Income Tax on Capital Gains from Shares: How LTCG & STCG Are Taxed in 2026

Every year, thousands of Indian investors sell shares, see a healthy profit on their screen, and then get a shock when they realise the tax bill eats a chunk of it. The problem is rarely the tax rate itself. It is that most people only learn the rules after the trade is done. A capital gains tax on shares India 2026 calculation is not hard once you know the three or four variables that matter: how long you held the shares, whether the sale happened on a recognised exchange with STT paid, how much of the gain is covered by the annual exemption, and whether you have losses to set off. Get those right and you can estimate your liability within a few hundred rupees before you place the sell order.

Consider a practical number. An investor who sold listed equity in a single year with a combined gain of ₹3 lakh could have owed more or less tax depending purely on the holding period of each lot and the order in which those lots were sold. That difference alone can run into tens of thousands of rupees, which is more than many people pay in brokerage over a decade. Timing and structure matter more than most people assume.

This guide walks through how short-term capital gains (STCG) and long-term capital gains (LTCG) on shares are taxed in India for FY 2025-26 (relevant to the returns you file in 2026), how to compute your gain correctly, how to use losses, and where people commonly go wrong. You will also find a worked example, a comparison table, a step-by-step checklist, and an FAQ. By the end you should be able to estimate your tax before you sell.

Key Takeaways

• Listed equity shares held for 12 months or less are short-term; held for more than 12 months they are long-term.
• STCG on listed equity is taxed at a flat 20%. LTCG is taxed at 12.5% on gains above an annual exemption of ₹1.25 lakh.
• Both STCG and LTCG on listed shares apply only when Securities Transaction Tax (STT) has been paid, which is the case for normal exchange trades.
• Short-term losses can be set off against both short-term and long-term gains; long-term losses only against long-term gains. Unabsorbed losses carry forward for 8 assessment years, provided you file your return on time.
• Your gain is calculated on a FIFO basis per security, after deducting brokerage and transaction costs from the sale value and adding them to the cost of acquisition.
• Estimate your tax before you sell, because the holding period you cross on a given day can change the rate applied to the entire gain.

What is capital gains tax on shares in India in 2026, in plain terms?

Capital gains tax is the tax you pay on the profit when you sell a capital asset for more than you paid for it. Shares, equity mutual funds, and listed bonds all fall under this umbrella. The profit is called the capital gain, and how it is taxed depends on how long you held the asset.

For listed equity shares and equity-oriented mutual funds (where at least 65% of the portfolio is in equities), India uses a two-tier system. Gains from assets held up to 12 months are short-term. Gains from assets held longer than 12 months are long-term. The thresholds were set by the Finance Act 2024 and apply to sales made from 23 July 2024 onwards, which covers everything you will be filing in 2026.

There is a common confusion here. The tax rate is not based on your income slab. Unlike salary or interest income, STCG and LTCG on shares carry their own flat rates. Your total income still matters for determining whether you owe anything after the exemption and for the surcharge and cess on top, but the base rates are fixed.

How are short-term capital gains on shares taxed?

Short-term capital gains on listed equity shares are taxed at a flat 20%, regardless of your income slab. Before the 2024 changes the rate was 15%, and many articles online still quote the old figure, so check the date on anything you read.

Who falls into the short-term bucket?

Any listed share or equity fund unit you sell within 12 months of buying it is short-term. The 12 months are counted from the date of purchase to the date of sale. Here is a quick checklist to test a specific sale:

1. Find the date you bought the shares. Use the contract note or the trade history in your demat or broker app.
2. Find the date you are selling.
3. Count forward 12 months from the purchase date. If the sale happens on or before that anniversary, the gain is short-term.
4. If the sale happens the day after that anniversary or later, the gain is long-term.

Worked example: STCG on a quick trade

Suppose Meera buys 200 shares of a listed company at ₹400 each on 10 March 2025. Her total cost is ₹80,000. Brokerage and STT on the buy side add up to ₹120, so her cost of acquisition for the tax computation is ₹80,120. On 15 September 2025, she sells the same 200 shares at ₹520 each, for a sale value of ₹1,04,000. Brokerage and STT on the sell side come to ₹230, so the net sale consideration is ₹1,03,770.

Step 1: Net sale consideration = ₹1,04,000 − ₹230 = ₹1,03,770.

Step 2: Cost of acquisition including buy-side costs = ₹80,000 + ₹120 = ₹80,120.

Step 3: Short-term capital gain = ₹1,03,770 − ₹80,120 = ₹23,650.

Step 4: Tax at 20% = ₹23,650 × 0.20 = ₹4,730.

Step 5: Add 4% health and education cess = ₹4,730 × 0.04 = ₹189.20, for a total of about ₹4,919.

If Meera had waited just a few more weeks until after 10 March 2026, the same gain would have been long-term, and the tax picture would look very different. That brings us to the more favourable regime.

How are long-term capital gains on shares taxed?

Long-term capital gains on listed equity shares and equity funds are taxed at 12.5%. The important feature is the annual exemption: the first ₹1.25 lakh of LTCG in a financial year is tax-free. Only the excess is taxed.

Note that LTCG is not indexed to inflation for listed shares. That was removed for most assets earlier, so you pay on the nominal gain. Plan your expectations accordingly.

Worked example: LTCG with the exemption

Rahul bought shares of a listed bank in January 2023 for ₹2,00,000 including costs. In May 2025 he sold them for ₹3,60,000, with ₹400 of costs on the sale. He also sold a small holding of another stock in the same year at a long-term gain of ₹20,000. His total long-term gain for the year is calculated first.

Step 1: Net sale consideration on the bank shares = ₹3,60,000 − ₹400 = ₹3,59,600.

Step 2: Gain on bank shares = ₹3,59,600 − ₹2,00,000 = ₹1,59,600.

Step 3: Add the other long-term gain: ₹1,59,600 + ₹20,000 = ₹1,79,600 total LTCG.

Step 4: Subtract the exemption: ₹1,79,600 − ₹1,25,000 = ₹54,600 taxable.

Step 5: Tax at 12.5% = ₹54,600 × 0.125 = ₹6,825.

Step 6: Add 4% cess = ₹6,825 × 0.04 = ₹273, total about ₹7,098.

Notice that Rahul did not pay tax on the first ₹1.25 lakh. Had he spread his sales across two financial years, he could have used the exemption twice. This is one of the most useful planning levers in Indian equity taxation, and it is covered in more detail below.

Surcharge may apply on top if your total income is high, but for most salaried investors with moderate gains it does not change the outcome materially. Check the surcharge rules for your income band before finalising any large sale.

Short-term vs long-term capital gains on shares: how do the two compare?

The table below shows the same ₹2,00,000 gain treated under different holding periods and loss situations. The figures are indicative and exclude surcharge and any other income effects, so use them to see the direction and size of the difference rather than as a final tax computation.

Scenario	Gain (₹)	Holding period	Exemption applied	Rate	Approx. tax before cess (₹)
Equity sold after 8 months	2,00,000	Short-term	Nil	20%	40,000
Equity sold after 14 months	2,00,000	Long-term	₹1,25,000	12.5%	9,375
Equity sold after 14 months, with ₹50,000 short-term loss set off	1,50,000 (net of loss)	Long-term	₹1,25,000	12.5%	3,125
Equity sold after 8 months, with ₹50,000 long-term loss only	2,00,000	Short-term	Nil (LT loss cannot offset STCG)	20%	40,000
Equity fund sold after 14 months, gain ₹80,000	80,000	Long-term	₹1,25,000 (covers all)	12.5%	Nil

The gap between the first and second rows is the reason holding period matters so much. The same economic gain drops from ₹40,000 of tax to roughly ₹9,375 simply by holding longer than 12 months.

How do you use capital losses to reduce your tax?

Losses are not wasted. The Income Tax Act lets you use them in specific ways, and the rules are where many investors leave money on the table.

• Short-term capital loss can be set off against both short-term and long-term gains.
• Long-term capital loss can be set off only against long-term gains.
• Any loss that cannot be fully set off in the year can be carried forward for up to 8 assessment years, but only if you file your return on time, by the due date under Section 139(1).

This creates a practical sequencing decision. If you have a realised loss in a stock and a large gain in another, it is often sensible to harvest the loss before the financial year ends, as long as you genuinely want to exit that position or are comfortable re-entering it after a reasonable gap. Tax harvesting only works if you are not simply trading to create a paper loss.

Common mistake: Many investors file their return late, sometimes by a few weeks, and then discover that their carried-forward capital losses have lapsed. Losses from earlier years can only be set off in later years if the return for the year they arose was filed by the due date. If you have losses, file on time even when you owe nothing.

How do you calculate your gain correctly when you have multiple lots?

Most investors buy the same stock in several tranches, sometimes over years. When you sell part of your holding, the tax department expects you to match the sale against the earliest purchases first. This is the FIFO (first-in, first-out) rule, applied per security, per demat account.

Because of FIFO, the holding period of the lots you sell can differ, and that changes the rate applied. Selling a portion of a position that has a mix of old and new lots can produce a blend of short-term and long-term gains.

Step-by-step: computing gain on a partial sale with mixed lots

1. Pull the full trade history for the stock from your broker or your Consolidated Account Statement. Note the quantity, date, and price of every buy.
2. Identify the quantity you are selling. Working from the oldest purchase, allocate the sale quantity to lots in order.
3. For each lot consumed, note the purchase date to determine whether that slice is short-term or long-term relative to the sale date.
4. For each slice, compute the cost of acquisition, including the buy-side brokerage and STT for that lot.
5. Compute the net sale value for that slice, after deducting sell-side brokerage, STT, and exchange charges allocated to it.
6. Gain for each slice = net sale value − cost of acquisition. Classify it as STCG or LTCG based on the holding period.
7. Add the totals: total STCG and total LTCG for the financial year, across all securities.

A spreadsheet is worth the effort here. Most people underestimate how many small lots they have accumulated through SIP-style buying.

Are there any special situations that change the calculation?

Equity-oriented mutual funds and ETFs

Equity mutual funds and equity ETFs follow the same 12-month holding rule and the same 20% and 12.5% rates. A useful nuance: the classification depends on the fund's equity allocation, not on the fund's name. Debt and hybrid funds that do not meet the 65% equity threshold follow different rules, and gold ETFs have their own treatment, which is covered in our piece on gold tax rules in 2026.

SIP investors

If you invest through a systematic investment plan, every monthly instalment creates a separate lot with its own purchase date. Your 60th instalment is not held for long. Only instalments older than 12 months qualify for the long-term rate when you redeem. Redeeming the whole SIP at once therefore means some units are short-term and some long-term, and FIFO decides the split.

To see the growth side of this, you can plug your monthly amount and expected return into our SIP Calculator, then remember that the tax applied at redemption will cut into the final figure.

Bonus shares, splits and rights issues

When a company issues bonus shares, the holding period of the bonus units is generally counted from the date of allotment, and the cost of acquisition is apportioned across the original and bonus shares. Stock splits are handled similarly, with the cost spread across the new units. These corporate actions change your per-share cost, so always recompute rather than using the old price.

Grandfathering for shares bought before 31 January 2018

LTCG on equity shares bought before 1 February 2018 and sold later is computed with the cost taken as the higher of the actual cost or the fair market value as on 31 January 2018, capped at the sale price. This grandfathering provision is a frequent source of errors, so if you hold legacy positions, get the 31 January 2018 price right before you compute anything.

What happens to STT, brokerage and other costs in the calculation?

Costs reduce your taxable gain. Brokerage, STT, stamp duty, exchange transaction charges, SEBI turnover fees, and GST on brokerage can generally be included in the cost of acquisition (for buy-side costs) or deducted from the sale consideration (for sell-side costs). Your contract notes itemise them.

Do not estimate these from memory. Pull the contract notes or the annual tax statement from your broker. The amounts are small on any single trade, but across dozens of trades they add up, and they reduce the taxable gain you report.

Pro tip: Download your broker's capital gains statement (often called the tax P&L report) before you start filing. It classifies each sale as short or long term, uses FIFO, and includes the costs. Then cross-check two or three trades by hand against the contract notes. This catches errors without redoing the whole year.

How do you plan a sale to keep your tax low?

Planning is where the money is. The rules are fixed, so the main levers are timing, lot selection, and spreading gains across years. Here is a practical approach.

1. Know your realised gain to date. Work out how much LTCG you have already booked in the financial year. If you are below ₹1.25 lakh, you have room to realise more gain tax-free.
2. Harvest losses deliberately. If you hold a position at a loss and want to exit, realise the loss in the same year as large gains.
3. Cross the 12-month line where possible. If a short-term lot is a few weeks from qualifying, waiting can cut the rate from 20% to 12.5% on that gain.
4. Spread large exits across financial years. Splitting a big sale between March and April can use two annual exemptions instead of one.
5. Estimate advance tax. If your gains are large, you may need to pay advance tax to avoid interest under Section 234C. We explain this in our guide on advance tax on capital gains and how to avoid 234C interest.

Where do people usually go wrong?

A few errors recur every filing season:

• Using the wrong rate because of old articles quoting 15% STCG or 10% LTCG with the exemption not applied properly.
• Forgetting that the ₹1.25 lakh exemption applies to total LTCG for the year, across all securities, not per stock.
• Treating the entire position as one lot and ignoring FIFO, which produces the wrong short-term/long-term split.
• Missing the grandfathering rule for pre-2018 holdings.
• Filing late and losing the right to carry forward losses.
• Ignoring the income tax regime you are on, which affects surcharge and the overall picture. If you are comparing regimes, our article on old vs new tax regime in 2026 walks through the trade-offs.

Checklist: estimate your capital gains tax before you sell

1. Confirm the holding period of each lot you intend to sell, using the purchase date.
2. Classify each lot as short-term (up to 12 months) or long-term (over 12 months).
3. Total your realised STCG and LTCG for the financial year, including what you have already sold.
4. Set off any short-term losses against all gains and long-term losses against long-term gains.
5. Apply the ₹1.25 lakh LTCG exemption to the net long-term gain.
6. Calculate tax: 20% on net STCG and 12.5% on the excess LTCG.
7. Add 4% cess and any applicable surcharge based on your income.
8. Check whether advance tax is due and whether you have carried-forward losses to use.

If you want a quick sanity check on your income-side tax alongside capital gains, the Income Tax Calculator on AlarmDaddy lets you compare your slab position, and for a broader view of your finances you can start from the full set of free calculators. Once you have the tax number, the ROI Calculator helps you see what the post-tax return on a holding actually looks like.

Frequently asked questions

What is the capital gains tax on shares in India in 2026?

Short-term capital gains on listed shares are taxed at 20%, and long-term gains at 12.5% above a ₹1.25 lakh annual exemption. Cess of 4% applies on top, and surcharge may apply for high incomes. These rates apply to sales made from 23 July 2024 onwards.

How long must I hold shares to get long-term capital gains treatment?

You must hold listed equity shares or equity-oriented funds for more than 12 months. If you sell on or before the 12-month anniversary of purchase, the gain is short-term. Count from the purchase date to the sale date to check.

Is the ₹1.25 lakh LTCG exemption per stock or per year?

It is per financial year and applies to your total net long-term capital gains across all listed shares and equity funds. It is not available separately for each stock, so it is shared across your entire portfolio for that year.

Can I set off capital losses against salary income?

No. Capital losses can only be set off against capital gains. Unabsorbed losses can be carried forward for up to 8 assessment years, but only if you file your return on time by the due date.

How is the cost of acquisition calculated for shares bought before 2018?

For equity shares bought before 1 February 2018, the cost is taken as the higher of the actual purchase cost or the fair market value on 31 January 2018, capped at the sale price. This grandfathering rule applies only to LTCG on those legacy holdings.

Do I pay tax if I sell shares at a loss?

No tax is payable on a loss, but you should still report it. Reporting it lets you carry it forward and use it against future gains within the 8-year window, provided you file the return on time.

Do SIP investments get different tax treatment?

Each SIP instalment is treated as a separate lot with its own purchase date. When you redeem, FIFO applies, so units held more than 12 months are long-term and the rest are short-term. Track your SIP lots carefully when you redeem.

Capital gains tax on shares India 2026 is manageable once you break it into hol

Image credit: Scrabble Series Income Tax — ccPixs.com, via flickr (BY 2.0), sourced from Openverse.