Short-Term Capital Gains on WebNotes

Section 111A of the Income Tax Act

Sat, 16 May 2026 00:00:00 +0000

Section 111A of the Income Tax Act, 1961, is the operative tax provision that governs short-term capital gains (STCG) arising from transfers of listed equity shares, units of equity-oriented mutual funds , and units of business trusts (REITs and InvITs), subject to the condition that Securities Transaction Tax (STT) has been paid on both acquisition (with prescribed exceptions) and sale. The section was inserted by the Finance Act, 2004 alongside Section 10(38) (the now-repealed LTCG exemption), and operates as the structural counterpart to Section 112A for short-term holdings. As of the post-23 July 2024 regime introduced by the Finance (No. 2) Act, 2024, STCG under Section 111A is taxed at 20 per cent, with no exemption threshold and no indexation, applicable to gains on listed equity and equity-oriented MF held for up to 12 months.

STCG on equity mutual funds (Section 111A)

Tue, 12 May 2026 00:00:00 +0000

Short-term capital gains (STCG) on equity-oriented mutual funds are taxed under Section 111A of the Income Tax Act 1961 at a flat rate that is independent of the investor’s income-tax slab. The Finance Act 2024 raised the Section 111A rate from 15% to 20% with effect from 23 July 2024. Section 111A applies only where Securities Transaction Tax (STT) has been paid on the redemption transaction. Where STT has not been paid, the STCG is excluded from Section 111A and is added to total income at the applicable slab rate.

Taxation of debt mutual funds (post-April 2023)

Tue, 12 May 2026 00:00:00 +0000

Taxation of debt mutual funds in India underwent a fundamental change with effect from 1 April 2023 under the Finance Act 2023. Before that date, debt mutual fund units held for more than 36 months qualified as long-term capital assets and were taxed at 20% with the benefit of indexation under Section 48 of the Income Tax Act 1961. The Finance Act 2023 inserted the third proviso to Section 50AA (later renumbered as applicable amendments in the Schedule), which provides that the capital gains on specified mutual funds – those investing less than 65% of their assets in domestic equity – shall be treated as short-term regardless of the actual holding period, and shall be included in total income and taxed at the investor’s applicable income-tax slab rate. The regime for units acquired on or after 1 April 2023 is now uniformly slab-rate taxation with no indexation and no concept of long-term holding for such funds.