Capital Gains Tax on Shares and Mutual Funds: 20% or 12.5%?

Capital gains tax on shares and mutual funds depends on how long you held them. For listed shares and equity funds sold in FY 2025-26, a gain within 12 months is taxed at 20%. A gain after 12 months is taxed at 12.5%, and only on the amount above Rs 1,25,000 a year. Debt funds follow different rules.

Short-term or long-term: which one is yours?

A capital gain is the profit you make when you sell an investment for more than it cost. The law splits it by holding period, the time between buying and selling. A short holding gives a short-term capital gain (STCG). A longer one gives a long-term capital gain (LTCG), which is taxed more lightly.

Since 23 July 2024 there are only two holding periods: 12 months for listed securities and 24 months for everything else. The table shows the position for sales in FY 2025-26 (1 April 2025 to 31 March 2026), the year covered by the return filed in 2026.

The section numbers are from the Income-tax Act, 1961, which still governs FY 2025-26. Indexation means raising your cost for inflation before working out the gain. It is no longer given on these assets. A 4% cess is added to the tax in every case.

What changed on 23 July 2024?

Older articles still quote 15% and 10%. Those rates ended with the July 2024 budget.

So for FY 2025-26 only the right-hand column matters. The Rs 1,25,000 is one limit for the whole year, across all your listed shares and equity funds together. It does not apply to short-term gains.

A worked example

Meera, a salaried employee, made three sales in FY 2025-26:

• Shares held for three years: gain of Rs 2,10,000.
• Equity fund units held for eight months: gain of Rs 40,000.
• A stock held for five months: loss of Rs 15,000.

Short-term: Rs 40,000 less the Rs 15,000 loss is Rs 25,000. Tax at 20% is Rs 5,000.

Long-term: Rs 2,10,000 less Rs 1,25,000 is Rs 85,000. Tax at 12.5% is Rs 10,625.

Total Rs 15,625, plus 4% cess of Rs 625: Rs 16,250. This is over and above the tax on her salary, and her salary slab does not change these rates.

Shares bought before 1 February 2018

Long-term gains on listed shares were exempt until 31 January 2018. To protect gains built up before that date, your cost is taken as the higher of two figures: what you actually paid, and the market value on 31 January 2018 (limited to your sale price). Your broker's capital gains statement usually shows this value. Check that it is filled in before you rely on the total.

What is different for tax year 2026-27?

Income from 1 April 2026 falls under the Income-tax Act, 2025. Selling this year? Here is what to know.

• Rates and limits: Budget 2026 kept 20%, 12.5% and Rs 1,25,000 as they are. The section numbers are new, so a notice or form for 2026-27 will not say 111A or 112A.
• Buybacks: money you receive when a company buys back its shares is taxed as capital gains from 1 April 2026. Before that it was taxed as dividend at your slab rate, and your cost was booked as a capital loss.
• Sovereign Gold Bonds: the capital gains exemption on redemption is limited to bonds you subscribed to at original issue and held till maturity.

Setting off losses

A short-term loss can be set off against any capital gain. A long-term loss can be set off only against long-term gains. What is left can be carried forward for eight years, but only if you file by the due date. For FY 2025-26 that date was 31 July 2026 for most investors. A belated return is still worth filing, but it does not carry this year's capital loss forward.

Where it goes in your return

ITR-1 allows only long-term gains under section 112A up to Rs 1,25,000 and no losses. With any short-term gain, or long-term gains above that limit, you need ITR-2. With business income as well, it is ITR-3. See which ITR form to file. Sales of pre-2018 shares are entered scrip by scrip in Schedule 112A. Match your broker and fund statements with your AIS, which lists sale values, not gains.

The mistake people usually make

They do not report a gain because it is below Rs 1,25,000. The limit removes the tax, not the reporting. The second mistake is with SIPs: every instalment has its own purchase date, and units are treated as sold on a first-in, first-out basis. Selling after 14 months of SIPs means only the first two instalments are long-term. The third is expecting the section 87A rebate to wipe out this tax. From FY 2025-26, the new regime rebate is not given against tax on gains charged at these special rates.

Should you do this yourself?

With a few sales and a clean broker statement, yes. Take help if you have unlisted shares, ESOPs, foreign shares, a buyback, or losses from earlier years to bring in.

Frequently asked questions

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