Capital Gains Tax on Shares & Mutual Funds Explained (FY 2025-26)

Direct Answer: For the financial year 2025-26, short-term capital gains (STCG) on listed equity shares and equity mutual funds held for 12 months or less are taxed at a flat rate of 20% (Section 111A). Long-term capital gains (LTCG) on assets held for more than 12 months are taxed at 12.5% (Section 112A) on gains exceeding the combined annual exemption limit of ₹1.25 Lakhs, with no indexation benefits allowed. These rates apply to all transfers made on or after July 23, 2024.

Calculate your exact capital gains tax: Plug your buy/sell dates and prices into our Equity Capital Gains Tax Calculator to estimate your tax liabilities and check grandfathering adjustments.

What Changed After 23 July 2024?

The Union Budget 2024 introduced major revisions to capital gains tax structures. Short-Term Capital Gains (STCG) rose from 15% to 20%, and Long-Term Capital Gains (LTCG) rose from 10% to 12.5%. To offset the rate hike for small investors, the LTCG tax exemption limit was raised from ₹1 Lakh to ₹1.25 Lakhs per financial year.

Source: Official notifications published by the Income Tax Department of India.

Short-Term Capital Gains (STCG) on Equity

If you hold listed shares or equity mutual fund units for 12 months or less before selling, the profits are classified as STCG under Section 111A. They are taxed at a flat rate of 20% (plus a 4% Health & Education Cess, totaling 20.8%).

• Worked Example: If you buy shares for ₹1,00,000 and sell them for ₹1,30,000 within 6 months, your net gain is ₹30,000. The STCG tax is ₹30,000 × 20% = ₹6,000, plus ₹240 cess, totaling ₹6,240.

Long-Term Capital Gains (LTCG) on Equity

If you hold listed equity assets for more than 12 months before selling, the profits are classified as LTCG under Section 112A. LTCG is taxed at 12.5% (plus 4% cess, totaling 13%) on the portion of gains that exceeds the ₹1.25 Lakhs annual exemption threshold.

• Worked Example: If you buy equity mutual fund units for ₹5,00,000 and sell them for ₹9,00,000 after 2 years, your net gain is ₹4,00,000. Your taxable LTCG is ₹4,00,000 − ₹1,25,000 (exemption) = ₹2,75,000. The tax is ₹2,75,000 × 12.5% = ₹34,375, plus ₹1,375 cess, totaling ₹35,750.

Note: Taxpayers cannot claim Section 87A rebates or Chapter VI-A deductions (like 80C) against capital gains tax under Sections 111A or 112A.

Grandfathering Rules (Before 31 Jan 2018)

For equity assets acquired before January 31, 2018, the cost of acquisition is recalculated to protect gains made before the LTCG tax was introduced. The adjusted cost is computed as the higher of:

1. The actual purchase price.
2. The lower of: The Fair Market Value (FMV) on January 31, 2018, or the actual Sale Consideration.

Capital Gains on Debt Mutual Funds

Following amendments introduced in 2023, capital gains on debt mutual funds (where equity exposure is 35% or less) acquired on or after April 1, 2023, are treated as short-term capital gains and taxed at your marginal income tax slab rates, regardless of the holding period. Debt funds no longer qualify for LTCG indexation benefits.

Understanding the ₹1.25 Lakh LTCG Exemption

The ₹1.25 Lakhs exemption is an aggregate annual limit that resets every financial year. Unutilized exemptions cannot be carried forward to subsequent years. Taxpayers often use a strategy called "tax harvesting"—selling and immediately repurchasing units annually to lock in up to ₹1.25 Lakhs in gains tax-free—to optimize their long-term tax liabilities.

Capital Gains on Real Estate

For property transactions, the holding period for long-term gains is 24 months. LTCG on real estate is taxed at 12.5% without indexation, or 20% with indexation if the property was acquired before July 23, 2024. Project your property tax liabilities using our dedicated Property Capital Gains Calculator.

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Frequently Asked Questions

What is the LTCG tax rate on shares in FY 2025-26?

For transfers made on or after July 23, 2024 (applicable to FY 2025-26), the Long-Term Capital Gains (LTCG) tax rate on listed equity shares and equity-oriented mutual funds is 12.5% on gains exceeding the aggregate annual exemption limit of ₹1.25 Lakhs.

What is the STCG rate on equity mutual funds?

Short-Term Capital Gains (STCG) on equity shares and equity-oriented mutual funds are taxed at a flat rate of 20% under Section 111A, for assets held for 12 months or less.

Is LTCG tax on shares eligible for the Section 87A rebate?

No, the Section 87A tax rebate is not allowed against tax liabilities arising from Long-Term Capital Gains (under Section 112A) or Short-Term Capital Gains (under Section 111A) on listed equities.

What is the capital gains exemption limit for FY 2025-26?

The tax exemption limit for LTCG on listed equities is ₹1.25 Lakhs per financial year. Only long-term gains exceeding ₹1.25 Lakhs are subjected to the 12.5% tax rate.

Official references: Section parameters and rules are verified from the Income Tax Department of India database.