21 Sep 2024Updated: May 2026
Stock market investing in India has become more tax-nuanced after the Finance (No. 2) Act, 2024 revised capital gains rates with effect from 23 July 2024. The LTCG rate on listed equity and equity mutual funds increased from 10% to 12.5%, the STCG rate increased from 15% to 20%, and the annual LTCG exemption threshold was revised upward from ₹1 lakh to ₹1.25 lakh. For investors filing ITR for FY 2024-25 onwards, these are the operative rates — older content citing 10% LTCG or ₹1 lakh exemption is now outdated.
Capital Gains Tax Rates for Equity Investors: FY 2026-27
Long-Term Capital Gains (LTCG) — listed equity shares and equity-oriented mutual funds held more than 12 months: 12.5% on gains above ₹1.25 lakh per financial year. Gains within the ₹1.25 lakh annual threshold are exempt under Section 112A. No indexation benefit.
Short-Term Capital Gains (STCG) — listed equity shares and equity-oriented mutual funds held 12 months or less: 20% flat under Section 111A, irrespective of income level. No slab rate benefit.
Debt mutual funds (units purchased after 1 April 2023): Gains are taxed at slab rates as short-term capital gains regardless of holding period. The previous indexation benefit for long-term debt fund gains has been removed entirely.
Unlisted shares: LTCG (held more than 24 months) at 12.5% without indexation; STCG at slab rates.
Tax Harvesting: Making the ₹1.25 Lakh Exemption Work
The ₹1.25 lakh annual LTCG exemption under Section 112A is a use-it-or-lose-it benefit — it does not carry forward. Investors with unrealised long-term gains in equity portfolios should consider harvesting up to ₹1.25 lakh of LTCG each financial year before 31 March, even if they intend to remain invested. The process: sell the holding to book the gain (up to ₹1.25 lakh of LTCG), immediately repurchase the same security at the market price. The result is a step-up in cost basis with no net tax cost. Over time, this significantly reduces the embedded tax liability in the portfolio.
Loss Harvesting: Setting Off Losses Against Gains
Capital losses can be set off against capital gains of the same type (STCL against STCG first, LTCL against LTCG first) or across types subject to restrictions. Specifically: STCL can be set off against both STCG and LTCG; LTCL can only be set off against LTCG. Unused capital losses can be carried forward for 8 assessment years and set off against future capital gains — but only if the ITR for the loss year is filed before the due date.
In a year where the market has corrected, reviewing the portfolio for loss harvesting opportunities before 31 March can generate loss credits that offset future gains. The wash sale rule does not apply in India — you can sell and immediately repurchase the same security to book the loss.
ELSS: Section 80C Investment with Equity Exposure
Equity Linked Savings Schemes (ELSS) qualify for Section 80C deduction up to ₹1.5 lakh — available only under the old tax regime. ELSS has a 3-year lock-in period (the shortest among Section 80C instruments) and invests in listed equities. Redemption gains after 3 years are LTCG, taxed at 12.5% above ₹1.25 lakh. For investors on the old regime, ELSS combines tax savings on investment with equity market returns — though the LTCG rate change has marginally reduced the post-lock-in tax efficiency compared to pre-July 2024.
Advance Tax on Capital Gains
Capital gains are subject to advance tax. However, there is a specific rule for capital gains that arise after the advance tax due dates: gains arising after 15 December can be included in the fourth instalment due on 15 March. Investors who book large capital gains in January–March should estimate the tax and pay by 15 March to avoid interest under Section 234B and 234C.
Reporting in ITR
Equity capital gains must be reported in Schedule CG of the ITR. The AIS (Annual Information Statement) will reflect all securities transactions reported by the broker under Section 285BA. The ITR filing must reconcile exactly with the AIS data — discrepancies generate automated notices. Ensure that your broker's tax P&L statement (available on trading platforms) is reconciled against AIS before filing.
Regi Tom Antony And Associates provides income tax planning, ITR filing for investors, capital gains computation, and advance tax advisory. For SME and business advisory, visit smeadvisory.in. Contact: letstalk@rtaandassociates.com | Kakkanad, Kochi.