Taxing Listed Share Gains: STCG 20% and LTCG 12.5%

What is the tax on sale of listed shares and equity mutual funds for AY 2026-27? Short-term capital gains (held 12 months or less) on STT-paid listed equity are taxed at 20% under Section 111A. Long-term capital gains (held more than 12 months) are taxed at 12.5% under Section 112A, but only on gains above Rs 1,25,000 per financial year. These rates, introduced by the Finance (No. 2) Act 2024, continue unchanged for AY 2026-27. No indexation is available on listed equity, and the Section 87A rebate cannot be claimed against these gains.

If you sold listed shares or redeemed equity mutual fund units in FY 2025-26, your capital gains fall under one of two special-rate sections depending on how long you held the asset. Getting the section wrong means computing the wrong tax, and computing the wrong tax means either overpaying or receiving a demand notice during assessment. This guide covers the current rates, the grandfathering benefit for pre-2018 purchases, worked examples with actual numbers, and the ITR reporting process for AY 2026-27.

What Counts as a Listed Share or Equity-Oriented Fund

The 20% STCG and 12.5% LTCG rates under Sections 111A and 112A apply only to specific categories of assets where Securities Transaction Tax (STT) has been paid on the transaction:

• Listed equity shares traded on a recognised stock exchange in India (BSE, NSE). STT is paid automatically on delivery-based buy and sell transactions.
• Equity-oriented mutual fund units, where the fund invests 65% or more of its total assets in domestic equity. This includes index funds, large-cap funds, mid-cap funds, ELSS funds, and most multi-cap or flexi-cap funds.
• Units of a business trust (REIT or InvIT) listed on a recognised exchange.

Assets that do not qualify for these special rates:

• Unlisted shares (taxed under Section 112 at 12.5% for LTCG, slab rate for STCG)
• Debt mutual funds purchased on or after 1 April 2023 (always taxed at slab rate, see our mutual fund taxation guide)
• Hybrid or balanced funds where equity allocation is below 65%
• Shares sold in off-market transactions where STT was not paid

STCG vs LTCG: The 12-Month Threshold

The holding period determines whether your gain is short-term or long-term:

• Held 12 months or less: short-term capital gain (STCG), Section 111A
• Held more than 12 months: long-term capital gain (LTCG), Section 112A

The holding period runs from the date of purchase to the date of sale (or redemption for mutual funds). The date of purchase is the trade date (T), not the settlement date (T+1).

For shares acquired through an IPO, the allotment date is the purchase date (see our guide on how to apply for an IPO, allotment and T+3 listing). For bonus shares, the date of allotment counts. For shares received as a gift, the holding period of the previous owner is included.

STCG Tax Rate: 20% Under Section 111A

Tax Rate Chart

STCG on Listed Equity: Section 111A (AY 2026-27)

Flat rate on short-term gains from STT-paid listed equity

STCG rate (held 12 months or less)

Raised from 15% to 20% by Finance (No. 2) Act 2024, effective 23 July 2024. No threshold exemption.

20%

Surcharge (maximum cap)

Surcharge on capital gains under Section 111A is capped at 15%, regardless of total income.

15%

Health and Education Cess

Applied on the sum of tax and surcharge.

4%

Source: Section 111A, Income Tax Act 1961; Finance (No. 2) Act 2024

Key points about Section 111A:

• The 20% rate is a flat rate. It does not depend on your income slab.
• There is no threshold exemption for STCG. Even Rs 1 of short-term gain is taxable at 20%.
• STT must have been paid on the transaction. If you sold shares in an off-market deal without STT, the gain is taxed at your slab rate instead of 20%.
• The rate changed from 15% to 20% on 23 July 2024. For sales made on or after that date in FY 2024-25 and all of FY 2025-26, the 20% rate applies.
• Neither Budget 2025 nor Budget 2026 changed this rate.

LTCG Tax Rate: 12.5% Under Section 112A

Tax Rate Chart

LTCG on Listed Equity: Section 112A (AY 2026-27)

On gains above Rs 1.25 lakh from STT-paid listed equity held over 12 months

LTCG rate (held over 12 months)

Changed from 10% to 12.5% by Finance (No. 2) Act 2024, effective 23 July 2024.

12.5%

Annual exemption per taxpayer

Raised from Rs 1 lakh. Only gains above this threshold are taxed.

Rs 1.25 lakh

Surcharge (maximum cap)

Surcharge on Section 112A gains is capped at 15%.

15%

Health and Education Cess

Applied on the sum of tax and surcharge.

4%

Source: Section 112A, Income Tax Act 1961; Finance (No. 2) Act 2024

Key points about Section 112A:

• The first Rs 1,25,000 of LTCG per financial year is exempt. Only the gain above this amount is taxed at 12.5%.
• This exemption is a per-taxpayer, per-year figure. It was raised from Rs 1,00,000 by the Finance (No. 2) Act 2024.
• No indexation benefit is available on listed equity shares or equity mutual funds. You compare sale price against actual cost (or grandfathered cost for pre-2018 shares).
• STT must have been paid on the transaction. The same STT condition as Section 111A applies.
• The rate changed from 10% to 12.5% on 23 July 2024.

Grandfathering: Shares Acquired Before February 1, 2018

When the government introduced LTCG tax on listed equity through the Finance Act 2018 (effective 1 April 2018), it grandfathered all gains accrued up to 31 January 2018 through Section 55(2)(ac). The rule works as follows:

For shares or equity mutual fund units acquired before 1 February 2018, the cost of acquisition is the higher of:

1. The actual purchase price, or
2. The Fair Market Value (FMV) as on 31 January 2018

The FMV is the highest price quoted on a recognised stock exchange on 31 January 2018. If the share was not traded on that date, the highest price on the most recent trading day before 31 January 2018 is used.

There is one cap: the grandfathered cost cannot exceed the actual sale consideration. This prevents creating an artificial loss using the FMV.

How It Works in Practice

In formula terms: cost of acquisition = higher of (a) actual cost and (b) the lower of FMV on 31 January 2018 and the sale price. Transaction 2 in the worked example below shows the cap in action.

For shares acquired on or after 1 February 2018, there is no grandfathering. The cost of acquisition is simply the actual purchase price.

Worked Example: STCG and LTCG Calculation

Priya, a salaried professional in Hyderabad, made the following equity transactions in FY 2025-26. Her salary income after standard deduction is Rs 12,00,000. She is in the 30% slab under the old regime.

Transaction 1: STCG

• Asset: 500 shares of Infosys, bought on 15 March 2025, sold on 20 January 2026 (held 10 months)
• Purchase price: Rs 1,400 per share = Rs 7,00,000
• Sale price: Rs 1,600 per share = Rs 8,00,000
• STCG: Rs 8,00,000 minus Rs 7,00,000 = Rs 1,00,000
• Tax under Section 111A: 20% of Rs 1,00,000 = Rs 20,000

Transaction 2: LTCG (with grandfathering)

• Asset: 1,000 shares of HDFC Bank, bought on 10 October 2016, sold on 5 August 2025 (held over 8 years)
• Actual purchase price: Rs 600 per share = Rs 6,00,000
• FMV on 31 January 2018: Rs 1,900 per share (highest traded price that day)
• Cost of acquisition (grandfathered): Higher of Rs 600 and Rs 1,900 = Rs 1,900 per share = Rs 19,00,000
• Sale price: Rs 1,750 per share = Rs 17,50,000
• Since sale price (Rs 17,50,000) is less than grandfathered FMV (Rs 19,00,000), the cost is capped at Rs 17,50,000
• LTCG: Rs 17,50,000 minus Rs 17,50,000 = Nil

Transaction 3: LTCG (no grandfathering)

• Asset: 200 units of an equity mutual fund, bought on 5 May 2024, redeemed on 10 December 2025 (held 19 months)
• Purchase NAV: Rs 450 per unit = Rs 90,000
• Redemption NAV: Rs 620 per unit = Rs 1,24,000
• LTCG: Rs 1,24,000 minus Rs 90,000 = Rs 34,000

Summary for Priya

Total LTCG under Section 112A: Rs 34,000. This is below the Rs 1,25,000 annual exemption, so LTCG tax = Nil.

Total STCG under Section 111A: Rs 1,00,000. Tax at 20% = Rs 20,000. Plus 4% cess = Rs 800. STCG tax payable = Rs 20,800. (No surcharge because Priya's total income is below Rs 50 lakh.)

How to Report in ITR 2 or ITR 3 (Schedule CG)

Capital gains from listed shares and equity mutual funds are reported in Schedule CG (Capital Gains) of your income tax return.

Which ITR form?

• ITR 2: If you have salary, house property, capital gains, and other sources, but no business or professional income. Most salaried investors file ITR 2.
• ITR 3: If you also have business or professional income (for example, freelancing income alongside your share trading). See our ITR form selector to confirm which form suits you.
• ITR 1 (Sahaj) can be used only if your only capital gain is Section 112A LTCG of up to Rs 1.25 lakh with no losses to carry forward or set off. Any STCG, LTCG above Rs 1.25 lakh or other capital asset means ITR 2 or ITR 3.

Where in Schedule CG?

• STCG on STT-paid equity and equity fund units goes in the short-term part of Schedule CG, in the rows for gains taxable under Section 111A.
• LTCG under Section 112A is entered scrip-wise in Schedule 112A (ISIN, units, sale value, cost, FMV on 31 January 2018 for grandfathered holdings) and flows into the long-term part of Schedule CG.

What you need to fill:

1. ISIN of each share or mutual fund (your broker or AMC statement carries this)
2. Name of the scrip or fund
3. Date of purchase and date of sale
4. Sale consideration and cost of acquisition (apply grandfathering where applicable)
5. Deductions claimed (if any, such as Section 54F reinvestment)
6. Exempt LTCG up to Rs 1,25,000 (automatically computed in the form)

Your broker's annual capital gains statement or your mutual fund's redemption statement will have most of these details. Reconcile with your AIS (Annual Information Statement) before filing, our AIS guide walks through how.

STT: When It Applies and When It Does Not

Securities Transaction Tax is a prerequisite for the 20% / 12.5% special rates. STT on equity delivery trades is 0.1% of the value, charged on both the purchase and the sale. On redemption of equity-oriented mutual fund units, 0.001% is charged on the sale value.

Finance Act 2026 change for transactions from 1 April 2026: STT on futures rises from 0.02% to 0.05% of the traded price, and on options from 0.1% to 0.15% of the premium (from 0.125% to 0.15% of intrinsic value on exercise). For FY 2025-26 (AY 2026-27), the older rates still apply. Delivery STT is unchanged.

When STT has not been paid, the special rates under Sections 111A and 112A do not apply. This typically happens with:

• Off-market share transfers (private deals, family transfers)
• Shares acquired through ESOPs exercised but not sold through a recognised exchange. See our ESOP taxation guide for how capital gains work on ESOP shares.
• Unlisted company shares

In such cases, STCG is taxed at your slab rate, and LTCG (if the holding period exceeds 24 months for unlisted shares) is taxed at 12.5% under Section 112 (not 112A).

Section 87A Rebate Does Not Apply to Capital Gains

A common filing mistake: taxpayers with total income up to Rs 12 lakh (new regime) or Rs 5 lakh (old regime) assume the Section 87A rebate will wipe out their capital gains tax. It usually will not.

• New regime (AY 2026-27): the rebate cannot reduce tax on STCG under Section 111A or LTCG under Section 112A. The Finance Act 2025 memorandum confirms the rebate is not available on tax on income chargeable at special rates.
• Old regime: Section 112A(6) bars the rebate against tax on 112A LTCG. The Rs 12,500 rebate (total income up to Rs 5 lakh) can still absorb tax on 111A STCG.

For new regime filers, the rebate applies only to income taxed at normal slab rates. Even if your total income, including capital gains, falls below the rebate threshold, the capital gains portion remains taxed at the special rates. For the full mechanics, see our Section 87A rebate guide.

New Income Tax Act 2025: Section 196 and Section 198 (from FY 2026-27)

The New Income Tax Act 2025, passed by Parliament and receiving Presidential assent, takes effect from 1 April 2026 (Tax Year 2026-27). Under this Act, the old section numbers are replaced:

• Section 111A (STCG on listed equity) becomes Section 196
• Section 112A (LTCG on listed equity) becomes Section 198

For AY 2026-27 (FY 2025-26), the old sections 111A and 112A apply. The ITR forms for AY 2026-27 use the old numbering.

From FY 2026-27 onwards, ITR forms will reference the new section numbers. The substantive rules (20% STCG, 12.5% LTCG, Rs 1.25 lakh exemption, grandfathering, STT requirement) remain the same. Only the section numbers change. For the complete section mapping, see our old vs new Income Tax Act section mapping guide.

Common Mistakes When Filing Capital Gains on Shares

1. Using the wrong ITR form. Filing ITR 1 with STCG, or with 112A LTCG above Rs 1.25 lakh, leads to a defective return notice under Section 139(9). Use ITR 2 or ITR 3.

2. Not applying grandfathering for pre-2018 shares. If you bought shares before 1 February 2018, using your actual purchase price instead of the higher FMV as on 31 January 2018 inflates your taxable gain.

3. Mixing up delivery-based gains with F&O or intraday gains. Delivery-based equity gains go in Schedule CG. F&O and intraday trading income goes in Schedule BP (Business and Profession) under ITR 3. See our F&O and intraday trading tax guide.

4. Claiming Section 87A rebate against STCG or LTCG on equity under the new regime. The rebate does not apply. If your return claims it, the CPC will disallow it and raise a demand.

5. Ignoring the Rs 1.25 lakh LTCG exemption. Some taxpayers pay tax on the full LTCG amount without applying the annual exemption under Section 112A.

6. Not reporting capital gains below the exemption. Even if your LTCG is under Rs 1.25 lakh and no tax is due, you must report the transactions in Schedule CG. Non-reporting triggers mismatch notices based on AIS data.

7. Forgetting to reconcile with AIS and Form 26AS. Your broker reports every transaction to the Income Tax Department. Discrepancies between your ITR and the AIS invite scrutiny. Use your broker's tax P&L statement and cross-check with the AIS.

8. Applying indexation to listed equity. There is no indexation benefit on LTCG under Section 112A. Indexation applies only to certain other asset classes. See our Cost Inflation Index table for where indexation does apply.

Let Tax Garden Handle Your Share Capital Gains

Filing capital gains on multiple share and mutual fund transactions involves grandfathering calculations, STT verification, Schedule CG line items, and AIS reconciliation. Tax Garden pulls your broker and AMC statements, applies the correct cost of acquisition, files STCG and LTCG separately, and files your ITR 2 or ITR 3 accurately. See our ITR filing plans or talk to our team.

This article relies on the Income Tax Act 1961 as amended by the Finance (No. 2) Act 2024, specifically Sections 111A and 112A, the grandfathering provisions of Section 55(2)(ac), and the STT requirements under the Securities Transaction Tax Act 2004. The rates and thresholds effective from 23 July 2024 continue unchanged for FY 2025-26 (AY 2026-27) under the Finance Acts 2025 and 2026, as published by the Central Board of Direct Taxes.

Frequently Asked Questions

Can I file ITR 1 if I sold shares during FY 2025-26?

Only in one narrow case. From AY 2025-26, ITR 1 allows long-term capital gains under Section 112A of up to Rs 1.25 lakh, with no carried-forward or brought-forward losses. If you have any short-term gain, LTCG above Rs 1.25 lakh, a capital loss to carry forward, or other capital assets sold, you must file ITR 2, or ITR 3 if you also have business income.

Does the Rs 12 lakh new regime rebate cover my share market gains?

No. Under the new regime, the Section 87A rebate cannot be used against tax on short-term gains under Section 111A or long-term gains under Section 112A. So even if your salary plus gains is below Rs 12 lakh, STCG on listed shares is taxed at 20% and LTCG above Rs 1.25 lakh at 12.5%, plus 4% cess.

Can I set off a short-term loss on shares against salary income?

No. Capital losses can never be set off against salary or other heads. A short-term capital loss can be set off against both short-term and long-term capital gains in the same year, while a long-term loss can be set off only against long-term gains. Unused losses can be carried forward for 8 assessment years, but only if the ITR is filed by the due date.

How is tax calculated on shares bought before 1 February 2018?

The cost of acquisition is the higher of your actual purchase price and the lower of the fair market value on 31 January 2018 and the sale price. The fair market value is the highest price quoted on a recognised exchange that day. This grandfathering protects gains that accrued before LTCG on equity became taxable in 2018.

How can I use the Rs 1.25 lakh LTCG exemption every year?

Some investors book long-term gains of up to Rs 1.25 lakh each financial year by selling and buying back equity or equity fund units, which raises their cost base for the future without tax. This is known as tax gain harvesting. Transaction costs, exit loads and the new 12-month holding period for the repurchased units should be weighed before doing it.