LTCG and STCG Tax in AY 2026-27: What Your Employer's TDS Missed
Your Form 16 says zero tax payable. Your employer deducted TDS every month, accounted for your standard deduction and investments, and handed you a clean no-dues certificate. But if you redeemed any equity mutual fund units or sold shares between April 2025 and March 2026, you have a second tax bill that payroll never touched—and it is due by July 31, 2026.
Summary
| Income Type | Tax Rate | Exemption | TDS by Employer | 87A Rebate (AY 2026-27) |
|---|---|---|---|---|
| Salary / FD interest | Slab (up to 30%) | Std deduction ₹75,000 | Yes — Form 16 | Yes, if total income ≤ ₹12L |
| LTCG on equity MF / shares (Sec 112A) | 12.5% | ₹1.25L per year | No | No — barred by Finance Act 2025 |
| STCG on equity MF / shares (Sec 111A) | 20% flat | Nil | No | No — barred by Finance Act 2025 |
| LTCG on debt MF / property (Sec 112) | Slab rate | Nil | No | Applies to slab portion only |
Why TDS Does Not Cover Capital Gains
Your employer calculates TDS on the income you earn from them — salary, allowances, perquisites. They have zero visibility into:
- Equity mutual fund units you redeemed via Zerodha, Groww, or your AMC portal
- Shares sold on NSE/BSE, including ESOPs you exercised and sold
- ELSS redemptions after the 3-year lock-in that generated LTCG
The income tax system expects you to compute these separately, self-assess, and pay — either via advance tax by the quarterly deadlines or as self-assessment tax while filing your ITR-2.
The Rate Change That Applies to All of FY 2025-26
Budget 2024 (effective July 23, 2024) changed both special rates:
| Gain Type | Before July 23, 2024 | After July 23, 2024 |
|---|---|---|
| LTCG on equity / equity MF (Sec 112A) | 10% above ₹1L | 12.5% above ₹1.25L |
| STCG on equity / equity MF (Sec 111A) | 15% | 20% |
Since all of FY 2025-26 (April 2025 to March 2026) falls after July 23, 2024, the new rates apply to every redemption you made last year with no split-year calculation required. The jump in STCG from 15% to 20% is the sharpest change for short-term traders.
The 87A Rebate Does Not Help Here
Many salaried professionals in the ₹10-15L income band assumed that the Section 87A rebate (up to ₹60,000 under the new regime) would cover any additional tax from small capital gains. Finance Act 2025 closed this explicitly: from AY 2026-27, the 87A rebate cannot offset LTCG (Section 112A) or STCG (Section 111A) tax, even if your slab income alone is within the ₹12L limit. An ITAT Ahmedabad ruling had allowed it on STCG for AY 2024-25; Parliament reversed this for all future years. If you relied on that ruling, recompute before filing.
Real Example: Rajan, ₹24L CTC, Bengaluru (New Regime)
Rajan's employer deducted TDS to the rupee on his salary. He also made two investment moves in FY 2025-26:
- Redeemed ₹8L of equity MF units held 18 months: cost basis ₹6L → LTCG of ₹2L
- Sold shares held 7 months: profit ₹1.5L → STCG of ₹1.5L
| Computation | Amount |
|---|---|
| LTCG gross | ₹2,00,000 |
| Less: Section 112A exemption | ₹1,25,000 |
| Taxable LTCG | ₹75,000 |
| LTCG tax at 12.5% | ₹9,375 |
| STCG (Section 111A, no exemption) | ₹1,50,000 |
| STCG tax at 20% | ₹30,000 |
| Total capital gains tax | ₹39,375 |
| 87A rebate against capital gains | Nil (Finance Act 2025) |
| Net additional tax payable | ₹39,375 |
Rajan's Form 16 showed ₹0 payable on salary. His AY 2026-27 ITR liability: ₹39,375, plus interest if advance tax wasn't paid.
The Advance Tax Interest You May Already Owe
If your total income-tax liability (salary + capital gains combined) exceeds ₹10,000, advance tax was required in quarterly installments for FY 2025-26:
| Installment | Deadline | Cumulative % | Rajan's Amount |
|---|---|---|---|
| Q1 | June 15, 2025 | 15% | ₹5,906 |
| Q2 | September 15, 2025 | 45% | ₹17,719 |
| Q3 | December 15, 2025 | 75% | ₹29,531 |
| Q4 | March 15, 2026 | 100% | ₹39,375 |
Missing or underpaying any installment attracts 1% per month interest under Section 234C on the shortfall, from the due date to the actual payment date. Separately, if total advance tax paid during the year was less than 90% of final liability, Section 234B applies at 1% per month from April 1 to the date of filing.
For Rajan, missing all four installments entirely: interest for ~3.5 months on ₹39,375 ≈ ₹1,378. Small in isolation, but it appears in your ITR computation and must be paid before filing.
What to Do This Week
- Download your Consolidated Account Statement (CAS) from CAMS (camsonline.com) or KFintech (mfcentral.com) for April 2025 to March 2026. Every redemption is listed with date, units, NAV, and cost basis.
- Cross-check against AIS (incometax.gov.in → Annual Information Statement) — your broker reports capital gains there; any mismatch needs resolving before you file. See our Form 26AS, AIS and TIS mismatch guide if figures don't align.
- Compute your liability: taxable LTCG (above ₹1.25L) × 12.5%, plus STCG × 20%.
- Pay self-assessment tax and advance tax interest via incometax.gov.in → e-Pay Tax (Challan 280, Assessment Year 2026-27) before filing.
- File ITR-2 — any capital gains require ITR-2 (not ITR-1 if you have STCG or LTCG exceeding ₹1.25L). In Schedule CG, enter LTCG under Section 112A and STCG under Section 111A separately.
The Cost of Getting This Wrong
| Mistake | Consequence |
|---|---|
| Filing ITR-1 when you have STCG or LTCG > ₹1.25L | Defective return notice; re-filing required |
| Claiming 87A rebate on LTCG / STCG in AY 2026-27 | Demand notice + interest on incorrectly rebated amount |
| Not declaring capital gains at all | Penalty under Section 270A — up to 200% of tax on undisclosed income |
| Underpaying advance tax | Interest under Section 234B/234C at 1% per month till payment |
File With Both Eyes Open
Your employer's TDS is a starting point, not a finish line. In FY 2025-26, with equity markets delivering 10–12% year-on-year gains, most salaried investors who stayed invested are sitting on capital gains they haven't yet accounted for. Thirty days to July 31: pull your CAS today, compute the number, and file clean.
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