Capital Gains Tax on Shares: LTCG vs STCG Rules (AY 2026-27)

By Pradipta Ray · Published 3 October 2026

The taxation of equity shares and mutual funds in India underwent major revisions in recent union budgets. Here is the authoritative guide to holding periods, revised STCG/LTCG rates, and exemption thresholds for AY 2026-27.

When you invest in Indian stock markets or equity mutual funds, the holding period determines whether your profit is categorized as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG). The tax framework was revised to simplify capital asset taxation.

Direct Answer: For listed shares and equity funds: 1) STCG (held <= 12 months) is taxed at 20%, 2) LTCG (held > 12 months) is taxed at 12.5% on profits exceeding ₹1.25 Lakh per financial year (zero tax on the first ₹1.25 Lakh of profit).

Equity Taxation Framework (AY 2026-27)

Summary of short-term and long-term equity capital gains tax
Asset Category	Holding Period	Tax Rate	Exemption Limit	Securities Transaction Tax (STT)
Listed Equity Shares (STCG)	<= 12 Months	20% + 4% cess	Nil	STT applicable at sale
Listed Equity Shares (LTCG)	> 12 Months	12.5% + 4% cess	₹1,25,000 per year	STT applicable at sale
Equity Mutual Funds (STCG)	<= 12 Months	20% + 4% cess	Nil	STT applicable at redemption
Equity Mutual Funds (LTCG)	> 12 Months	12.5% + 4% cess	₹1,25,000 per year	STT applicable at redemption
Unlisted Shares / Foreign Equities	> 24 Months	12.5% (LTCG)	Nil	No STT

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How Tax-Loss Harvesting Saves Money

If you have realized ₹2,00,000 in LTCG from winning stocks, your taxable gain above the ₹1.25 Lakh exemption is ₹75,000 (tax: ₹9,750). If you also hold losing stocks with ₹75,000 in unrealized losses, you can sell them before March 31 to book the loss, setting it off against your gains to wipe out your tax bill entirely. You can repurchase the same stocks or equivalent funds next week.

Crucial Tax Rules for Equity Investors

Unabsorbed capital losses can be carried forward for up to 8 consecutive financial years, provided you file your ITR before the July 31 due date.
Dividends received from shares are not part of capital gains; dividends are taxed as regular income at your applicable income tax slab rate.
Grandfathering benefits under Section 112A continue to protect capital gains accumulated up to January 31, 2018.

Frequently asked questions

What is the new LTCG tax rate on listed equity shares?

Long-Term Capital Gains (LTCG) on listed equity shares and equity mutual funds held for more than 12 months are taxed at 12.5% (plus 4% cess) on gains exceeding ₹1,25,000 per financial year.

What is the new STCG tax rate on shares?

Short-Term Capital Gains (STCG) on listed shares and equity funds sold within 12 months of purchase are taxed at 20% (plus 4% cess, effective rate 20.8%).

Can I offset short-term capital losses against long-term gains?

Yes. Short-term capital losses (STCL) can be set off against both short-term capital gains and long-term capital gains. However, long-term capital losses (LTCL) can ONLY be set off against long-term gains.

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