Highlights:

  • Learn how equity share profits are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on holding period.
  • Explore the latest tax rates applicable to equity shares where Securities Transaction Tax (STT) is paid.
  • Understand how the ₹1.25 lakh LTCG exemption works and when capital gains become taxable.
  • Learn which expenses can be deducted while calculating capital gains and why STT is not deductible.
  • Explore how capital losses can be set off and carried forward to reduce future tax liability.

Introduction

You sell shares at a profit, then tax season arrives. Suddenly, you’re wondering: Is this short-term or long-term? What is the actual tax liability? Can losses be adjusted?

Capital gains taxation on equity shares is subject to specific rules, and tax rates may change through government budget announcements and amendments. Whether you are a short-term investor or a long-term investor, understanding the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) is essential because it directly affects your post-tax returns. Here’s what the current tax framework means for equity investors in India.

Understanding Capital Gains on Share Sales

When you sell equity shares at a profit, the gains are classified as either Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on how long the shares were held before sale.

  • Listed equity shares held for 12 months or less are treated as STCG.
  • Listed equity shares held for more than 12 months are treated as LTCG.

This classification is important because it determines the applicable tax treatment on your gains.

Example:
If shares are sold within 12 months of purchase, the gains are considered STCG. If they are sold after being held for more than 12 months, the gains qualify as LTCG.

Even a small difference in the holding period can affect your tax liability, so investors should carefully track purchase and sale dates when planning transactions.

Tax Rate on Share Sales (Where STT is Paid)

TypeHolding PeriodTax RateExemption
STCG≤ 12 months20% (flat)No exemption
LTCG> 12 months12.5% on gains above ₹1.25 lakh₹1.25 lakh per financial year

How to Calculate Capital Gains

Capital Gains Formula

STCG / LTCG = Sale Consideration − (Cost of Acquisition + Transfer Expenses)

Transfer expenses may include brokerage, exchange transaction charges, SEBI turnover fees, and stamp duty directly related to the transaction.

Important Points

  • Securities Transaction Tax (STT) paid on equity transactions is not deductible while calculating capital gains.
  • Expenses directly connected to the purchase or sale of shares, such as brokerage and statutory charges, can generally be deducted.
  • The applicable tax treatment depends on whether the gains qualify as STCG or LTCG.

STCG Example

  • Purchase Value: ₹1,00,000
  • Brokerage on Purchase: ₹200
  • Sale Value: ₹1,30,000
  • Sale-related Charges: ₹250

Short-Term Capital Gain:
₹1,30,000 − (₹1,00,000 + ₹200 + ₹250) = ₹29,550

Tax @ 20%: ₹5,910
(Applicable surcharge and cess may apply separately.)

LTCG Example

  • Total Annual LTCG: ₹2,00,000
  • Exempt LTCG Limit: ₹1,25,000

Taxable LTCG:
₹75,000

Tax @ 12.5%: ₹9,375
(Applicable surcharge and cess may apply separately.)

Set-Off and Carry Forward of Capital Losses

  • Short-Term Capital Loss (STCL): Can be set off against both STCG and LTCG.
  • Long-Term Capital Loss (LTCL): Can be set off only against LTCG.
  • Unadjusted capital losses can generally be carried forward for up to 8 assessment years.
  • To claim carry-forward benefits, the income tax return must usually be filed within the prescribed due date.

LTCG vs STCG: Planning Your Share Sale Taxes Smarter

  • Holding listed equity shares for more than 12 months may result in more favourable LTCG tax treatment.
  • Timing your sale carefully can affect whether gains qualify as STCG or LTCG.
  • Maintain accurate records of purchase dates, acquisition costs, brokerage, and transaction charges.
  • STT is a mandatory transaction cost, but it does not provide a deduction while computing capital gains tax.

FAQs

1. What is the current STCG tax rate on shares?

STCG on listed equity shares for which STT is paid attracts 20% tax under Section 111A, up from 15%, effective 23 July 2024.

2. How much LTCG on shares is tax-free in India?

The first ₹1.25 lakh of LTCG from listed equity shares per financial year is exempt under Section 112A. Gains above this attract 12.5% tax.

3. Can I deduct STT when calculating capital gains?

No, STT cannot be deducted from sale proceeds. However, brokerage, exchange charges, SEBI fees, and stamp duty are deductible when computing capital gains.

4. Can I carry forward capital losses from shares?

Yes, both STCL and LTCL can be carried forward for 8 assessment years, but only if the ITR is filed within the due date under Section 139(1). Late filing forfeits carry-forward rights.

5. How is a holding period calculated for shares?

The holding period is counted from the date of acquisition of the shares until the date of their transfer or sale.

  • Listed equity shares and equity-oriented mutual funds held for 12 months or less are treated as Short-Term Capital Assets, and gains are classified as Short-Term Capital Gains (STCG).
  • Listed equity shares and equity-oriented mutual funds held for more than 12 months are treated as Long-Term Capital Assets, and gains are classified as Long-Term Capital Gains (LTCG).