Introduction
Many people invest in shares to earn profits from the stock market. When an investor sells shares at a price higher than the purchase cost, the profit is called capital gain, and it is taxable under the Income Tax Act. The tax treatment mainly depends on the holding period of the shares and whether the gain is short-term or long-term.
The Union Budget 2026 has continued the capital gains tax structure introduced in 2024. At the same time, the Income-tax Act, 2025 will replace the Income-tax Act, 1961 from April 2026. This article explains the latest rules relating to capital gains tax on shares for FY 2026–27.
Types of Capital Gains on Shares
Capital gains on shares are classified into two categories based on the holding period.
1. Short-Term Capital Gain (STCG)
When you sell shares within a short period after purchasing them, the profit is treated as Short-Term Capital Gain.
Holding Period
| Type of Share | Holding Period |
|---|---|
| Listed equity shares | Up to 12 months |
| Unlisted shares | Up to 24 months |
STCG Tax Rate
If Securities Transaction Tax (STT) is paid on listed shares, the gain is taxed under Section 111A at:
Tax Rate: 20%
However, for unlisted shares, short-term capital gains are taxed according to the individual’s income tax slab rate.
Example of Short-Term Capital Gain
Mr. A purchased 100 shares of XYZ Ltd. on 1 January 2024 at ₹400 per share.
Later, he sold these shares on 1 June 2024 at ₹500 per share.
Calculation
Purchase Price
₹400 × 100 = ₹40,000
Sale Price
₹500 × 100 = ₹50,000
Short-Term Capital Gain
₹50,000 – ₹40,000 = ₹10,000
Since Mr. A sold the shares within 12 months, the gain is treated as Short-Term Capital Gain and taxed at 20%.
2. Long-Term Capital Gain (LTCG)
When you hold shares for a longer period before selling them, the profit is treated as Long-Term Capital Gain.
Holding Period
| Type of Share | Holding Period |
|---|---|
| Listed shares | More than 12 months |
| Unlisted shares | More than 24 months |
Example of Long-Term Capital Gain
Mr. A purchased 100 shares of ABC Ltd. on 10 January 2022 at ₹300 per share.
Later, he sold these shares on 11 February 2025 at ₹800 per share.
Calculation
Purchase Price
₹300 × 100 = ₹30,000
Sale Price
₹800 × 100 = ₹80,000
Long-Term Capital Gain
₹80,000 – ₹30,000 = ₹50,000
Since the shares were held for more than 12 months, the profit is treated as Long-Term Capital Gain.
Long-Term Capital Gain Tax on Shares
Long-term capital gains on listed shares are taxed under Section 112A.
Tax Rules (FY 2026–27)
Tax Rate: 12.5%
Exemption Limit: ₹1.25 lakh per financial year
This means the first ₹1.25 lakh of LTCG is tax-free.
Important Points
- The concessional tax rate applies only if STT is paid.
- Indexation benefit is not available for listed shares.
Example of LTCG Tax Calculation
Suppose an investor earns ₹3,00,000 long-term capital gain from selling shares.
Taxable LTCG
₹3,00,000 – ₹1,25,000
= ₹1,75,000
Tax payable
₹1,75,000 × 12.5%
= ₹21,875
Capital Gains Tax on Unlisted Shares
The taxation rules for unlisted shares differ slightly.
| Type of Gain | Holding Period | Tax Rate |
|---|---|---|
| Short-Term Capital Gain | Up to 24 months | Normal slab rate |
| Long-Term Capital Gain | More than 24 months | 12.5% |
The Finance Act 2024 removed indexation benefits, and LTCG on unlisted shares is now taxed at 12.5% without indexation.
Important Policy Changes for Investors
1. New Income-tax Act from April 2026
The government introduced the Income-tax Act, 2025, which will replace the Income-tax Act, 1961 from 1 April 2026.
The new law aims to:
- simplify tax provisions
- remove outdated sections
- improve compliance
- introduce redesigned tax forms
However, capital gains tax rates remain largely unchanged.
2. Taxation of Share Buybacks
Earlier, companies paid tax on buybacks as deemed dividend tax.
From 1 April 2026, buyback proceeds will be taxed as capital gains in the hands of shareholders.
This change allows investors to deduct the cost of acquisition and pay tax only on actual gains.
3. Increase in Securities Transaction Tax (STT) on F&O
The government increased the Securities Transaction Tax (STT) on derivatives trading.
| Transaction | STT Rate |
|---|---|
| Futures | 0.05% |
| Options | 0.15% |
This change mainly affects frequent traders and derivative investors.
4. Section 87A Rebate Not Available on LTCG
Under the new tax regime, individuals with income up to ₹12 lakh can claim rebate under Section 87A.
However, this rebate does not apply to LTCG on shares.
Therefore, investors must pay 12.5% tax on LTCG exceeding ₹1.25 lakh, even if their total income is below ₹12 lakh.
Tax Planning Tips for Capital Gains on Shares
1. Use the ₹1.25 Lakh LTCG Exemption
Investors can plan their share sales so that total LTCG remains within ₹1.25 lakh per year, thereby avoiding tax.
2. Adjust Gains with Capital Losses
Taxpayers can reduce tax liability by adjusting losses.
| Loss Type | Can be adjusted against |
|---|---|
| Short-term capital loss | STCG and LTCG |
| Long-term capital loss | LTCG only |
Unused losses can be carried forward for 8 years, provided the return is filed within the due date.
3. Gift Shares to Family Members in Lower Tax Brackets
Investors can transfer shares to parents, major children, or siblings who fall in a lower tax bracket.
However, the clubbing provisions apply if shares are gifted to spouse or minor children.
4. Invest Through HUF
Investing through a Hindu Undivided Family (HUF) allows families to use separate LTCG exemption limits and reduce tax liability.
How to File ITR for Share Trading
The process of filing an Income Tax Return (ITR) for share transactions depends on the type of trading.
Step 1: Determine Type of Income
| Type of Trading | Tax Treatment |
|---|---|
| Intraday trading | Speculative business income |
| Delivery-based trading | Capital gains |
| Futures & Options | Non-speculative business income |
Step 2: Choose the Correct ITR Form
| Situation | ITR Form |
|---|---|
| Capital gains from shares | ITR-2 |
| Intraday trading or F&O | ITR-3 |
Step 3: Maintain Records
Investors should keep the following documents:
- Broker profit and loss statement
- Contract notes
- Bank statements
- Demat account statement
Step 4: Pay Advance Tax
If total tax liability exceeds ₹10,000, taxpayers must pay advance tax in instalments during the year.
Step 5: File ITR Online
Steps to file return:
- Visit the Income Tax e-filing portal https://www.incometax.gov.in/iec/foportal/
- Login using PAN/Aadhaar
- Select the appropriate ITR form
- Enter capital gains details
- Verify tax liability
- Submit and e-verify the return
How to Get Capital Gains Statement for Share Trading
To obtain a Capital Gains Statement, investors can download the report from their stock broker’s portal.
Example
Zerodha
- Login to Console
- Go to Reports
- Select Tax P&L
- Choose Financial Year
- Download Report
Other brokers such as Upstox, Angel One, and ICICI Direct also provide similar tax reports.
Investors can also obtain a Consolidated Account Statement (CAS) from CDSL or NSDL, which shows all share transactions across different brokers.
Conclusion
Understanding capital gains tax on shares is essential for every investor. The tax depends on the holding period, type of shares, and applicable tax rates. For FY 2026–27, short-term gains on listed shares are taxed at 20%, while long-term gains are taxed at 12.5% on gains exceeding ₹1.25 lakh.
Therefore, investors should maintain proper records, plan their share transactions carefully, and file their income tax returns correctly. By understanding these rules and using available tax planning strategies, investors can reduce tax liability while staying compliant with tax laws.