Capital gains tax on equity in India: complete guide

Capital gains tax on equity in India is the income-tax charge that applies when a taxpayer transfers a listed equity share, an equity-oriented mutual fund unit, or a derivative interest that meets the equity-tax definition and realises a gain. The Indian framework distinguishes short-term capital gains (STCG) from long-term capital gains (LTCG) by holding period, and taxes each at a specified rate that has been amended materially in the 2018, 2024 and intervening Finance Acts. The framework rests on three pillars: the holding-period rule that determines short-term vs long-term classification, the rate schedule under Section 111A (STCG) and Section 112A (LTCG), and the Securities Transaction Tax (STT) precondition that makes equity-tax rates available only on transactions on which STT has been paid.

For an Indian retail investor in 2026, the rate structure post the July 2024 Finance Act is: STCG at 20 per cent (raised from 15 per cent in the Budget on 23 July 2024) and LTCG at 12.5 per cent (raised from 10 per cent) on gains above Rs 1.25 lakh per financial year (raised from Rs 1 lakh). The grandfathering of LTCG on equity from 31 January 2018 preserved pre-existing notional cost basis at the fair-market value on that date, sheltering the long-term gains accumulated under the prior tax-free regime from retrospective taxation. Securities transaction tax remains the gateway: only transactions on which STT was paid qualify for the favourable Section 111A and Section 112A rates.

This article serves as an editorial hub on the Indian capital gains tax regime for equity, organised by the structural questions a serious investor needs answered: how holding periods are computed, which rates apply, how grandfathering interacts with current sales, how the July 2024 amendments changed the calculus, how losses are set off and carried forward, and how the reporting reconciliation between broker statements, AIS, TIS and the income-tax return is performed.

What counts as equity for capital gains tax

The equity tax regime in India (Sections 111A and 112A) applies to a specific set of asset types. Outside this set, the slab-rate or non-equity rules apply.

Qualifying asset types

The equity tax regime applies to:

1. Listed equity shares in a recognised stock exchange in India where Securities Transaction Tax has been paid on transfer.
2. Units of equity-oriented mutual funds where the scheme maintains at least 65 per cent allocation to listed Indian equity. The equity-oriented mutual fund taxation framework details the threshold and verification mechanics.
3. Units of business trusts (REITs and InvITs) on listed exchanges where STT applies.
4. Equity-oriented arbitrage mutual funds, which qualify despite the cash-futures arbitrage strategy because the equity-allocation threshold is met. See arbitrage fund taxation for the mechanics.
5. ELSS (equity-linked savings schemes ), which are equity-oriented mutual funds with a three-year lock-in offering Section 80C deduction under the old regime.

Excluded from the equity regime

Outside the qualifying set, capital gains are taxed under different rules:

• Debt mutual funds acquired on or after 1 April 2023 are taxed at slab rate as STCG regardless of holding period (the April 2023 reform removed indexation benefit).
• Hybrid mutual funds with less than 65 per cent equity allocation follow hybrid mutual fund taxation rules that treat them as debt for tax purposes.
• Unlisted shares and physical equity outside exchanges are taxed under the non-listed rules with 24-month long-term threshold.
• Foreign equity acquired via the Liberalised Remittance Scheme or routed through DTAA arrangements for NRIs carry their own rate structure.
• Buyback proceeds carry their own tax under the post-2024 buyback-tax regime amendments.

The first principle for any equity-tax computation is to verify the asset class. A common reconciliation error in the AIS for mutual funds is misclassification across these buckets.

Holding-period rules

Capital gains are classified as short-term or long-term based on holding period, which determines the applicable rate.

Short-term capital gain (STCG)

A capital gain on equity shares or equity-oriented mutual fund units is treated as short-term if the holding period is 12 months or less from the date of acquisition to the date of transfer. This is the equity-asset-class definition under Section 2(42A) of the Income Tax Act. For other asset classes the threshold differs: 24 months for unlisted shares and immovable property, 36 months for debt instruments and most other capital assets pre-April 2023.

STCG on equity attracts Section 111A treatment : tax at the flat rate of 20 per cent post the July 2024 Finance Act amendment (previously 15 per cent from 2008 to 2024).

Long-term capital gain (LTCG)

A capital gain on equity is treated as long-term if the holding period exceeds 12 months. LTCG attracts Section 112A treatment : exemption on gains up to Rs 1.25 lakh per financial year (raised from Rs 1 lakh in July 2024), and 12.5 per cent flat rate on the excess (raised from 10 per cent).

Day-count mechanics

The holding period is computed from the day after acquisition to the day of transfer, inclusive. For mutual fund SIP investments, each instalment carries its own acquisition date and the first-in-first-out (FIFO) basis is used to determine which units are deemed transferred on partial redemptions.

For bonus and rights shares, the acquisition date is the date of allotment, and the cost basis is the actual cost (which is often zero for bonus). For mutual fund switches between schemes within an AMC, each switch is treated as a redemption of the source plus a fresh acquisition of the target, breaking the original holding period.

Section 111A: short-term capital gains

Section 111A governs the taxation of short-term capital gains on equity shares, equity-oriented mutual fund units, and business trust units where Securities Transaction Tax has been paid.

Rate and applicability

• Tax rate post 23 July 2024: 20 per cent flat plus applicable surcharge and 4 per cent health and education cess.
• Tax rate pre 23 July 2024: 15 per cent flat (the rate from 2008 to the Budget 2024 amendment).
• No basic exemption interaction: STCG under Section 111A is taxed at the flat rate even if the taxpayer’s other income is below the basic exemption limit, except that the basic exemption can absorb part of the STCG if no other income exists.

Computation

The STCG amount is the sale consideration minus the cost of acquisition (or indexed cost where applicable for non-equity assets, not relevant under Section 111A) minus any expenditure wholly and exclusively incurred for the transfer (brokerage, STT being explicitly disallowed as a deduction under Section 48).

Set-off and carry-forward

STCG under Section 111A can be set off against:

• Short-term capital losses (STCL) from any source.
• Long-term capital losses (LTCL) from any source.

STCL that exceeds the year’s STCG can be carried forward for up to 8 assessment years and set off against future STCG or LTCG only. STCL cannot be set off against other heads of income (salary, business, other sources) in the same year or any subsequent year.

Section 112A: long-term capital gains

Section 112A was introduced in the Finance Act 2018 (effective 1 April 2018) to tax LTCG on equity that was previously exempt under Section 10(38). The transition included a grandfathering provision discussed in the next section.

Rate and exemption

• Tax rate post 23 July 2024: 12.5 per cent flat (plus surcharge and cess) on gains above the exemption limit.
• Tax rate pre 23 July 2024: 10 per cent flat on gains above the exemption limit.
• Exemption limit post 23 July 2024: Rs 1.25 lakh per financial year (raised from Rs 1 lakh).
• No indexation benefit: equity LTCG is taxed on absolute gain (sale minus cost), not on inflation-adjusted gain.

Computation with FIFO

For mutual fund holdings accumulated through SIPs and lump-sum purchases, the FIFO rule determines which units are deemed transferred on redemption. The how to compute LTCG with grandfathering on Zerodha and the PPFAS grandfathering example walk through worked illustrations.

Set-off and carry-forward

LTCL on equity (or any other long-term capital loss) can be set off only against LTCG of the same year or carried forward to be set off against future LTCG for up to 8 assessment years. LTCL cannot offset STCG or any other head of income.

Grandfathering of pre-31-January-2018 LTCG

The Finance Act 2018 introduced Section 112A but also added a grandfathering provision to protect long-term gains that had accumulated under the prior tax-free regime (Section 10(38) had exempted LTCG on equity from 2004 to 2018).

The deemed cost basis

For equity acquired before 1 February 2018 and transferred after that date:

• Deemed cost of acquisition = higher of (a) actual cost and (b) the lower of (i) fair market value (FMV) as on 31 January 2018 and (ii) sale consideration.
• The FMV on 31 January 2018 for listed equity is the highest quoted price on that day on the recognised exchange where the share was listed (or NAV for mutual fund units).

Practical effect

The grandfathering caps the LTCG on pre-31-January-2018 holdings to gains accrued only after that date. Anyone holding equity acquired in or before January 2018 effectively gets a free step-up of cost basis to the FMV on that date, except where the sale consideration is below FMV.

Reconciliation with broker statements

CAMS and KFin capital gains statements and Zerodha’s capital gains statement compute the grandfathered cost basis automatically for mutual fund units and listed equity respectively. The taxpayer should verify that the FMV used matches the published value for the security on 31 January 2018.

The Finance Act 2024 amendments

The Union Budget on 23 July 2024 amended both Section 111A and Section 112A, the most material rate-structure change since 2018.

Rate changes

The amendments apply to transfers occurring on or after 23 July 2024. Transfers before that date in financial year 2024-25 continue under the previous rate schedule.

Practical recomputation

For financial year 2024-25 (assessment year 2025-26), the income-tax return form ITR-2 and ITR-3 split the equity capital gains into two periods: transfers up to 22 July 2024 (old rates) and transfers from 23 July 2024 (new rates). Each period is taxed under its own rate schedule with separate aggregation.

Securities Transaction Tax precondition

The favourable rates under Sections 111A and 112A are available only where Securities Transaction Tax has been paid on the transfer.

STT rates on equity

• Equity delivery (cash market): 0.1 per cent on both buyer and seller (raised from 0.1 / 0.1 in 2013).
• Equity intraday (sale): 0.025 per cent on seller only.
• Equity options (sale): 0.1 per cent of premium on seller post the October 2024 STT hike (raised from 0.0625 per cent).
• Equity futures (sale): 0.02 per cent of traded value on seller post the October 2024 hike (raised from 0.0125 per cent).
• Mutual fund redemption (equity-oriented): 0.001 per cent on the redemption amount on the seller (the AMC, not the unitholder).

STT paid on transactions is collected by the exchange and not separately claimable. STT is not deductible from sale consideration when computing capital gains under Section 48.

Off-market equity transfers

Off-market transfers (gift, inheritance, off-market sale outside exchange) do not attract STT and consequently do not qualify for the Section 111A or Section 112A rates. The seller in an off-market transaction pays tax at the slab rate (STCG) or 20 per cent with indexation (LTCG) on the non-equity-regime treatment.

Set-off and carry-forward rules

Within the year

• STCG can be set off against any capital loss (STCL or LTCL) of the same year.
• LTCG can be set off only against LTCL of the same year.
• Capital losses cannot be set off against other heads of income in the same year.

Carry-forward

Both STCL and LTCL can be carried forward for 8 assessment years from the year of incurrence, subject to:

• Loss must be reported in the original ITR (filed by the due date).
• Carried-forward STCL can offset future STCG or LTCG.
• Carried-forward LTCL can offset only future LTCG.

The how to file STCG ITR with PPFAS walks through the form mechanics.

Reporting and reconciliation

AIS and TIS

The Annual Information Statement (AIS) for mutual funds and Taxpayer Information Statement (TIS) pre-populate equity capital gains from broker and AMC reports. Mismatches are common because brokers report on trade-date basis while AMCs report on transaction-date basis, and STT classifications can be coded inconsistently. The AIS-TIS-MF mapping covers the reconciliation steps.

For PPFAS-specific reconciliation, see how to reconcile AIS with PPFAS capital gains .

Broker tax P&L

Zerodha Console’s tax P&L statement and the Console tax P&L download consolidate trade-level capital gains across all client transactions. The statement segregates STCG and LTCG, applies grandfathering for pre-2018 holdings, and emits a CSV / PDF format compatible with ITR-2 and ITR-3 schedules.

The PPFAS capital gains statement download provides equivalent information for PPFAS mutual fund holdings.

Mutual fund vs broker reporting

Mutual fund capital gains are reported by the AMC’s RTA (CAMS or KFin Technologies) and consolidated in the CAMS and KFin capital gains statement and mutual fund ITR capital gains statement packs. Stockbroker capital gains are reported by the broker (Zerodha, Groww, etc.) on a contract-note basis and consolidated in the Zerodha ITR capital gains statement .

Special cases

Bonus, rights and split shares

Bonus shares carry a zero cost basis and the date of allotment is the acquisition date. Rights shares carry the actual subscription price as cost basis. A share split is not a transfer; the cost basis is apportioned across the post-split shares and the original acquisition date carries over.

Dividend reinvestment in mutual funds

Pre-April 2020, mutual funds offered a dividend reinvestment option that added units at NAV without a separate cash flow. Each reinvestment created a fresh acquisition for holding-period purposes. The option was withdrawn following the dividend-tax reforms; remaining holdings in the historical dividend reinvestment option continue under the original cost-basis treatment.

NRI investors

NRI investors holding Indian equity face the same Section 111A and Section 112A rates, with additional withholding requirements and the option to claim DTAA benefits under bilateral tax treaties. The DTAA framework for NRI mutual fund investing covers the credit and exemption rules.

See also

• Mutual funds in India: complete guide
• Section 111A of the Income Tax Act
• Section 112A of the Income Tax Act
• STCG on equity mutual funds (Section 111A)
• LTCG on equity mutual funds (Section 112A)
• Grandfathering rule for LTCG
• Equity mutual fund grandfathering (31 January 2018)
• Securities Transaction Tax
• Debt mutual fund taxation (post-2023)
• Annual Information Statement for mutual funds
• AIS-TIS-MF mapping
• How to download tax P&L from Zerodha Console
• How to download Zerodha capital gains statement
• CAMS and KFin capital gains statement

External references

• Income Tax Act, Sections 111A and 112A
• Finance Act 2024 (July 2024) amendments
• SEBI scheme-categorisation framework for equity-oriented schemes
• AMFI guidance on equity-oriented determination
• Income Tax Department AIS portal

References

1. Income Tax Act 1961, Sections 2(42A), 47, 48, 50, 70, 71, 74, 111A, 112A.
2. Finance Act 2018, introducing Section 112A and the grandfathering provision for pre-31-January-2018 equity holdings.
3. Finance Act (No. 2) 2024 (23 July 2024), amending Section 111A and Section 112A rates and exemption.
4. Central Board of Direct Taxes circulars on capital gains computation and ITR reporting, accessed May 2026.
5. Securities Transaction Tax provisions under the Finance (No. 2) Act 2004 and subsequent rate revisions.
6. SEBI scheme-categorisation framework defining equity-oriented schemes (65 per cent equity-allocation threshold).
7. AMFI Tax Reckoner and best-practice guidance for mutual fund taxation, amfiindia.com.