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Indian equity taxation

A plain-English overview of how listed equities are taxed in India. This is a general explainer, not personalised tax advice — consult a Chartered Accountant for your specific situation.

The two timeframes

For listed equity shares (and equity-oriented mutual funds) on which STT has been paid, the tax buckets are:

• Short-Term Capital Gains (STCG) — if you hold for up to 12 months from purchase and then sell.
• Long-Term Capital Gains (LTCG) — if you hold for more than 12 months from purchase and then sell.

The exact rate has been adjusted from time to time (notably in Budget 2024). Always cross-check the current rate before filing — rates here are stated for your understanding of the structure.

STCG — short-term gains

For listed equity / equity mutual funds with STT, STCG is taxed at a flat statutory rate (Section 111A) — historically 15%, raised to 20% in Budget 2024. The gain does not get added to your normal slab income; it's taxed separately at this flat rate.

LTCG — long-term gains

For listed equity / equity mutual funds with STT, LTCG is taxed under Section 112A. Historically the rate was 10% above a ₹1 lakh annual exemption; Budget 2024 raised it to 12.5% and the exemption to ₹1.25 lakh per financial year. Below the exemption threshold, LTCG is effectively tax-free in that year.

Grandfathering — what it means

When LTCG on equity was reintroduced (Budget 2018), the government "grandfathered" gains that had already accumulated up to 31 January 2018. In practice: for shares bought before 1 Feb 2018, your cost of acquisition is treated as the higher of (actual cost) and (fair market value on 31 Jan 2018). This protects pre-existing gains from the new tax.

STT — Securities Transaction Tax

A small tax collected automatically by the exchange on every equity and equity-derivative trade. Different rates apply to delivery-based equity buy/sell, intraday, and F&O. The amount is small per trade but matters in active strategies. STT being paid is what qualifies your gains for the favourable Section 111A / 112A treatment above.

Dividends

Since FY 2020–21, dividends are taxed in the hands of the recipient at the slab rate — the company no longer pays Dividend Distribution Tax (DDT). The company deducts TDS at 10% if total dividend paid to you exceeds ₹5,000 in a financial year (threshold updated periodically). You then reconcile in your ITR.

Buybacks

Until October 2024, buybacks of listed shares were taxed at the company level (20% buyback tax under Section 115QA) and the proceeds were tax-free in the shareholder's hands. From 1 October 2024, buybacks were brought under dividend taxation — proceeds are taxable as dividend in the shareholder's hands at the slab rate, while the cost of those shares becomes a capital loss available to offset other capital gains.

Set-off and carry-forward of losses

• STCL (short-term losses) can be set off against STCG and LTCG in the same year.
• LTCL (long-term losses) can only be set off against LTCG.
• Unutilised capital losses can be carried forward for 8 assessment years, provided you file the return by the due date.

Reporting it on your ITR

Capital gains are reported on Schedule CG of ITR-2 / ITR-3 (most retail investors will use ITR-2). Your broker provides a Profit & Loss statement and a Capital Gains report for the financial year. Cross-check those with your demat statement before filing.

Important: Tax rates, thresholds and rules change with each Union Budget. Always confirm against the current Income Tax Act and the latest Budget before filing. Consult a Chartered Accountant for material decisions.