Capital Gains Tax on Shares in India (FY 2025-26): STCG vs LTCG Made Easy

Capital gains tax in India applies when you sell an investment for more than you paid. Investing in shares can bring in big returns, but it also means you’ve got some tax to pay.

When you sell a share for more than you paid for it, the profit gets slapped with capital gains under the Income Tax Act. It’s about time you got clear on what this means for your pockets.

This guide is intended for resident individual investors seeking to understand capital gains tax rules for FY 2025–26. Understanding these rules is crucial for optimizing your tax liability and ensuring compliance with Indian tax laws.

Long-term capital gains tax (LTCG) is levied on profits earned from selling capital assets such as property, stocks, and mutual funds.

When selling capital assets, such as property, stocks, gold, or mutual funds, capital gains tax is levied on the profits earned from these transactions.

The capital gains tax on shares in India all comes down to how long you hold onto the shares. Profits from short term sales are taxed differently from gains on long-term investments. Understanding this stuff will help you accurately figure out your tax bill and make better investment decisions.

This guide breaks down how capital gains tax on shares works in India for the 2025-26 financial year (Assessment Year 2026-27). We’ll cover short and long term capital gains tax rates, holding period rules, how to calculate your gains, and plenty of examples you can use as a stock market investor.

What Is Capital Gains Tax under the Income Tax Act?

Capital gains kick in when you sell a share for more than what you bought it for. The difference between what you sold it for and what it cost you is your capital gain.

The basic capital gains formula is pretty simple:

Capital Gain = Sale Price - ( Purchase Price + Any transaction costs )

These transaction costs might include broker fees, exchange fees, and other costs of the trade. A capital gain arises when the sale price of an asset exceeds its purchase price and associated costs, making the gain taxable under capital gains tax rules.

If you’re looking to deepen your understanding of investing, taxation, and wealth-building strategies, exploring a dedicated personal finance and investing blog can be very helpful.

Now that we've defined capital assets and how gains are calculated, let's look at how assets are classified for tax purposes.

Types of Capital Assets

Capital gains tax in India is levied on profits earned from selling capital assets such as property, stocks, gold, or mutual funds. The Income Tax Act defines a capital asset as any property you hold—whether it’s for personal use or investment—that can be sold to generate income. This includes a wide range of assets such as:

• Residential property
• Equity shares
• Mutual funds
• Bonds
• Gold
• Collectibles like jewelry or art

Understanding how different investments are taxed in India is crucial for planning your overall portfolio.

Why does this matter? Because the sale of these capital assets can trigger capital gains (or losses), which are then taxed according to specific rules. For example, selling your family home, redeeming mutual funds, or offloading stocks can all result in capital gains income that needs to be reported to the Income Tax Department.

It’s important to note that some assets are specifically excluded from the definition of capital assets—like agricultural land in certain areas, or personal effects (except jewelry and a few other items).

Understanding what qualifies as a capital asset helps you plan your investments, anticipate tax implications, and make the most of available tax exemptions. Whether you’re investing in mutual funds, building a portfolio of shares, or holding onto a residential property, knowing how the Income Tax Act treats your capital investments is key to smart, tax-efficient wealth management.

With this foundation, let's move on to how the holding period affects the classification and taxation of your capital gains.

Short-Term vs Long-Term Capital Gains (Holding Period Rules)

Gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on the holding period of the asset. Capital gains are calculated differently for assets held for a longer period and for those held over a shorter period. Rates of capital gains tax in India depend on asset type and holding period: Short-Term (STCG) or Long-Term (LTCG).

The way you hold onto your shares determines whether gains are classed as short term or long term.

For shares listed on a recognized Indian stock exchange, the rules are:

• Short-Term Capital Gains (STCG): Shares you’ve held for a year or less
• Long-Term Capital Gains (LTCG): Shares you’ve held for over a year (i.e., more than a year). Holding shares for over a year qualifies you for long-term capital gains tax treatment and potentially lower tax rates.

This rule applies to shares where Securities Transaction Tax (STT) has been paid when you sold them.

You work out the holding period by looking at from the date of purchase to the date of sale of the shares.

Now that you know how gains are classified, let's explore the specific tax rates and calculation methods for each type.

Capital Gains Tax on Shares and Stock Market Investments

Listed Equity Shares and Equity Oriented Mutual Funds

When it comes to tax, capital gains from shares are split into two categories:

• Short-Term Capital Gains (STCG)
• Long-Term Capital Gains (LTCG)

The way these are classified all comes down to one thing - the holding period of the share before you sell it.

Debt Mutual Funds

(Insert content about debt mutual funds here, if applicable.)

Futures & Options (F&O)

(Insert content about F&O taxation here, if applicable.)

Record-Keeping Essentials

• Broker contract notes
• Statements from your Demat account
• The history of your transactions and your linked bank accounts in one dashboard
• The Annual Information Statement, plus any summaries from your mutual fund tracking dashboard

Checking that your broker’s statement matches up with the AIS is helpful when it comes to making sure the capital gains you report are accurate, and regularly analysing your mutual fund portfolio like a pro can also surface tax implications that might otherwise be missed.

And keeping good records will also help when working out how much tax you owe, or if there are any issues with the tax authorities.

Current Capital Gains Tax Rates in India (FY 2025–26)

Below is a table comparing STCG and LTCG tax rates across major asset classes for FY 2025–26:

With these rates in mind, let's see how capital gains are calculated for different types of taxpayers, including NRIs.

Key Concepts for Calculating Capital Gains

Calculating capital gains involves determining the taxable profit from the sale of assets by considering the holding period and deducting eligible expenses. For long-term capital gains, the calculation specifically involves deducting the cost of acquisition and any allowable expenses from the sale price, and tying these decisions back to clear, goal-based financial planning helps ensure your tax strategy supports your life objectives.

Key Steps:

1. Sale Price: The total amount you get when you sell the shares, also known as the 'full value consideration' for capital gains tax purposes.
2. Cost of Acquisition: The cost of buying the shares plus all the other costs you have to pay like the broker's fee, and similarly, understanding TDS on fixed deposit interest in India helps you account for all tax-related cash outflows across your investments.
3. Transfer Costs: The charges you incur when selling shares, including any brokerage or transaction fees that you have to pay.

Cost of Improvement and Indexed Cost of Acquisition

When you sell a long term capital asset (like a house, debt mutual funds, or even certain bonds) the tax you pay isn’t just based on the difference between your sale price and the original purchase price.

The Income Tax Act allows you to adjust your acquisition cost for inflation, and also add any expenses you’ve incurred to improve the asset. This can significantly reduce your taxable gain and, in turn, your gains tax liability, which is especially relevant when you track and analyse bond investments as part of a diversified portfolio.

• Cost of improvement covers any money you’ve spent to enhance the value of your capital asset—think renovations to your residential property, major repairs, or upgrades that increase its worth. These costs can be added to your acquisition cost when calculating your capital gains.
• The real game-changer, though, is the indexed cost of acquisition. This is your original purchase price, adjusted for inflation using the Cost Inflation Index (CII) published by the Income Tax Department. Indexation helps ensure you’re not taxed on gains that are simply due to inflation, but only on real, inflation-adjusted profits.

Indexed Cost of Acquisition = (Cost of Acquisition × CII of Year of Sale) / CII of Year of Acquisition

For example, if you bought a residential property for ₹50 lakhs in 2000 (CII = 100) and sold it in 2020 (CII = 300), your indexed cost of acquisition would be:

₹50,00,000 × 300 / 100 = ₹1,50,00,000

This means, for capital gains tax purposes, your acquisition cost is considered ₹1.5 crore, not ₹50 lakhs—dramatically reducing your taxable gain.

Now that you know the key concepts, let's move on to step-by-step calculation procedures for both STCG and LTCG.

How to Calculate Short-Term Capital Gains (STCG) – Step by Step

1. Determine the Sale Price: The amount you received from selling the asset.
2. Subtract the Cost of Acquisition: The price you paid to acquire the asset, including any transaction costs.
3. Subtract Transfer Costs: Deduct any expenses incurred during the sale, such as brokerage fees.
4. Calculate the Gain: The result is your short-term capital gain.
5. Apply the STCG Tax Rate: Multiply the gain by the applicable STCG tax rate.

Example:

• Purchase price: ₹1,00,000
• Sale price after 6 months: ₹1,25,000
• Capital Gain = ₹1,25,000 - ₹1,00,000 = ₹25,000
• STCG tax = ₹25,000 x 20% = ₹5,000 (plus any applicable cess and surcharge)

How to Calculate Long-Term Capital Gains (LTCG) – Step by Step

1. Determine the Sale Price: The amount you received from selling the asset.
2. Subtract the Indexed Cost of Acquisition: Adjust the purchase price for inflation using the Cost Inflation Index (CII).
3. Subtract Cost of Improvement (if any): Deduct any expenses incurred to improve the asset.
4. Subtract Transfer Costs: Deduct any expenses incurred during the sale.
5. Calculate the Gain: The result is your long-term capital gain.
6. Apply the LTCG Tax Rate: Apply the exemption limit and multiply the taxable gain by the applicable LTCG tax rate.

Example:

• Purchase price: ₹2,00,000
• Sale price after 2 years: ₹3,50,000
• Capital Gain = ₹3,50,000 - ₹2,00,000 = ₹1,50,000
• Exempt amount = ₹1,25,000
• Taxable amount = ₹25,000
• Tax payable = ₹25,000 x 12.5% = ₹3,125

With these calculation steps, you can accurately determine your capital gains tax liability.

Examples: End-to-End Capital Gains Calculations for an Individual Investor

Example 1: A Bit of Short Term Trading on the Stock Market

• Purchase price of the shares = ₹80,000
• Sold the shares 8 months later for ₹1,00,000

Since the shares were held for less than 12 months, they are classified as a short term capital asset.

• Capital Gain = ₹20,000
• STCG tax = ₹20,000 x 20% = ₹4,000

Example 2: Long Term Share Investment

• Purchase price of shares = ₹2,00,000
• Sold the shares 2 years later for ₹3,50,000

Since the shares were held for more than one year, they qualify as a long term asset.

• Capital Gain = ₹1,50,000
• You get an exemption of ₹1,25,000
• So, the amount that gets taxed is ₹25,000
• Tax payable = ₹25,000 x 12.5% = ₹3,125

Now that you’ve seen practical examples, let’s discuss how taxation works for other types of stock market transactions.

How Taxation Works on Intraday Trading vs F&O

Not all stock market transactions are treated as capital gains. For example, profits from intraday trading and Futures & Options (F&O) are not considered capital gains but are instead classified as business income.

These profits are taxed as ordinary income, meaning they are added to your total income and taxed according to your applicable income tax slab, rather than being subject to capital gains tax rates. This distinction is important for accurate tax planning and compliance.

Intraday Trading

Intraday trading is where you buy and sell shares on the same day and don't actually receive the shares. These profits are taxed as income from a business, not as a capital gain.

Futures and Options (F&O)

Any profits you make from using things like futures and options are classed as business income under the Income Tax Act. Many long-term investors, however, rely on systematic investment plans (SIPs) in mutual funds to build wealth more predictably alongside their equity trading activity.

This means if you trade in F&O you'll have to report those earnings under Income from Business or Profession, and not as a capital gain. Active traders often also look at strategies like tax harvesting to reduce overall tax liability across their portfolios, while long-term investors focus on tracking mutual fund performance like a smart investor to manage risk and returns after tax.

With this understanding, let's move on to how you should report your capital gains in your tax return.

Reporting Capital Gains From Shares on Your ITR

As an investor you need to include your capital gains on your Income Tax Return (ITR) in Schedule CG. Capital gains must be reported as part of your taxable income, ensuring they are included in your total income subject to tax.

Record-Keeping Essentials

• Broker contract notes
• Statements from your Demat account
• The history of your transactions and your linked bank accounts in one dashboard
• The Annual Information Statement, plus any summaries from your mutual fund tracking dashboard

Checking that your broker’s statement matches up with the AIS is helpful when it comes to making sure the capital gains you report are accurate, and regularly analysing your mutual fund portfolio like a pro can also surface tax implications that might otherwise be missed.

And keeping good records will also help when working out how much tax you owe, or if there are any issues with the tax authorities.

Now, let's see how technology platforms can simplify this process for you.

How Platforms Like Novelty Wealth Can Help You

Lots of investors have shares in different places and brokers. That can make it hard to keep track of what you’ve got and to work out the capital gains tax you owe, which is where an all-in-one online portfolio tracker becomes useful, especially if you also want to track and analyze your stock portfolio in one app with real-time insights.

Platforms like Novelty Wealth make it a lot easier by bringing all the data together from different places.

Using tools like NovaAI personal finance management you can keep an eye on how your portfolio is doing and even track your capital gains, while the platform’s privacy policy for handling your financial data explains how your information is protected.

Understanding current tax laws is crucial for accurate tax reporting and compliance, especially when managing complex portfolios across multiple accounts.

These insights can help you make better decisions about when to buy and when to sell your shares and help you to be more aware of any potential tax implications, especially when combined with AI-driven investing tools for smarter portfolios and a disciplined, research-backed investing approach, all of which operate under clearly defined terms and conditions for using the Novelty Wealth platform.

FAQs on Capital Gains Tax on Shares in India

How much tax do I have to pay on shares in India?

The tax all depends on how long you held the shares for. Short-term capital gains get taxed at 20%. And long-term capital gains that exceed the first 1.25 lakhs get taxed at 12.5%. Note that certain capital gains may be subject to different tax rates or rules depending on the type of asset and recent government policy updates.

What is the LTCG exemption for shares?

You get to keep the first 1.25 lakhs of your long-term capital gains from listed equity shares and equity mutual funds tax-free each year. Additionally, you can claim tax exemptions on long-term capital gains by reinvesting the gains in specified instruments, such as bonds under Section 54EC, within the stipulated timeframe.

Does the LTCG exemption apply per share?

No, its the total amount of eligible LTCG in a year that gets the exemption, not each individual share.

Are bonus shares taxed?

Yes. Selling bonus shares will trigger a taxable event, and the tax will be based on how long you held the bonus shares from when they were given to you. The capital gain arising from the sale of bonus shares is calculated based on the difference between the sale price and the acquisition cost (which is typically considered zero for bonus shares), and is subject to capital gains tax depending on the holding period.

Do I have to pay tax if I reinvest profits into other shares?

Yes, selling shares still triggers a taxable event even if you’ve just reinvested the profit into a new stock. However, reinvesting your capital gains in certain schemes, such as the capital gains account scheme, may allow for tax deferral or exemption depending on eligibility and compliance with specific conditions.

Disclaimer

Tax rules and the rates of capital gains tax, including the applicable capital gains tax rate, can change over time as they get updated in the Income Tax Act and the government’s budget announcements.

The capital gains tax rate may be revised due to changes in tax laws or government announcements. The examples in this article are simplified and might not cover everything that applies in your situation.

When making decisions based on cash implications of capital gains tax you should always check the latest rules or consult a tax professional to make sure.