A capital gain can be incurred while trading in shares. It can be either a long-term or a short-term capital gain. Usually, a seller is tend to earn a short-term capital gain on shares when he/she sells shares at a price higher than the purchase price.
What are Capital Gains Tax on Shares?
Capital gains are profits from capital assets such as investment properties, shares, homes, cars, bonds, stocks, and even collectibles. It includes almost everything you own and recorded at the time of depreciation in ITR.
For example: If you sell a car. Then, the car is considered a fixed asset or capital asset. The capital gains on selling a car are the ‘profit’ earned on the capital asset’s value. It attracts taxes only if it is used for business purposes. It doesn’t attract tax if it is used for a personal purpose. If you find capital gain taxes intimidating, you can hire a professional CA to help you plan and save taxes on capital gains.
What is Short Term Capital Gain on Shares?
The profit from the selling of shares that have been held for up to 12 months is referred to as a Short-Term Capital Gain on shares. The gain is considered a Long-Term Capital Gain if the shares are held for longer than a year.
Short-Term Capital Gains on shares are taxed at a greater rate than Long-Term Capital Gains.
In order to find the STCG tax rate on shares, the gains earned through them are split into 2 categories, namely–
STCG Under Section 111A
A rate of 15% will be charged as income tax on short-term capital gain on shares that fall under this category. They would further attract surcharge and cess wherever applicable.
Here are a few examples of the STCG that are covered under Section 111A–
- Gains generated through the sale of equity shares that have been enlisted in a recognised stock exchange.
- Gains generated through the sale of equity-oriented Mutual Funds that had been enlisted in a recognised stock exchange and had been sold through it.
- Gains generated through the sale of equity-oriented Mutual Funds, equity shares or units of a recognised business trust.
For example –
Ms Smriti decided to sell units of her equity-oriented funds at the Bombay Stock Exchange and held those units for eight months.
Since short-term capital gains accrued through equity-oriented funds fall under Section 111A, a rate of 15% would be levied as tax on such gains. Additionally, surcharge and cess would have to be paid, if deemed necessary.
STCG Not Under Section 111A
The income tax on short-term capital gain on shares other than Section 111A would attract a standard rate of tax.
Such tax on STCG on shares would be decided as per the income tax slab of tax-paying individuals.
Here are a few examples of the STCG that are not covered under Section 111A –
- Gains generated through the sale of equity shares without being enlisted on a recognized stock exchange.
- Gains generated through the sale of shares which are not equity shares.
- Gains generated through debt-oriented Mutual Funds.
- Gains generated through bonds, debentures and Government securities.
- Gains generated through assets which are not shares.
For example –
Mr Singh is a 40 years old salaried employee with an annual income of Rs. 8,40,000.
He decided to sell his debt funds which he held for eight months.
Since short-term capital gains are accrued through the sale of debt funds, they do not fall under Section 111A, a standard rate of tax would be applicable on it.
Short-term Capital Gain Tax on Sale of Shares
If you sell equity shares listed on a stock exchange within 12 months of buying them, you may either gain a short-term capital gain (STCG on shares) or experience a short-term capital loss (STCL). A short-term capital gain on shares occurs when you sell shares at a price higher than what you bought them for. Short-term capital gains on shares are subject to a 20% capital gain tax rate.
Long-term Capital Gain Tax on Sale of Shares
If you sell equity shares listed on a stock exchange after holding them for more than 12 months, you may either realize a long-term capital gain (LTCG) or a long-term capital loss (LTCL).
Before the introduction of Budget 2018, gains from the sale of equity shares or equity-oriented units of mutual funds held for the long term were exempt from taxation. In other words, no tax was levied on profits from the sale of long-term equity investments.
If a seller earns a long-term capital gain tax on shares of more than Rs.1.25 lakhs from the sale of equity shares or equity-oriented units of a mutual fund, the profit will be subject to a long-term capital gains tax rate of 12.5% on shares, along with applicable cess.
Capital Gains Tax on Shares in 2025 – Key Tax Implications
Short term Capital Gain Tax Rate on Shares
Under section 111A of the Income Tax Act, 1961, a 20% tax rate is applicable on short-term capital gain tax on listed equity shares, excluding surcharge + cess. Slab rate will be applicable on other short term assets. As compared with long-term capital gains on shares, short-term capital gains get preferential tax treatment.
Long term Capital Gain Tax Rate on Shares
A 12.5% long term capital gain tax rate is applicable on long-term capital gain on shares without indexation.
For investors who want to determine the levied taxes on long-term gains, the Cost Inflation Index (CII) is a new term they must know. The Income Tax Department notifies this number for tax calculation on long-term gains in a specific financial year. Using this number, the investors can calculate the indexed cost of a capital asset. It also carries information related to the inflation-adjusted price of a particular asset.
The CII number is 363 for FY 2024-25. Here is the list of CII values for different financial years –
| CII number | Financial Year |
|---|---|
| 363 | 2024-25 |
| 348 | 2023-24 |
| 331 | 2022-23 |
| 317 | 2021-22 |
| 301 | 2020-21 |
| 289 | 2019-20 |
| 280 | 2018-19 |
Note: Don’t forget that tax benefits on capital gains are not available for NRIs (Non-Resident Indians).
Here is the summary of Capital Gain Tax Rates on Different Types of Assets –
Given below are the tax rates for capital gains arising in case the transfers happened before 23/07/2024.
| Tax Type | Condition | Applicable Tax |
|---|---|---|
| Long-term capital gains tax (LTCG) | Sale of: – Listed Equity shares (If STT has been paid on the purchase and sale of such shares) – units of equity-oriented mutual fund (If STT has been paid on the sale of such units) | 12.5% over and above Rs 1.25 lakh |
| Others | 20% | |
| Short-term capital gains tax (STCG) | When Securities Transaction Tax (STT) is not applicable | Normal slab rates |
| When STT is applicable | 20% |
For the transfers that happened on or after July 2024 tax on Capital Gains are to be taxed as follows
| Tax Type | Condition | Applicable Tax |
|---|---|---|
| Long-term capital gains tax (LTCG) | Sale of: – Listed Equity shares (If STT is paid on the purchase and sale of such shares) – units of an equity-oriented mutual fund (If STT is paid on the sale of such units) | 12.5% over and above Rs 1.25 lakh |
| Land or Building or Both | Two options are available to individual and HUF taxpayers:
| |
| Others | 12.5% | |
| Short-term capital gains tax (STCG) | When STT is not applicable | Normal slab rates |
| When STT is applicable | 20%. |
Tax on Equity and Debt Mutual Funds
Capital gains on the sale of debt and equity funds are treated differently. Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund and vice versa.
| Funds | Acquired on or before 1 April 2024 | Acquired after 1 April 2024 | ||
|---|---|---|---|---|
| Short-Term Capital Asset | Long-Term Capital Asset | Short-Term Capital Asset | Long-Term Capital Asset | |
| Debt Funds | At slab rate | 10% without indexation or 20% with indexation whichever is lower | At slab rates | At slab rates |
| Equity Funds | 15% | 10% over and above Rs 1 lakh without indexation* | 20% | 12.5% over and above Rs 1.25 lakh without indexation* |
Note:
For transfers that happened before 23/07/2024 – 12.5% tax without indexation with an exemption limit of Rs.1,25,000
Note: Effective April 1, 2023, capital gains from the sale of Debt Mutual Funds, Market-Linked Debentures, and Unlisted Bonds or Debentures are classified as short-term, regardless of the holding period. These gains are taxed as per the applicable income tax slab rates.
FAQs
How to Calculate Short-Term Capital Gains Tax on Equity Shares?
The short-term capital gain on listed shares is the profit earned on the transfer of shares that are owned for one year or less time. Profit on transfer of unlisted shares held for not more than 24 months will be treated as short-term capital gain on shares. Its computation is done using the formula:
Short-term capital gains tax on shares = Final sale price – (cost of acquisition + improvement cost + cost of transfer)
For Example: In October 2023, Mr.A bought 250 shares of a publicly traded firm for Rs.38,750, at a rate of Rs.155 per share. After 5 months, he sold them for Rs.48,000.
Here’s how the STCG on shares will be calculated –
Sales value: Rs.48,000
Brokerage at 0.5%: Rs.240
Purchase price: Rs.38,750
Therefore, Kuldeep’s short-term capital gain is:
Rs.48,000 – (Rs.38,750 + Rs.240) = Rs.9,010
Tax on STCG on shares is calculated at 15%. Therefore, STCG tax will be 9010*15% = Rs.1351.5
Is the benefit of indexation available while computing capital gain arising on the transfer of short-term capital assets?
Indexation is a process by which the cost of acquisition/improvement of a capital asset is adjusted against an inflationary rise in the value of the asset. The benefit of indexation is available only in the case of long-term capital assets and is not available in the case of short-term capital assets.