a defective return notice from the Income Tax Department.

Choosing the correct ITR form is essential for timely tax compliance. Read our guide on Which ITR Form Should I File? to understand eligibility, income types, and filing requirements.

Choose Kanakkupillai for Stress-Free Tax Compliance

Many obligations come with tax compliance, such as deadlines, filing, and keeping up with regulatory changes. Not meeting these obligations results in unwanted problems and even expenses. With the use of an efficient approach, professional help, and reliable service, you will be able to manage your compliance obligations efficiently while focusing on growing your business. Choose reliable services to suit your business and tax needs.

Conclusion

Capital gains tax on shares is an important area of taxation that investors need to understand to be able to make appropriate decisions and to fulfil their tax obligations.

People who have knowledge about the differences between short-term and long-term capital gains, as well as tax regulations, exemptions, and requirements, are more likely to be prepared for their tax obligations and to make wise decisions about investments. Knowledge about taxes could also help avoid any financial troubles in the future and improve investment management techniques.

Frequently Asked Questions

1. What is the capital gains tax on shares?

Capital gains tax on shares is the tax charged on gains that accrue from the sale of shares at prices higher than those originally paid for purchasing the shares. In this case, gains are obtained by deducting the initial cost and qualified expenses from the selling price. However, the tax consequences vary depending on the type of shares and the applicable laws.

2. What is the difference between short-term capital gains on stocks and long-term capital gains on stocks?

When shares are sold after being held for a certain number of days, short-term capital gains result, while when the shares are held for more than the required number of days, long-term capital gains occur. The taxation rates will be different depending on how long the shares have been held and the nature of the shares.

3. How is capital gains tax calculated for shares?

Capital gains taxes are normally calculated by deducting the cost of purchase and qualified expenses from the total sales revenue obtained from the sale of shares.

4. Are all share transactions subject to capital gains tax?

There isn’t always a common treatment of all share transactions as far as taxation goes. It is important because there are different factors that define it. For instance, there could be a difference in relation to the type of shares, the way the deal is organised, the period of possession, legislation and others. There can also be different exemptions or particular conditions that apply due to certain factors.

5. What is the importance of capital gains tax on shares?

It is very important for an investor to understand how capital gains work, as it helps them to make predictions in terms of taxes, plan strategically and generally make good decisions regarding their money.