LTCG on stocks in India: the complete guide

The headline numbers

From 23 July 2024 onward, long-term capital gains on listed equity shares and equity-oriented mutual funds (where Securities Transaction Tax has been paid) are taxed at:

• 12.5% on the gain exceeding ₹1.25 lakh per financial year
• 0% on the first ₹1.25 lakh of LTCG in the year

Short-term capital gains (positions held for 12 months or less) on the same asset class are taxed at 20% on the entire gain — no exemption. Both rates apply to the gross gain, before cess and surcharge.

You can plug your numbers into our LTCG/STCG calculator to see how the math works on a specific transaction.

What changed in Budget 2024 and why it matters

The Union Budget 2024-25 (presented on 23 July 2024) made the most significant change to capital gains taxation for Indian retail investors since the reintroduction of LTCG on equity in 2018. Three things changed simultaneously for listed equity:

• LTCG rate increased from 10% → 12.5%
• Annual exemption increased from ₹1 lakh → ₹1.25 lakh
• STCG rate increased from 15% → 20%

For most retail investors, the net effect on long-term holdings was a small tax increase. The exemption bump partially offset the rate increase — at exactly the right gain level (around ₹6 lakh of annual LTCG), the new regime is neutral compared to the old. Below that, you pay slightly less; above it, slightly more. The short-term picture is unambiguously worse: 20% on the entire gain is a 33% jump from the 15% rate.

For transactions that took place in FY 2024-25 between 1 April 2024 and 22 July 2024, the old rates apply (10% LTCG above ₹1 lakh, 15% STCG). For transactions on or after 23 July 2024, the new rates apply. If you have transactions on both sides of that date in the same financial year, you must compute them separately and the ITR utility handles this automatically.

What counts as long-term vs short-term?

For listed equity shares and equity-oriented mutual funds traded on a recognised Indian stock exchange where STT is paid, the threshold is more than 12 months. If you bought shares on, say, 1 March 2024 and sold them on 5 March 2025, the holding period is just over 12 months and the gain is long-term. If you sold on 28 February 2025, the holding period is exactly 12 months and the gain is still short-term — the law requires more than 12 months, not at least 12 months.

Equity-oriented mutual fund is defined as a scheme where at least 65% of total assets are invested in equity shares of domestic companies. Funds that fall below this threshold (e.g. some hybrid funds, conservative balanced funds, arbitrage funds in some quarters) follow different rules — debt fund taxation usually applies. Always check the fund category before computing tax.

Other asset classes have different thresholds. Unlisted equity requires 24 months, real estate requires 24 months, debt funds have no LTCG benefit at all (post-April 2023), and so on. This guide covers only the listed equity case.

The ₹1.25 lakh exemption is per FY, not per scheme

A common misunderstanding among first-time investors: the exemption is not per stock, not per fund, not per transaction. It is a single ₹1.25 lakh shield that applies to the aggregate long-term gain on all your listed equity and equity mutual fund redemptions in the same financial year.

Suppose in FY 2025-26 you redeem two equity mutual funds: Fund A delivers a long-term gain of ₹80,000 and Fund B delivers ₹70,000. Total LTCG = ₹1,50,000. The exemption shields ₹1,25,000, leaving ₹25,000 taxable at 12.5% = ₹3,125. You do not get a separate ₹1.25L exemption per fund.

The implication is also planning-relevant: if you have multiple long-term holdings sitting on big embedded gains, spreading the redemptions across financial years can let you use the exemption twice (once per FY) instead of once.

The 31 January 2018 grandfathering rule

Before Budget 2018, LTCG on listed equity was completely tax-free (provided STT was paid). Budget 2018 reintroduced the tax at 10% with a ₹1 lakh exemption. To avoid penalising long-term investors who had bought shares years earlier under the old tax-free regime, the law introduced a grandfathering mechanism.

For shares acquired before 1 February 2018 and sold on or after that date, the cost of acquisition is replaced by a stepped-up value equal to:

1. The higher of:
1. The actual cost of acquisition, or
2. The fair market value of the share as on 31 January 2018
2. Capped at the actual sale consideration.

The fair market value used is typically the highest traded price on 31 January 2018 (or the closest preceding trading day if 31 January was a holiday). This rule effectively zeroes out any gain that accrued before 31 Jan 2018, so only the post-2018 appreciation is taxable.

Eight years on, this rule is most relevant for very long-held positions — promoter holdings, ESOPs from old hires, and family portfolios that include shares acquired in the 1990s or 2000s.

Cess and surcharge

The LTCG and STCG rates are before cess and surcharge. On top of the base tax:

• Health and education cess of 4% applies to all taxpayers on the tax amount.
• Surcharge kicks in for high-income taxpayers. Under the post-Budget 2024 regime, the surcharge on capital gains is capped at 15% (down from the earlier 25% / 37% levels for very high incomes), bringing the effective LTCG rate for top-income individuals to roughly 14.95% (12.5% × 1.15 × 1.04).

For most retail investors with total income below ₹50 lakh, surcharge does not apply and the effective LTCG rate is 13% (12.5% × 1.04 cess).

Set-off rules: capital losses

If you have capital losses, the law lets you offset them against capital gains under specific rules:

• Long-term capital losses (LTCL) can be set off only against long-term capital gains (LTCG). They cannot be set off against any other head of income.
• Short-term capital losses (STCL) can be set off against either LTCG or STCG, which gives them more flexibility.
• Unutilised capital losses can be carried forward for 8 financial years, provided you file your ITR within the original due date.

A common year-end planning exercise is tax-loss harvesting: deliberately realising paper losses on some holdings to offset gains realised earlier in the same year. We do not give individual planning recommendations on this, but it is a standard technique that many SEBI-registered advisers discuss with clients.

Filing: which ITR and which schedule

Most Indian retail investors with capital gains file ITR-2. ITR-1 (Sahaj) explicitly cannot be used if you have any capital gains, even small ones. ITR-3 applies if you also have business or professional income.

Inside the ITR, capital gains are reported in Schedule CG. For listed equity, you fill the following columns: full value of consideration, cost of acquisition (with grandfathering applied where relevant), cost of improvement (zero for shares), and expenses related to transfer (brokerage, STT in some interpretations). The income tax utility auto-applies the rate based on the holding period.

From AY 2024-25 onward, the tax department provides a Capital Gains Statement (CG Statement) downloadable from your Annual Information Statement (AIS) on the income tax portal — this is pre-populated with broker-reported transactions and is a useful starting point for reconciliation.

Practical pointers for retail investors

1. Track your cost basis from day one.Brokers report sales to AIS but cost basis is your responsibility for anything older than the broker's record. A simple spreadsheet of every purchase (date, scrip, qty, price) saves hours during ITR filing.
2. Reconcile with AIS before filing. The AIS sometimes includes corporate actions (bonus, splits) without the corresponding cost basis adjustments. Cross-check against your contract notes.
3. Don't forget mutual fund SWPs and switches. A switch from one scheme to another is a redemption + a fresh purchase under tax law, even though no money left your bank account. Many first-time investors miss this.
4. Buyback proceedsare tax-exempt in the hands of the shareholder (the company pays buyback distribution tax) for buybacks completed before 1 October 2024. From 1 October 2024 onward, buyback proceeds are treated as deemed dividend and taxed at slab rates in the shareholder's hands. We will cover this in a separate guide.

Where to go next

Use the LTCG calculator to model specific transactions, and the SIP calculator alongside it to see how a long-running mutual fund SIP looks after capital gains tax at the redemption stage. We will be publishing dedicated guides on STCG, dividend taxation, buyback tax, ITR-2 walkthrough, and NRI capital gains rules in upcoming updates — bookmark /learn to follow them as they ship.

This article is educational only and does not constitute tax or investment advice. Tax laws change; please verify with a chartered accountant or refer to the latest CBDT circulars before filing your return. EquitiesIndia.com is not liable for any reliance placed on this article.