Capital Gains Tax on Equity Shares & Mutual Funds in India Explained

How are capital gains from equity investments taxed?

Capital gains are the profits you earn when you sell your shares or equity mutual fund units at a higher price than you paid.
In India, capital gains on equity investments are taxed based on how long you held the investment.

Here is how it works:

A. Short-Term Capital Gains (STCG)

  1. If you sell listed shares or equity mutual fund units within 12 months of purchase, it is considered short-term.
  2. Tax Rate: 20% plus applicable surcharge and cess.
  3. Example: You bought shares in January and sold them in May the same year.

B. Long-Term Capital Gains (LTCG)

  1. If you sell after holding the investment for more than 12 months, it is considered long-term.
  2. Tax Rate: 12.5% on gains exceeding ₹1.25 lakh in a financial year.
  3. The first ₹1.25 lakh of long-term gains are tax-free.
  4. No indexation benefit is allowed on equity gains.
  5. Example: You bought shares in January 2022 and sold them in February 2024.

C. Important Points to Remember

  1. Securities Transaction Tax (STT): This tax is already charged when you buy or sell listed shares on the stock exchange. STT must be paid for your gains to qualify for these tax rates.
  2. Dividends: Dividends from shares are taxable in your hands as per your income tax slab rate. Companies deduct TDS at 10% on dividends exceeding ₹5,000 in a financial year, which can be claimed as a credit in your Income Tax Return.
  3. Set-Off and Carry Forward: If you have capital losses, you can set them off against gains or carry them forward for 8 assessment years to adjust against future gains.


    • Related Articles

    • How does taxation work for mutual fund and ETF investments?

      Tax Treatment for Mutual Funds and Equity ETFs in India The tax treatment for mutual funds and ETFs in India depends primarily on two factors: Type of Fund: Equity-oriented, debt-oriented, or other funds (e.g., hybrid funds). Holding Period: The ...

    • How are gains from intraday trading taxed for ITR purposes?

      Gains from intraday trading are treated as speculative business income, not capital gains. Tax Treatment: - Profits are added to your total taxable income and taxed as per your income tax slab rate. - You can deduct expenses directly related to ...

    • Are there any tax benefits or deductions available to investors?

      Yes. Indian tax laws offer certain benefits and deductions to investors. These can help you reduce your tax burden if you meet the required conditions. Here are some common tax benefits you should know about: 1. Equity-Linked Savings Scheme (ELSS) ...

    • What is the tax treatment for income from derivatives trading?

      Income earned from trading derivatives like futures and options (F&O) is treated differently from regular equity investments. In India, such income is generally considered business income, not capital gains. Here is how it works: Classification as ...

    • What happens if I don’t report my capital gains in my ITR?

      Failing to report capital gains in your Income Tax Return (ITR) can lead to serious financial and legal consequences under the Income Tax Act, 1961. Here’s what you need to know: 1. Demand Notice and Penalties The Income Tax Department may issue a ...