Capital Gains Tax on Stocks & Mutual Funds: AY 2026-27
You sold some shares and redeemed a few mutual fund units this year, your salary TDS is sorted, and you assume the tax on those gains is small change. Then you open Schedule CG while filing and the number is bigger than expected — because equity gains are taxed at their own flat rates that ignore your slab, your deductions, and even the rebate that makes your salary tax-free. Here is exactly what you owe on stock and mutual fund profits for AY 2026-27 (FY 2025-26), and the legal levers that cut it.
Summary
| Asset & holding period | Gain type | Tax rate (FY 2025-26) | Section | Annual relief |
|---|---|---|---|---|
| Listed shares / equity MF, held ≤ 12 months | STCG | 20% | 111A | — |
| Listed shares / equity MF, held > 12 months | LTCG | 12.5% | 112A | First ₹1.25 lakh exempt |
| Debt MF bought on/after 1 Apr 2023 | Always slab | Your slab, up to 30% | 50AA | — |
| Gold, unlisted shares, property, held long | LTCG | 12.5%, no indexation | 112 | 54 / 54F / 54EC |
| Health & education cess on all of the above | — | +4% | — | — |
Two rates do all the work for a salaried investor: 20% on short-term equity gains, 12.5% on long-term equity gains above ₹1.25 lakh. Budget 2026 left both untouched, so these carry straight into the return you're filing now.
How each gain is taxed
Short-term equity gains (Section 111A): 20% flat
Sell a listed share or equity mutual fund unit within 12 months of buying and the profit is short-term, taxed at a flat 20% under Section 111A — whether you sit in the 5% slab or the 30% slab. Every sale after 23 July 2024 is taxed at 20% (the old 15% rate applied only to sales before that date, so it's irrelevant for FY 2025-26). A ₹1,50,000 short-term gain costs ₹30,000 plus cess — no exemption, no deduction softens it.
Action: if a winner is near the 12-month mark, check the buy date before you sell. A few extra weeks can move it from 20% to the 12.5% long-term rate.
Long-term equity gains (Section 112A): 12.5% above ₹1.25 lakh
Hold the same shares or equity fund for more than 12 months and the gain is long-term, taxed at 12.5% under Section 112A — but only on the amount above ₹1.25 lakh in a financial year, and with no indexation on equity. So ₹4,00,000 of long-term gains is taxed on ₹2,75,000 after the ₹1.25 lakh shield, costing ₹34,375 plus cess.
Action: track your long-term gains running total through the year so you know how much of the ₹1.25 lakh shield is still unused.
The ₹1.25 lakh exemption resets every April
That ₹1.25 lakh is not a one-time allowance — it refreshes every financial year. If you're sitting on long-held winners, sell enough to book up to ₹1.25 lakh of long-term gains, pay zero tax, and immediately rebuy to step up your cost base. Repeat it every year and you move lakhs of gains out of the tax net over time, entirely within the law.
Action: every February–March, book gains up to the unused part of your ₹1.25 lakh shield before the financial year closes.
The Section 87A "rebate trap" — why a ₹12 lakh earner still pays
This is the misconception that costs people the most. Under the new regime, total income up to ₹12 lakh pays no tax thanks to the ₹60,000 rebate under Section 87A. So an investor reasons: "my income is under ₹12 lakh, so I owe nothing." Wrong. The 87A rebate applies to tax on your normal slab income — it does not apply to tax computed at the special rates of 111A and 112A.
Take a reader on a ₹10 lakh salary who books ₹2,00,000 of long-term equity gains. The slab tax on the salary is fully wiped by the ₹60,000 rebate — zero. But the gains are taxed separately: ₹2,00,000 − ₹1,25,000 = ₹75,000 at 12.5% = ₹9,375 plus 4% cess = ₹9,750, payable in full. The "I earn under ₹12 lakh so I pay no tax" assumption quietly breaks the moment you have equity gains.
Debt funds don't get the long-term break (Section 50AA)
If you also hold debt mutual funds bought on or after 1 April 2023, there's no 12.5% rate and no holding-period benefit. Under Section 50AA the entire gain is added to your income and taxed at your slab — up to 30% plus cess for a ₹15L+ earner. Don't assume your debt fund gains are taxed like equity; they aren't.
Real example: Salaried, ₹28L CTC, Bengaluru
Priya is on the new regime and, over FY 2025-26, realised ₹4,00,000 of long-term gains on her equity funds and ₹1,50,000 of short-term gains on direct stocks. Here's the unplanned bill versus the same gains handled with two simple levers — setting off a short-term loss she was already carrying, and deferring part of the long-term sale into the next financial year.
| Item | Before (unplanned) | After (planned) |
|---|---|---|
| Long-term gains booked this FY | ₹4,00,000 | ₹2,50,000 |
| Less ₹1.25 lakh exemption | −₹1,25,000 | −₹1,25,000 |
| Taxable LTCG → tax @ 12.5% | ₹34,375 | ₹15,625 |
| Short-term stock gains | ₹1,50,000 | ₹1,50,000 |
| Less set-off short-term loss | — | −₹1,00,000 |
| Taxable STCG → tax @ 20% | ₹30,000 | ₹10,000 |
| Cess @ 4% | ₹2,575 | ₹1,025 |
| Capital gains tax this FY | ₹66,950 | ₹26,650 |
Same portfolio, same gains — ₹40,300 saved this year. The ₹1,50,000 of long-term gains she pushed to April gets a fresh ₹1.25 lakh exemption next year, so only ₹25,000 of it is ever taxed. Nothing here is aggressive; it's just using the annual exemption and loss set-off the law already grants you.
What to do this week
- Pull your gain statements before you file. Get the capital gains report from CAMS/KFintech for mutual funds and the realised P&L from your broker for stocks. Equity gains go in Schedule CG of ITR-2 — only a clean long-term gain up to ₹1.25 lakh with nothing to carry forward can sit in ITR-1.
- Use this year's ₹1.25 lakh shield. If you haven't booked long-term gains yet, sell up to the unused exemption and rebuy to reset your cost base — tax-free.
- Set off your losses. Short-term losses offset both short- and long-term gains; long-term losses offset only long-term gains. File by 31 July 2026 to carry any unused loss forward up to 8 years — miss the date and that carry-forward is gone.
- Pay advance tax on this year's gains. Large FY 2026-27 gains attract Section 234B/234C interest if you skip advance tax — fold them into your 15 June and later instalments instead of waiting for March.
Don't let the special rates ambush you at filing
Equity gains run on their own rulebook: a flat 20% short-term, 12.5% long-term above a ₹1.25 lakh annual shield, no rescue from your slab deductions or the 87A rebate. Once you see them that way the levers are obvious — hold past 12 months, harvest the exemption every year, set off losses, and stagger big exits. A ₹15L+ portfolio can save tens of thousands a year just by sequencing sales.
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