How Are Stocks Taxed in India?
When you sell stocks in India, any profit you earn is classified as a capital gain and is subject to tax under the Income Tax Act. The tax treatment depends primarily on how long you held the stock before selling it. India distinguishes between two types of capital gains on listed equities: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
For listed equity shares traded on recognized stock exchanges like BSE or NSE, the holding period threshold is 12 months. If you sell within 12 months of purchase, your profit is STCG. If you sell after 12 months, it qualifies as LTCG. This distinction matters enormously because the tax rates are significantly different.
The current tax rates, effective from the Finance Act 2024 (applicable from FY 2024-25 onwards), are 20% for STCG under Section 111A and 12.5% for LTCG under Section 112A. LTCG also enjoys an annual exemption of Rs 1.25 lakh, meaning you pay zero tax on the first Rs 1.25 lakh of long-term gains each financial year. STCG has no such exemption.
These rates apply specifically to listed equity shares and equity-oriented mutual funds where Securities Transaction Tax (STT) has been paid at the time of sale. Unlisted shares, debt funds, and other asset classes follow different rules and rates.
Short-Term Capital Gains (STCG) Explained
Short-Term Capital Gains arise when you sell listed equity shares within 12 months of purchasing them. Under Section 111A of the Income Tax Act, STCG on listed equities is taxed at a flat rate of 20% (plus applicable surcharge and cess).
Key characteristics of STCG on listed equities: - Flat tax rate of 20% regardless of your income tax slab - No exemption threshold — every rupee of STCG is taxable - STT must have been paid on the transaction - Holding period is 12 months or less from the date of purchase - Health and education cess of 4% applies on top of the 20% rate
For example, if you bought 100 shares of Reliance at Rs 2,400 in January 2025 and sold them at Rs 2,700 in June 2025, your STCG would be Rs 30,000 (100 x Rs 300). The tax on this would be Rs 6,000 (20% of Rs 30,000) plus 4% cess of Rs 240, totaling Rs 6,240.
It is important to note that while the 20% rate is a flat rate, surcharge may apply if your total income exceeds certain thresholds. For income between Rs 50 lakh and Rs 1 crore, a surcharge of 10% on the tax amount applies. For income above Rs 1 crore, the surcharge is 15%. However, for capital gains under Section 111A, the maximum surcharge is capped at 15%.
Long-Term Capital Gains (LTCG) Explained
Long-Term Capital Gains on listed equity shares are taxed under Section 112A at 12.5% on gains exceeding Rs 1.25 lakh per financial year. This exemption threshold was raised from Rs 1 lakh to Rs 1.25 lakh in the Finance Act 2024.
Key characteristics of LTCG on listed equities: - Tax rate of 12.5% on gains above the Rs 1.25 lakh exemption - Annual exemption of Rs 1.25 lakh available to every taxpayer - Holding period must exceed 12 months - STT must have been paid on the transaction - No indexation benefit is available for listed equities under Section 112A
Consider this example: You bought 500 shares of TCS at Rs 3,000 in April 2024 and sold them in May 2025 at Rs 3,800. Your total LTCG is Rs 4,00,000 (500 x Rs 800). After applying the Rs 1.25 lakh exemption, your taxable LTCG is Rs 2,75,000. The tax payable would be Rs 34,375 (12.5% of Rs 2,75,000) plus 4% cess of Rs 1,375, totaling Rs 35,750.
The Rs 1.25 lakh exemption is a powerful benefit that smart investors can use through gain harvesting — strategically booking long-term profits each year to stay within the exemption limit, effectively resetting the cost basis of holdings while paying zero tax.
STCG vs LTCG: Quick Comparison
| Parameter | STCG (Section 111A) | LTCG (Section 112A) |
|---|---|---|
| Holding Period | 12 months or less | More than 12 months |
| Tax Rate | 20% | 12.5% |
| Exemption | None | Rs 1.25 lakh per year |
| Indexation | Not applicable | Not available |
| Loss Set-off | STCL offsets STCG + LTCG | LTCL offsets only LTCG |
| Carry Forward | 8 years | 8 years |
| Applicable Section | Section 111A | Section 112A |
How to Determine Your Holding Period
The holding period is calculated from the date of purchase to the date of sale. For delivery-based equity trades, the purchase date is the trade date (T day), not the settlement date (T+1). Similarly, the sale date is the trade date when you place the sell order.
If you bought shares on 15th March 2025, you must sell them on or after 16th March 2026 for the gains to qualify as long-term. Selling on 15th March 2026 or earlier would result in short-term gains because the holding period must exceed 12 months, not merely equal 12 months.
For shares acquired through different routes, the holding period rules vary: - Shares bought on the stock exchange: From the purchase trade date - Bonus shares: From the date of allotment of bonus shares - Rights shares: From the date of allotment of rights shares - Shares received as gifts: Holding period of the previous owner is included - Shares acquired via inheritance: Holding period of the deceased is included
When you hold multiple lots of the same stock bought on different dates, India follows the FIFO (First In, First Out) method mandated by the Income Tax Act. When you sell shares, the ones purchased earliest are deemed sold first. This directly impacts whether your gain is classified as short-term or long-term.
When Do You Need to Pay Capital Gains Tax?
Capital gains tax in India is not deducted at source for equity transactions. Unlike salary income where TDS is deducted by your employer, you are responsible for calculating and paying capital gains tax yourself. There are two key timelines to understand.
First, advance tax: If your total tax liability for the year (including capital gains tax) exceeds Rs 10,000, you must pay advance tax in quarterly installments. The due dates are 15th June (15%), 15th September (45%), 15th December (75%), and 15th March (100%). Failure to pay advance tax results in interest under Sections 234B and 234C.
Second, self-assessment tax: When you file your Income Tax Return, any remaining tax after accounting for TDS and advance tax must be paid as self-assessment tax before filing.
For salaried individuals who have occasional capital gains, the practical approach is to estimate your gains at each advance tax due date and pay accordingly. If you sell stocks and realize a significant gain in January, you should include that gain in your advance tax calculation for the 15th March installment at minimum.
The due date for filing your ITR is typically 31st July for individuals without audit requirements. Filing on time is crucial because if you have capital losses you want to carry forward, they can only be carried forward if the return is filed before the due date under Section 139(1).
Practical Tips for Managing Stock Taxes
Managing your capital gains tax efficiently requires planning throughout the year, not just at filing time. Here are actionable strategies every stock investor should consider.
Track your cost basis meticulously. Use your broker's contract notes or a portfolio tracker to maintain records of every purchase, including brokerage and STT paid. Your cost of acquisition includes brokerage and other transaction costs. Accurate records prevent you from overpaying tax.
Harvest your Rs 1.25 lakh LTCG exemption annually. If you have stocks with long-term unrealized gains, consider selling enough each year to book up to Rs 1.25 lakh in LTCG tax-free. You can buy the same stocks back immediately to reset your cost basis higher. This is known as gain harvesting.
Offset gains with losses strategically. If you hold stocks that are in loss, you can sell them to realize the loss and use it to offset gains in the same financial year. Short-term losses can offset both STCG and LTCG, making them particularly valuable. This is called tax-loss harvesting.
Time your sales around the 12-month mark. If a stock is approaching 12 months of holding and is in profit, waiting a few extra days can save you significant tax — the rate drops from 20% STCG to 12.5% LTCG, and you get the Rs 1.25 lakh exemption on top of that.
Keep records of all transactions for at least 8 years beyond the assessment year, as capital losses can be carried forward for 8 years.
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Analyze My Portfolio FreeFrequently Asked Questions
What is the capital gains tax rate on stocks in India for FY 2025-26?
For listed equity shares, STCG (holding period of 12 months or less) is taxed at 20% under Section 111A. LTCG (holding period exceeding 12 months) is taxed at 12.5% under Section 112A, with an annual exemption of Rs 1.25 lakh. Both rates are plus 4% health and education cess and applicable surcharge.
Do I need to pay tax if my stock market profits are below Rs 1.25 lakh?
It depends on whether the gains are short-term or long-term. The Rs 1.25 lakh exemption applies only to LTCG under Section 112A. STCG has no exemption — every rupee of short-term gain is taxable at 20%. So if your Rs 1.25 lakh profit is entirely long-term, you pay zero tax. If it is short-term, you pay Rs 25,000 in tax.
Is STT (Securities Transaction Tax) the same as capital gains tax?
No. STT is a separate tax automatically deducted on every stock exchange transaction (buy and sell). Capital gains tax is the tax on your profit from selling stocks. STT paid is not deductible from your capital gains, but the payment of STT is a prerequisite for your gains to qualify for the concessional rates under Sections 111A and 112A.
How is capital gains tax calculated if I bought the same stock on different dates?
India mandates the FIFO (First In, First Out) method. When you sell shares, the shares purchased earliest are deemed to be sold first. This determines the cost basis and holding period for each lot sold. For example, if you bought 100 shares in January and 100 shares in August, and sell 100 shares in October, the January lot is considered sold first.