LTCG Tax on Stocks in India 2026 — Complete Capital Gains Guide

Capital Gains Tax on Stocks: Quick Reference (FY2025-26)

Note: Surcharge and cess (4% health & education cess) apply on top of these rates. The effective LTCG rate can be 13–14% including surcharge for higher income brackets.

What Changed in Budget 2024

Finance Minister Nirmala Sitharaman’s Budget 2024 (presented July 23, 2024) made several changes to capital gains taxation, effective from July 23, 2024:

• LTCG rate raised from 10% to 12.5% for listed equity shares and equity-oriented mutual funds.
• LTCG annual exemption raised from ₹1 lakh to ₹1.25 lakh. This partially offsets the rate increase for smaller investors.
• STCG rate raised from 15% to 20% for listed equity.
• Holding period for unlisted securities revised from 36 months to 24 months for LTCG qualification.
• Indexation removed for debt mutual funds and certain other asset classes — though equity never had indexation to begin with.

Gains realised before July 23, 2024 in the same financial year (April–July 22, 2024) were taxed at the old rates. Gains from July 23, 2024 onward fall under the new rates.

The ₹1.25 Lakh LTCG Exemption Explained

Every individual resident taxpayer can earn up to ₹1.25 lakh in LTCG from equity (listed shares and equity mutual funds) in a financial year (April 1 – March 31) without paying any tax. This is an annual per-person exemption.

Key points about this exemption:

• It applies to the net LTCG (gains minus losses on long-term equity positions)
• It cannot be carried forward if unused in a year
• It is per individual, per financial year — not per stock or per transaction
• LTCG above ₹1.25 lakh is taxed at 12.5% (plus cess)
• STCG has no such exemption — it is fully taxed at 20%

For a long-term equity investor with a diversified portfolio, staying within ₹1.25 lakh of annual realised LTCG through careful planning keeps equity returns effectively tax-free.

LTCG Tax Calculation: A Worked Example

Let’s walk through a simple example for FY2025-26:

The effective tax rate on ₹2.5 lakh of LTCG in this example is about 6.5% — the flat 12.5% rate combined with the ₹1.25 lakh exemption brings the effective burden significantly lower. This underscores why long-term equity investing remains one of the most tax-efficient wealth creation tools for Indian investors.

The Grandfathering Clause: Pre-2018 Holdings

LTCG on equity was exempt before April 1, 2018. When LTCG tax was reintroduced in Budget 2018, a grandfathering provision was included to protect gains already accrued.

The rule: for shares purchased before January 31, 2018, the cost of acquisition for LTCG calculation is deemed to be the higher of:

• Your actual purchase price
• The highest price quoted on a recognised stock exchange on January 31, 2018 (for unlisted, Fair Market Value on that date)

Example: You purchased shares at ₹100 in 2015. On January 31, 2018, the stock was trading at ₹300. You evaluate in April 2025 at ₹500. Your deemed cost of acquisition = ₹300 (higher of ₹100 actual or ₹300 Jan 31, 2018 price). Taxable LTCG = ₹500 − ₹300 = ₹200 per share. The ₹200 gain from ₹100 to ₹300 that accrued before 2018 remains entirely tax-free.

This applies only to listed securities. For unlisted shares, the Fair Market Value as certified by a merchant banker or Category I SEBI-registered valuer applies.

Tax Harvesting Strategy: Making the Most of the ₹1.25 Lakh Exemption

Tax harvesting is a legitimate and widely-recommended strategy to systematically reduce your deferred capital gains tax liability. Here is how it works:

1. In February or early March each year, evaluate your long-term equity portfolio for positions with unrealised LTCG.
2. Evaluate positions to book gains up to ₹1.25 lakh — these gains are completely tax-free.
3. Immediately re-enter the same position at the current (higher) price. This resets your cost basis upward.
4. Over 10–15 years, you progressively reduce the unrealised LTCG in your portfolio, meaning when you eventually realise holdings, the taxable portion is much smaller.

Important: there are transaction costs (brokerage + STT) when you evaluate and re-enter. Ensure the tax saving exceeds these costs, which it generally does for positions with meaningful LTCG. For mutual funds, check exit loads (most long-term equity funds have zero exit load after 1 year).

Tax harvesting works for both direct equity and equity mutual funds. Use VestAI’s portfolio tracker to identify positions with the largest unrealised LTCG for this exercise.

Mutual Funds vs Direct Equity: Tax Treatment

Equity mutual funds (where equity allocation is 65% or more) receive the same LTCG/STCG treatment as direct equity. Debt mutual funds now have no indexation benefit and gains are taxed at slab rates — making equity funds more tax-efficient than debt funds for long-term investors in higher tax brackets.

ITR Filing for Capital Gains

If you have realised capital gains from stocks or mutual funds, you must file:

• ITR-2: For individuals/HUFs with capital gains but no business income
• ITR-3: If you have F&O trading income (treated as business income) alongside capital gains
• ITR-1 (Sahaj): Cannot be used if you have capital gains — you must upgrade to ITR-2

Your broker provides a Capital Gains Statement (usually downloadable from the broker platform) that shows all transactions, cost of acquisition, sale proceeds, and calculated gains/losses. This can be directly imported into most ITR filing portals.

Capital gains must be reported even if they are within the ₹1.25 lakh exemption — the exemption reduces your tax to zero but the transaction must still be disclosed in Schedule CG of your ITR. Non-disclosure can attract notice from the income tax department.

Frequently Asked Questions

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