STCG and LTCG tax on shares and mutual funds in India 2026

If you've been investing in stocks or mutual funds for a while, the July 2024 Budget made two numbers you should know well: 20% and 12.5%. The STCG rate on listed equity jumped from 15% to 20%. The LTCG rate stayed at 12.5%, but the exemption limit went up to ₹1.25 lakh.

This guide covers the exact tax treatment of equity shares, equity mutual funds, and debt funds — including which section applies, what the holding periods are, and how to calculate what you actually owe.

For the broad overview of capital gains across all asset classes, see the capital gains tax India 2026 guide.

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Two sections, two rates: 111A and 112A

The Income Tax Act has specific sections covering listed equity gains:

Section 111A covers short-term capital gains on listed equity shares and equity-oriented mutual funds where STT (Securities Transaction Tax) was paid at the time of sale. Tax rate: 20% flat.

Section 112A covers long-term capital gains on the same assets. Tax rate: 12.5% on gains above ₹1.25 lakh per financial year.

Both sections apply only where STT was paid on the transaction. If you sold shares on a recognised Indian stock exchange (NSE, BSE), STT was almost certainly paid — your broker settles it automatically.

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What counts as equity-oriented?

The 111A/112A treatment applies to:

• Listed equity shares (stocks traded on NSE or BSE)
• Units of equity-oriented mutual funds — defined as funds with at least 65% of assets in Indian equity at all times
• Units of business trusts (Infrastructure Investment Trusts and Real Estate Investment Trusts listed on exchanges)

Debt funds, gold funds, international funds, and funds of funds do not qualify for this treatment. Their gains are taxed differently.

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Holding period: 12 months is the line

For listed equity shares and equity mutual funds:

• Held 12 months or less: short-term capital asset — gains taxed at 20% under Section 111A
• Held more than 12 months: long-term capital asset — gains taxed at 12.5% under Section 112A (above ₹1.25L exemption)

The holding period starts from the date of allotment (for IPOs and SIPs) or the date of purchase in secondary market. For SIP investments, each instalment has its own holding period — units bought in January 2024 become long-term in February 2025, while units bought in July 2024 become long-term in August 2025.

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STCG on shares and equity funds: Section 111A

Rate: 20% (increased from 15% effective 23 July 2024)

No indexation. No exemption. No slab rate adjustment.

Even if your total income is below ₹3 lakh (below the basic exemption limit), the STCG under 111A is taxed at 20% — there's no offset against the basic exemption limit. The only exception: if your total income including STCG is below the basic exemption limit, the STCG is not taxed.

How it works in practice: If you earn ₹8 lakh salary and made ₹2 lakh STCG in the year, the ₹2 lakh STCG is taxed at 20% = ₹40,000 tax. You cannot apply any 80C deductions to reduce STCG specifically — though deductions reduce your other income first.

Worked example — STCG

You bought 300 shares at ₹400 each (cost: ₹1,20,000) in January 2025. You sell in October 2025 at ₹550 each (proceeds: ₹1,65,000).

Gain: ₹45,000. Held: ~9 months — short-term.

Tax: 20% × ₹45,000 = ₹9,000 (plus surcharge and 4% health/education cess = ₹9,360 effective).

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LTCG on shares and equity funds: Section 112A

Rate: 12.5% on gains above ₹1.25 lakh per financial year

The ₹1.25 lakh exemption applies to the aggregate of all LTCG under Section 112A in a financial year. If you have multiple stock and fund positions generating LTCG, the first ₹1.25 lakh in total is exempt — not ₹1.25 lakh per stock or fund.

No indexation applies to equity gains. The basic exemption limit offset that applied before the 2018 Budget does not apply today.

Worked example — LTCG within exemption

You bought shares worth ₹4 lakh in March 2024. You sell in April 2025 for ₹5.1 lakh.

Gain: ₹1.1 lakh. Held: 13 months — long-term. Gain is below ₹1.25L exemption.

Tax: ₹0. But you must still report this gain in your ITR under Schedule CG.

Worked example — LTCG above exemption

Same as above, but you also have SIP units of a Nifty 50 fund you redeemed in the same year with a gain of ₹60,000.

Total LTCG for the year: ₹1.1L (shares) + ₹60,000 (fund) = ₹1.7 lakh.

Exempt: ₹1.25 lakh. Taxable: ₹45,000.

Tax: 12.5% × ₹45,000 = ₹5,625 (plus cess = approximately ₹5,850).

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The ₹1.25L harvesting strategy

Because the first ₹1.25 lakh of LTCG is exempt each year, many investors "harvest" gains annually — selling units that are in profit (as long as the gain is within the threshold), then immediately buying back.

This resets your cost basis to the current market price. Over time, you gradually lock in gains tax-free. The strategy works best for long-term equity fund investors where positions are generating unrealised LTCG year on year.

The main caution: this requires active monitoring. Selling and buying back immediately may trigger STCG if held less than 12 months on the new units. And brokerage/transaction charges reduce the benefit on small portfolios.

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LTCG on mutual funds: equity vs debt vs hybrid

Equity-oriented funds (65%+ in Indian equity)

Treatment: same as listed equity — Section 112A for LTCG (12.5% above ₹1.25L), Section 111A for STCG (20%).

Debt funds (less than 35% in equity)

Since 1 April 2023 (Finance Act 2023), gains on debt mutual funds are taxed at your slab rate regardless of holding period. There is no LTCG or STCG distinction, and no indexation benefit. A debt fund held for 10 years produces gains taxed just like FD interest.

Hybrid funds

The tax treatment depends on the equity allocation:

• Equity-oriented hybrid funds (65%+ equity): same as equity funds — 111A/112A treatment
• Balanced advantage / dynamic asset allocation funds: check the fund's actual equity allocation — many qualify as equity-oriented, but verify
• Debt-oriented hybrid funds (below 35% equity): slab rate on all gains

For arbitrage funds: taxed as equity (since they maintain 65%+ gross equity exposure through arbitrage positions). STCG at 20%, LTCG at 12.5%.

International / overseas funds

Taxed at slab rate regardless of holding period (similar to debt funds). The 111A/112A equity treatment does not apply to funds investing in foreign equities.

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LTCG on equity: the ₹1.25L exemption in detail

The ₹1.25 lakh LTCG exemption under Section 112A applies per taxpayer per financial year. Key points:

• It covers the aggregate of all LTCG under 112A — from all stocks, all equity funds, all business trust units
• There is no carryforward of unused exemption — if you didn't use the full ₹1.25L in one year, you cannot carry it to the next
• LTCG losses can be set off against LTCG from the same or other sources before the exemption applies. So if you have ₹2 lakh gain and ₹1 lakh loss, net LTCG is ₹1 lakh — which is under ₹1.25L and fully exempt
• The exemption does not reduce other income; it only applies within the capital gains bucket

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Setting off capital losses: the hierarchy

Capital gains losses are compartmentalised in Indian tax law:

Loss type	Can offset
Short-term capital loss	STCG and LTCG both
Long-term capital loss	LTCG only (not STCG)

Losses from equity can set off against gains from property, gold, or other capital assets within the same year. Unadjusted losses carry forward for 8 assessment years — but must be reported in your ITR in the year they arise, even if there's nothing to set off against.

Practical implication: if you're sitting on unrealised equity losses near year-end, crystallising them before 31 March can reduce your net LTCG for the year and push gains closer to (or under) the ₹1.25L exemption.

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STT and capital gains: why it matters

The concessional rates under 111A and 112A are conditional on STT being paid. If you sell shares outside the stock exchange (off-market transfer) or through a foreign exchange, STT may not apply — and the concessional rate doesn't either. In that case, STCG is taxed at your slab rate and LTCG is taxed at 12.5% under Section 112 (not 112A).

Most retail investors won't encounter this — normal exchange-traded equity transactions all carry STT. But it matters for ESOPs exercised or shares received as gifts that are then sold.

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ESOPs: a brief note

ESOP gains have a two-stage taxation:

1. At exercise: the perquisite (difference between FMV and exercise price) is taxed as salary
2. At sale: subsequent appreciation is a capital gain — LTCG under 112A if listed shares held for 12+ months, STCG under 111A if less

The cost basis for the capital gain calculation is the FMV at exercise, not the exercise price. This is an area where people often miscalculate — your broker's cost-of-acquisition figure may not match the perquisite value taxed by your employer.

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For property gains, indexation, and how exemptions work: see the capital gains tax India 2026 guide and the indexation and CII chart guide.

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This article is for informational purposes only. For personalised advice, consult a SEBI-registered financial advisor or chartered accountant.

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Frequently asked questions

What is the short-term capital gain tax rate on shares in India 2026?

Short-term capital gains on listed equity shares and equity-oriented mutual funds where STT is paid are taxed at 20% flat under Section 111A. This rate was increased from 15% to 20% effective 23 July 2024. No basic exemption or indexation applies — the 20% is applied to the full STCG amount.

What is the LTCG tax rate on mutual funds in India?

For equity-oriented mutual funds (where the fund maintains at least 65% in Indian equities), LTCG is taxed at 12.5% on gains above ₹1.25 lakh per year under Section 112A. For debt mutual funds and other non-equity funds, gains are taxed at your income-tax slab rate regardless of how long you held the units — there is no separate LTCG rate for debt funds since April 2023.

What is Section 111A of the income tax act?

Section 111A of the Income Tax Act specifies that short-term capital gains on listed equity shares, equity-oriented mutual funds, and units of business trusts — where STT was paid on the transaction — are taxed at a flat rate of 20% (previously 15%, increased from 23 July 2024). The section overrides the normal slab-rate taxation of capital gains and ensures these gains are taxed separately from ordinary income.

Is LTCG on shares taxable if under ₹1.25 lakh?

No. Under Section 112A, the first ₹1.25 lakh of aggregate LTCG from listed equity shares, equity mutual funds, and business trust units is fully exempt each financial year. If your total LTCG from these sources in a year is ₹1 lakh, the tax is zero. You still need to report the gain in your ITR (Schedule CG), but no tax is payable.

What is the holding period for LTCG on shares?

For listed equity shares and equity-oriented mutual funds, the holding period for long-term classification is more than 12 months. If you sell within 12 months, it is STCG taxed at 20%. If you sell after 12 months and one day, it is LTCG taxed at 12.5% above the ₹1.25L annual exemption. For SIP investments, each monthly instalment has its own separate 12-month holding period clock.

Can I avoid LTCG tax on equity by investing gains in property?

No. The Section 54F exemption allows you to save LTCG on any long-term asset (including shares) by reinvesting the net sale consideration in a residential house — so there is a route. But the exemption requires that you own no more than one existing house at the time of sale, and you must invest the full net proceeds (not just the gain) in the new property to get full exemption. See the Section 54F exemption guide for full conditions.