Capital Gains Tax on Stocks India 2026 — LTCG, STCG & STT Complete Guide

What Changed in Budget 2024 — Key Capital Gains Tax Revisions

The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman on July 23, 2024, fundamentally restructured how capital gains are taxed in India. The stated objective was to simplify the tax structure across asset classes while aligning India’s capital gains regime closer to global norms. For equity investors, the three most impactful changes were:

• LTCG rate increased: From 10% to 12.5% on listed equity shares and equity mutual funds held over 12 months.
• STCG rate increased: From 15% to 20% on listed equity shares held 12 months or less (where STT is paid).
• LTCG exemption raised: The annual LTCG exemption was increased from ₹1 lakh to ₹1.25 lakh per financial year.
• Indexation removed for equity: Formally confirmed that indexation benefit is not available for LTCG on listed equities (it was not available earlier either, but the budget clarified this across all asset classes).
• Holding period retained: The 12-month holding period to qualify for LTCG treatment on listed equity was kept unchanged.

These changes took effect from July 23, 2024 — meaning any equity sold after that date is subject to the new rates, regardless of when you purchased the shares. Gains on equity sold before July 23, 2024 remain taxable at the old rates (LTCG 10%, STCG 15%) for the AY 2024-25 filing.

LTCG vs STCG — Summary Table for FY 2025-26

Note: Cess at 4% (Health & Education Cess) applies on the computed tax amount in addition to the rates above. Surcharge applies based on total income slabs.

How to Calculate Capital Gains on Shares — Step by Step

Capital gains are calculated as: Sale Price − Cost of Acquisition − Transfer Expenses = Capital Gain. For LTCG on shares purchased before January 31, 2018, the grandfathering rule applies — the cost of acquisition is the higher of: (a) your actual purchase price, or (b) the Fair Market Value (FMV) as of January 31, 2018.

Transfer expenses such as brokerage, STT paid on purchase (not on sale), and demat charges can be included in the cost of acquisition, reducing your taxable gain. However, STT paid on sale is not deductible from capital gains — it is a separate levy.

Securities Transaction Tax (STT) — Rates and Impact

STT is a transaction tax levied at source on every buy or sell of listed securities on a recognized Indian stock exchange (NSE, BSE). It is collected by your broker and remitted to the government. STT is not an alternative to capital gains tax — both apply simultaneously. However, paying STT is a prerequisite for LTCG and STCG to be taxed at the concessional flat rates (12.5% and 20%). If STT is not paid (e.g., off-market transactions), normal income tax slab rates apply.

Budget 2024 also increased STT on F&O — the futures STT rate was raised from 0.0125% to 0.02%, and the options STT (on premium) was raised from 0.0625% to 0.1%. This makes high-frequency F&O trading significantly more expensive from a transaction cost perspective.

F&O Taxation — Business Income, Not Capital Gains

Futures and Options (F&O) trading income in India is treated as non-speculative business incomeunder Section 43(5) of the Income Tax Act — NOT as capital gains. This is a critically important distinction that many retail traders miss. The tax implications are fundamentally different:

• Taxed at slab rates: F&O profits are added to your total income and taxed at 5%, 20%, or 30% depending on your total income bracket — not at the flat 20% STCG rate.
• Business expenses deductible: You can deduct brokerage, STT paid, internet charges, advisory fees, trading software subscriptions, depreciation on computer equipment, and even a portion of home rent if you trade from home.
• F&O losses can be carried forward: Unlike speculative losses (which can only offset speculative profits), F&O losses as non-speculative business losses can be set off against any other business income and carried forward for 8 years.
• Advance tax applies: If your expected F&O tax liability exceeds ₹10,000, you must pay advance tax in four installments (June 15, Sep 15, Dec 15, Mar 15).

If your F&O turnover is below ₹2 crore, you may opt for the presumptive taxation scheme under Section 44AD, declaring 6% of turnover as profit (if receipts are digital) or 8% (if cash-based), without maintaining detailed books of accounts. However, if actual profits are lower than the presumptive rate, opting out and maintaining books (with potential tax audit) is more beneficial.

Intraday Trading — Speculative Business Income

Intraday equity trading (buying and selling the same stock on the same day without taking delivery) is classified as speculative business income under Section 43(5). This differs from F&O in an important way:

• Speculative losses can ONLY be set off against speculative profits — not against salary, rental income, or F&O profits.
• Speculative losses can be carried forward for 4 years only (not 8 years like non-speculative business losses).
• Intraday trading profits are taxed at your applicable income tax slab rate.
• ITR-3 is required if you have intraday trading income.

Most active retail traders who combine intraday, F&O, and delivery trading will need ITR-3 and are advised to work with a CA who specializes in trader taxation, as the interplay of speculative, non-speculative, STCG, and LTCG income requires careful segregation.

How to File ITR for Stock Market Gains

The correct ITR form depends on the types of income you have from the stock market:

Your broker (Zerodha, Groww, Angel One, ICICI Direct, etc.) will provide a Capital Gains Statementand a Tax P&L Report at the end of the financial year. These reports segregate your LTCG, STCG, speculative gains (intraday), and F&O gains. Download this report from your broker’s portal before filing your ITR — it contains the exact figures needed for Schedule CG.

The Income Tax Department pre-populates ITR forms with data from Form 26AS and the Annual Information Statement (AIS), which includes information received from stock exchanges. Cross-check your broker’s statement against your AIS to ensure consistency before filing.

Tax Harvesting Strategy — How to Legally Reduce Your LTCG

Tax harvesting (also called tax loss harvesting) is a completely legal strategy to optimize your capital gains tax liability. The most common approach for equity investors in India is LTCG harvesting before March 31 each year:

There is no wash sale rule in India — unlike the US, you can sell and immediately repurchase the same stock. This makes annual LTCG harvesting an especially powerful tool for long-term investors. Over a 10-year period, consistent annual harvesting can meaningfully reduce your total LTCG tax burden.

You can also harvest LTCG losses by selling underperforming long-term holdings to offset gains elsewhere in your portfolio. LTCG losses can be set off against LTCG gains (but not against STCG gains). Unused LTCG losses can be carried forward for 8 years.

Dividend Taxation — No Longer Tax-Free

Since FY 2020-21, dividends received from Indian companies are fully taxable in the hands of the investor at their applicable income tax slab rate. The earlier Dividend Distribution Tax (DDT) paid by companies was abolished. Key points:

• Dividends are added to your total income under “Income from Other Sources” and taxed at slab rates.
• If dividend income exceeds ₹5,000 from a single company, the company deducts TDS at 10% under Section 194.
• For foreign company dividends, TDS is deducted at 20% (plus surcharge and cess).
• You can claim credit for TDS deducted in your ITR to avoid double taxation.

High-dividend yield stocks are less tax-efficient for investors in the 30% tax bracket because the effective dividend tax rate is 30% (versus 12.5% LTCG if the same return came as capital appreciation). Growth-oriented equity investing is generally more tax-efficient than dividend-focused investing for high-income investors.

Capital Gains Tax for NRIs — Key Differences

Non-Resident Indians (NRIs) investing in Indian equity markets through NRE/NRO/PINS accounts face additional tax considerations:

• LTCG rate: 12.5% — same as resident Indians, for listed equity with STT paid.
• STCG rate: 20% — same as resident Indians, for listed equity with STT paid.
• TDS on sale: For NRIs, buyers are required to deduct TDS on capital gains at source — 12.5% for LTCG and 20% for STCG. This TDS is deducted by the broker automatically.
• DTAA benefit: NRIs can claim Double Tax Avoidance Agreement (DTAA) benefits between India and their country of residence to avoid being taxed twice on the same capital gains.
• Basic exemption: NRIs do not get the basic income tax exemption of ₹3 lakh (or ₹7 lakh under new regime) against capital gains — capital gains are taxed at flat rates regardless of total income.

Frequently Asked Questions