Guide to Capital Gains Tax on Shares in India (FY 2025-26)

 Investing in the Indian stock market involves understanding how your profits are taxed. The taxation on shares depends primarily on the type of shares (listed vs. unlisted) and the holding period (how long you kept them before selling). Following the major reforms in 2024, the tax structure has been simplified for the current assessment year.

1. Short-Term Capital Gains (STCG)

If you sell listed equity shares within 12 months of purchase, the resulting profit is treated as a Short-Term Capital Gain.

Following the significant changes introduced in the 2024 Union Budget and maintained through 2025, here is the updated breakdown of how your share investments are taxed.

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1. Short-Term Capital Gains (STCG)

If you sell your equity shares within a specific "short" timeframe, the profit is treated as STCG.

• Holding Period: For listed equity shares, if the holding period is 12 months or less, the gain is considered short-term.

• Tax Rate: STCG on listed shares (where Securities Transaction Tax or STT is paid) is taxed at a flat rate of 20%.

• Exemption: There is no basic exemption limit specifically for STCG. The entire profit is taxable, regardless of the amount, unless your total annual income (including these gains) is below the basic income tax exemption limit (e.g., ₹3 lakh under the New Tax Regime).

Note: For unlisted shares, the holding period to qualify as "short-term" is 24 months or less, and the gains are taxed according to your applicable income tax slab rate.

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2. Long-Term Capital Gains (LTCG)

If you hold your investments for a longer duration, you benefit from a lower tax rate and a specific tax-free threshold.

• Holding Period: For listed equity shares, if held for more than 12 months, the gain is considered long-term.

• Tax Rate: LTCG is taxed at a flat rate of 12.5%.

• Exemption Limit: You enjoy a tax exemption on the first ₹1.25 lakh of aggregate long-term capital gains in a financial year. Tax is only calculated on the amount exceeding this limit.

• Indexation: No indexation benefit is available for listed equity shares. This means you cannot adjust the purchase price for inflation.

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Comparative Summary Table

Feature	Short-Term Capital Gains (STCG)	Long-Term Capital Gains (LTCG)
Holding Period	12 months or less	More than 12 months
Tax Rate	20%	12.5%
Exemption Limit	Nil	₹1.25 Lakh (per year)
Applicable Section	Section 111A	Section 112A
Surcharge & Cess	Surcharge + 4% Health & Education Cess	Surcharge + 4% Health & Education Cess

. Important Rules to Remember

The "Grandfathering" Clause

For shares purchased before January 31, 2018, a "grandfathering" rule applies. This ensures that any gains made up to that date remain tax-exempt. When you sell such shares, the "cost of acquisition" is considered to be the higher of the actual purchase price or the Fair Market Value (FMV) as of January 31, 2018 (provided the FMV is not higher than the actual sale price).

Set-off and Carry Forward

• STCG Losses: Can be set off against both STCG and LTCG.

• LTCG Losses: Can only be set off against LTCG.
• If you cannot set off your losses in the current year, you can carry them forward for up to 8 assessment years.

Securities Transaction Tax (STT)

The specialized tax rates (20% for STCG and 12.5% for LTCG) only apply if the shares are sold on a recognized stock exchange in India and STT has been paid on the transaction.