Capital Gains Tax on Stocks & Mutual Funds (FY 2025-26)
Sold shares or redeemed an equity fund in the last year? The tax on those gains changed mid-2024, and FY 2025-26 is the first full year the new numbers apply across the board. Get the rate wrong, skip a loss set-off, or pick the wrong ITR form and you either overpay or invite a notice. Here's exactly what you owe and how to report it before the 31 July 2026 deadline.
Summary
| Asset | "Long-term" after | STCG rate | LTCG rate (gains above ₹1.25 lakh) |
|---|---|---|---|
| Listed shares & equity mutual funds | 12 months | 20% (Sec 111A) | 12.5% (Sec 112A) |
| Debt mutual funds (bought after 1 Apr 2023) | Always slab | Your slab rate | Your slab rate — no LTCG benefit |
| Gold, gold ETFs, physical gold | 24 months | Your slab rate | 12.5% (no indexation) |
| Unlisted / foreign shares | 24 months | Your slab rate | 12.5% |
The ₹1.25 lakh annual exemption applies only to listed equity and equity mutual funds. Surcharge on equity gains is capped at 15%; add 4% cess on top of every figure below.
The numbers that decide your tax bill
Equity: the 12-month cliff between 20% and 12.5%
Hold a listed share or equity fund for 12 months or less and the gain is short-term, taxed at a flat 20% under Section 111A. Cross 12 months and it turns long-term at 12.5% under Section 112A — but only on the portion above ₹1.25 lakh in the year. On a ₹5 lakh gain, selling at month 11 costs ₹1,00,000; waiting to month 13 costs ₹46,875 (12.5% of ₹3.75 lakh). That one-month wait saves ₹53,125 — the single biggest lever most investors ignore.
The ₹1.25 lakh that resets every April
The exemption is not a one-time allowance — it refreshes every financial year. If you hold long-term winners, sell enough each year to book up to ₹1.25 lakh of long-term gains, pay zero tax, and immediately buy back. Your cost basis resets higher, shrinking the taxable gain whenever you finally exit. Over a ₹6 lakh embedded gain, harvesting ₹1.25 lakh a year for five years books the whole thing tax-free; selling in one shot would cost 12.5% on ₹4.75 lakh — about ₹59,000. India has no wash-sale rule blocking this for gains.
The condition behind the low rates: STT
The 20% and 12.5% equity rates apply only when securities transaction tax (STT) was paid on the sale — i.e., a normal on-exchange trade. Sell shares off-market or to a private buyer and the concessional rates vanish: short-term gains join your slab and long-term gains are taxed at 12.5% without the equity treatment. For investors trading through a broker, STT is automatic — but founders and ESOP holders selling privately should check before assuming the lower rate.
Debt funds: no special rate since April 2023
Any debt mutual fund bought on or after 1 April 2023 is taxed entirely at your slab rate under Section 50AA — no 12.5% rate, no indexation, however long you hold. For a 30% taxpayer that is a flat 30% on the full gain. Only units bought before that date still qualify for the 12.5% long-term rate after 24 months.
Set-off and the loss you must book by 31 March
Losses are a tool, not just a write-off. A short-term capital loss (STCL) sets off against both short- and long-term gains; a long-term loss (LTCL) sets off only against long-term gains (Sections 70–71). Whatever is left carries forward 8 assessment years — but only if you file by the 31 July due date. If you are sitting on an underwater holding, booking that loss before 31 March is often worth more than holding on and hoping.
The ₹12 lakh trap: why the 87A rebate won't save your gains
Budget 2025 made income up to ₹12 lakh effectively tax-free under the new regime via the Section 87A rebate. The catch most people miss: that rebate does not apply to capital gains taxed at special rates (Sections 111A and 112A). So if your salary is ₹10 lakh and you also booked ₹3 lakh of equity LTCG, the rebate zeroes your salary tax — but you still pay 12.5% on the ₹1.75 lakh of gains above the exemption. Treat the gains tax as a separate, unavoidable line; it is not a rounding error.
Real example: Salaried, ₹32L CTC, Bengaluru
Ananya redeemed equity-fund units for a ₹2,00,000 short-term gain, sold shares for a ₹4,00,000 long-term gain, and was sitting on one stock down ₹1,00,000 (short-term). She nearly filed without booking the loss.
| Item | Without set-off | With set-off |
|---|---|---|
| Equity STCG tax (Sec 111A, 20%) | ₹40,000 | ₹20,000 |
| Equity LTCG tax (Sec 112A, 12.5%) | ₹34,375 | ₹34,375 |
| Total capital-gains tax (incl. 4% cess) | ₹77,350 | ₹56,550 |
| Cash saved | — | ₹20,800 |
Booking and setting off the ₹1 lakh short-term loss against her short-term gain — a loss she already had — cut her bill by ₹20,800, with the unused balance available to carry forward for eight years.
What to do this week
- Download the AIS and capital-gains statement from each broker and AMC — the tax department already has this data via your TIS, so mismatches trigger notices.
- Separate equity (12-month, 20%/12.5%) from debt and gold (24-month) holdings, and flag anything bought before 1 April 2023.
- Net your gains against any booked losses, applying STCL first since it offsets both gain types.
- File ITR-2 — ITR-1 (Sahaj) cannot report capital gains — entering everything in Schedule CG and the scrip-wise Schedule 112A.
File it right, once
The rates for FY 2025-26 are settled and carry into FY 2026-27 unchanged, so the structure you learn now holds next year too. The money is made in the details — the right form, the loss set-off, the exemption used every year instead of once. Get those three right and you keep far more of the gain than the headline rate suggests.
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