Capital Gains Tax on Stocks in India FY 2026-27: STCG vs LTCG Complete Guide

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In short: When you sell stocks in India, three things can happen tax-wise. If you held them for under 12 months, your gains are taxed at 20 percent as Short-Term Capital Gains (Section 111A). If you held for over 12 months, the first ₹1.25 lakh of gains per year is tax-free; anything above is taxed at 12.5 percent as Long-Term Capital Gains (Section 112A). Dividends are taxed at your slab rate. These rates changed dramatically in Budget 2024 (effective July 23, 2024) — STCG was 15 percent before, LTCG was 10 percent above ₹1 lakh. This guide walks through every tax event, set-off rules, real calculations, and the most common mistakes that cost retail investors thousands extra each year.

The three tax events when you trade stocks

Investors often think “tax on stocks” is one thing. It is actually three separate events, each with its own treatment:

1. You sell a stock for a profit — triggers capital gains tax (STCG or LTCG depending on holding period)
2. You receive a dividend — taxed at your slab rate
3. You trade in F&O — treated as business income, not capital gains. Different rules, ITR-3 required. See our F&O income tax treatment guide.

This article covers the first two. The third is a deep topic in itself.

Short-Term Capital Gains (STCG) — Section 111A

Stocks held for 12 months or less qualify as short-term capital assets. When you sell them at a profit, that profit is Short-Term Capital Gain.

Tax rate for STCG on listed equity (FY 2026-27): A flat 20 percent on the gain (plus applicable surcharge and 4 percent health and education cess). The rate was raised from 15 percent in Budget 2024 effective July 23, 2024.

Example: You buy 100 shares of Infosys at ₹1,500 on June 1, 2026. You sell all 100 on November 15, 2026 at ₹1,800.

• Holding period: 5 months and 15 days (less than 12 months — short-term)
• Gain: (1,800 minus 1,500) × 100 = ₹30,000
• Tax: 20 percent of ₹30,000 = ₹6,000
• Plus cess (4 percent on tax): ₹240
• Total tax: ₹6,240

Important conditions to qualify for the 20 percent STCG rate:

• The shares must be listed on a recognised Indian stock exchange (NSE, BSE)
• Securities Transaction Tax (STT) must have been paid on the sale

If both conditions are not met (rare — applies only to unlisted shares or off-market transfers), the gain is taxed at your normal slab rate instead of the flat 20 percent.

Long-Term Capital Gains (LTCG) — Section 112A

Stocks held for more than 12 months qualify as long-term capital assets. Gains on selling them are taxed under Section 112A.

Tax rate for LTCG on listed equity (FY 2026-27):

• First ₹1.25 lakh of LTCG per financial year: tax-free
• Amount above ₹1.25 lakh: taxed at 12.5 percent (plus surcharge and cess)

The exemption limit was raised from ₹1 lakh to ₹1.25 lakh, and the rate was raised from 10 percent to 12.5 percent — both effective July 23, 2024 per Budget 2024.

Example 1: You bought 200 shares of HDFC Bank at ₹1,400 in April 2024. You sell them in October 2026 at ₹1,900.

• Holding period: 30 months (long-term)
• Gain: (1,900 minus 1,400) × 200 = ₹1,00,000
• Total LTCG in FY 2026-27 (assuming no other long-term gains): ₹1,00,000
• Exemption limit: ₹1,25,000 — full ₹1 lakh gain is exempt
• Tax: ₹0

Example 2: Same as above but you also booked ₹2,00,000 in another long-term sale during the same financial year.

• Total LTCG: ₹1,00,000 + ₹2,00,000 = ₹3,00,000
• Tax-free portion: ₹1,25,000
• Taxable LTCG: ₹3,00,000 minus ₹1,25,000 = ₹1,75,000
• Tax at 12.5 percent: ₹21,875
• Plus cess (4 percent): ₹875
• Total tax: ₹22,750

Grandfathering clause — for stocks bought before Jan 31, 2018

This rule trips up many long-term investors. For shares purchased before January 31, 2018 (the date LTCG was reintroduced in Budget 2018), the cost basis for tax calculation is the higher of:

• Actual purchase price, OR
• Fair Market Value (FMV) of the share on January 31, 2018 — capped at sale price

Example: You bought TCS at ₹500 in 2010. Its closing price on January 31, 2018 was ₹3,000. You sell in 2026 at ₹4,500.

• Without grandfathering: LTCG = ₹4,500 minus ₹500 = ₹4,000 per share
• With grandfathering: cost basis = max(₹500, ₹3,000) = ₹3,000. LTCG = ₹4,500 minus ₹3,000 = ₹1,500 per share

This rule saves long-term investors significant tax. Brokers’ capital gains reports typically apply grandfathering automatically, but always verify.

Tax on dividends from stocks

Until April 2020, dividends were tax-free in shareholders’ hands (DDT was paid by the company). After Budget 2020, dividends became taxable in the shareholder’s hands at their applicable slab rate.

Tax rate on dividends (FY 2026-27): Added to your total income and taxed at slab rate (5, 10, 15, 20, 25, or 30 percent depending on income bracket and tax regime).

TDS on dividends: If your dividend income from a single company exceeds ₹5,000 in a financial year, the company deducts 10 percent TDS before paying you. You claim credit for this TDS while filing your ITR.

Example: You hold 500 shares of ITC. ITC declares ₹15 per share dividend.

• Total dividend: 500 × ₹15 = ₹7,500
• Since this exceeds ₹5,000, TDS at 10 percent applies: ₹750 deducted at source
• You receive ₹6,750 in your bank account
• If your slab is 30 percent: total tax on dividend = ₹7,500 × 30 percent = ₹2,250. You already paid ₹750, so additional tax at filing = ₹1,500
• If your slab is 10 percent: total tax = ₹750. The TDS fully covers it; no additional tax.

Capital loss set-off and carry-forward rules

The Indian tax code lets you offset capital losses against capital gains to reduce your tax bill. The rules are specific:

To carry forward losses, you must file your ITR before the due date (typically July 31 for individuals). Miss the deadline and you lose the right to carry forward — the losses can still offset current-year gains but not future years.

Example of tax-loss harvesting: In FY 2026-27, you have ₹3 lakh LTCG from one stock and an unrealised ₹1 lakh loss on another. By selling the losing stock before March 31, 2027 and rebuying after a wash-sale-safe interval:

• Without harvesting: tax on ₹3L LTCG = (3,00,000 minus 1,25,000) × 12.5% = ₹21,875
• With harvesting: net LTCG = ₹3,00,000 minus ₹1,00,000 loss = ₹2,00,000. Tax = (2,00,000 minus 1,25,000) × 12.5% = ₹9,375
• Savings: ₹12,500 in one year

India does not have a strict wash-sale rule like the US (which disallows buying back the same stock within 30 days), but you should consult a CA if you plan to do this aggressively.

Other charges on every stock trade

Apart from capital gains tax, every trade incurs a few mandatory statutory charges. These are not “tax on profits” — they apply whether you profit or lose:

For a ₹50,000 delivery buy + sell trade, the total statutory charges typically come to around ₹110 to ₹130 (mainly STT). This is about 0.22 percent of trade value — small per trade, meaningful if you trade frequently.

Tax-saving strategies for stock investors

Harvest the ₹1.25 lakh annual LTCG exemption every year

If you have long-term holdings that have appreciated and you have not used your ₹1.25 lakh LTCG exemption for the year, consider selling some and immediately rebuying (after a few minutes — there is no Indian wash-sale rule for equity). This realises tax-free gains and reset your cost basis higher, which reduces your future tax liability.

Hold for over 12 months to qualify for LTCG

The tax difference between STCG (20 percent) and LTCG (12.5 percent on gains above ₹1.25 lakh) is significant. On a ₹2 lakh gain, the difference is:

• STCG: ₹40,000 tax
• LTCG: ₹9,375 tax (after ₹1.25L exemption)
• Savings by waiting: ₹30,625

Use ELSS funds for combined tax-saving and equity exposure

Equity Linked Savings Schemes (ELSS) are mutual funds with a 3-year lock-in that qualify for Section 80C deduction (up to ₹1.5 lakh per year). They invest in equity, so you get market returns plus a tax deduction at slab rate. For someone in the 30 percent bracket, that is a ₹45,000 reduction in tax liability for the year — effectively boosting your investment by that much.

Tax loss harvesting

Sell losing positions before March 31 to realise the loss and offset other gains. As shown earlier, this can save significant tax in a single year.

Optimise dividend strategy

High-dividend stocks generate ordinary income taxed at slab rate (up to 30 percent). High-growth, low-dividend stocks generate capital gains taxed at 12.5 percent (long-term). For investors in higher tax brackets, growth stocks are typically more tax-efficient. For lower brackets or retirees needing income, dividend stocks may make sense.

Reporting capital gains in your ITR

You must report capital gains from stocks in:

• ITR-2 if you are an individual with capital gains and no business income
• ITR-3 if you have business income (including F&O income)

For listed equity STCG: report under “Section 111A” in Schedule CG. For LTCG: report under “Section 112A” with the option to fill the per-trade Schedule 112A (often pre-filled by tax software using your broker’s tax P&L statement).

Broker capital gains statements (downloadable from Zerodha Console, Dhan Tax, Groww Tax) are pre-formatted to match the ITR schedules and can be uploaded directly into tax software like ClearTax, Tax2Win, or the official IT portal.

For a complete walkthrough, see our how to file ITR-2 for stock capital gains guide.

Frequently Asked Questions

Is the LTCG limit per person or per family?

Per person, per financial year. A married couple each gets their own ₹1.25 lakh exemption. If both invest separately, the family effectively has ₹2.5 lakh annual LTCG exemption.

Are bonus and split shares treated differently?

Yes. The holding period for bonus and split shares is calculated from the date of allotment, not the original purchase date. Their cost basis is ₹0 for bonus shares — so when you sell, the entire sale price is taxable. For splits, the original cost is proportionally divided.

Do mutual fund redemptions follow the same rules?

Equity-oriented mutual funds (at least 65 percent in Indian equities) follow the same Section 111A and 112A rules. Debt funds taxation changed in Budget 2023 — all gains are now taxed at slab rate regardless of holding period.

What if I made a loss for the full year?

Report the net loss in your ITR. You can carry forward Short-Term Capital Loss for 8 years to offset future STCG or LTCG, and Long-Term Capital Loss for 8 years to offset future LTCG only. The catch: you must file your ITR by the due date (July 31 for individuals) to carry forward losses.

Do I pay capital gains tax on shares received via ESOPs?

Yes, but with a layered structure. ESOP allotment is taxed as a perquisite (salary income) on the difference between Fair Market Value and exercise price. When you later sell the shares, capital gains tax applies on the difference between sale price and FMV at allotment. So ESOPs are taxed twice — once as salary at allotment, once as capital gains at sale.

Are gifts of shares taxable?

Gifts from immediate relatives (parents, children, spouse, siblings, in-laws) are tax-free. Gifts from anyone else are tax-free up to ₹50,000 in aggregate per financial year; above that, the entire value is taxed as Income from Other Sources at slab rate. When you later sell gifted shares, the cost basis is the original purchase price by the giver, and the holding period also includes the giver’s holding period.

Are NRIs taxed differently on Indian stocks?

NRIs face the same STCG (20 percent) and LTCG (12.5 percent above ₹1.25 lakh) rates. However, brokers deduct TDS at these rates at source on every sale by NRIs, whereas residents pay tax only at the end of the year. NRIs can claim refunds while filing ITR if their total tax liability is lower than TDS deducted.

Sources & Further Reading