STCG on Equity Under Section 111A: What Changes for AY 2026-27
TL;DR
- Section 111A taxes short-term capital gains on listed equity shares, equity-oriented mutual funds, and business trust units where STT has been paid.
- Holding period of 12 months or less from the date of acquisition makes the gain short-term.
- For transfers on or after 23 July 2024, the rate is 20 per cent (raised from 15 per cent by the Finance (No. 2) Act, 2024).
- No deduction under Chapter VI-A is available against 111A gains, and no Rs. 1.25 lakh threshold exists for STCG.
- Resident individuals with no other taxable income can use the basic exemption limit against 111A gains.
- Reporting goes in Schedule CG of ITR-2 or ITR-3 for AY 2026-27, with scrip-wise breakup available through your broker statement and AIS.
What this means in plain terms
If you sold a stock or equity mutual fund within 12 months of buying it during FY 2025-26, the gain falls under Section 111A. This is the special rate carved out for short-term equity. For AY 2026-27, the rate has been bumped up from the long-standing 15 per cent to 20 per cent for transfers from 23 July 2024 onward.
That is a meaningful jump for active traders and SIP investors who churn portfolios. A salaried person in the 30 per cent slab still pays less on equity STCG than on slab income, but the gap is much smaller than it used to be. Knowing exactly when the 12-month line is crossed has become more important than ever.
What Section 111A covers
Eligible assets
The same three categories as Section 112A: listed equity shares, equity-oriented mutual fund units, and business trust units (REIT and InvIT). The condition is that STT must have been paid on the sale. Off-market sales generally fall outside Section 111A and are taxed at slab rates as ordinary short-term gains.
Holding period of 12 months or less
If you sold within 12 months from the date of acquisition, the gain is short-term. Even one day past 12 months pushes the gain into Section 112A territory, where rates and thresholds are different.
Tax rate
Twenty per cent flat for transfers on or after 23 July 2024. Cess at 4 per cent applies. Surcharge applies based on total income but is capped at 15 per cent for 111A gains under the latest Finance Act.
The pre-23-July-2024 vs post-23-July-2024 split
Why FY 2024-25 had two rates
In FY 2024-25 (AY 2025-26), STCG under 111A on transfers up to 22 July 2024 was taxed at 15 per cent. Transfers from 23 July 2024 onward were at 20 per cent. Many investors filing for AY 2025-26 had to bifurcate their gains by date.
FY 2025-26 is fully at 20 per cent
For AY 2026-27, the entire year falls under the 20 per cent rate. There is no split — every short-term equity sale during FY 2025-26 is at 20 per cent plus cess.
How basic exemption interacts with 111A
Only resident individuals and HUFs get this benefit
Resident individuals whose total income (other than 111A gains) is below the basic exemption limit can use the unused part of that limit to reduce their 111A taxable gains. NRIs do not get this benefit on 111A gains.
Basic exemption limit by regime
Under the new regime for FY 2025-26, the basic exemption is Rs. 4,00,000 (as per the revised slabs). Under the old regime, it remains Rs. 2,50,000 for non-seniors. If you are a homemaker with only Rs. 50,000 of other income and Rs. 5 lakh of 111A gains, you can absorb the gap against your unused basic exemption.
Deductions, set-offs, and rebate
Section 87A rebate
Section 87A rebate is not available against 111A gains under the latest interpretation by the CPC for AY 2025-26 onwards, even if total income is within the rebate threshold. This is a contentious area — some taxpayers have received intimations under Section 143(1) disallowing the rebate on STCG.
Chapter VI-A deductions
No deductions under Section 80C, 80D, 80G, etc. are available against 111A gains. The 20 per cent rate applies on the gross gain after netting losses.
Set-off rules
Short-term capital losses can be set off against both short-term and long-term capital gains. Long-term capital losses cannot be set off against 111A short-term gains.
Reporting and compliance
Schedule CG of ITR-2 or ITR-3
You report 111A gains in Schedule CG, table A1. The form auto-applies the 20 per cent rate. Cross-check the pre-filled data against your broker's tax P&L report (Zerodha Console, Groww, Upstox, ICICIdirect) before submitting.
Advance tax
Section 234C requires you to pay advance tax in line with realised gains. For 111A gains crystallised after the regular instalment dates, you can pay the tax in the next instalment without 234C interest, but only for the capital gains portion.
A real example
Vikram, 31, Rs. 22L CTC, Hyderabad, is an active trader. During FY 2025-26 he had the following equity transactions:
- Bought Tata Motors in June 2025 for Rs. 4,00,000, sold in November 2025 for Rs. 5,20,000. Holding period: 5 months. Short-term gain: Rs. 1,20,000.
- Bought HDFC Smallcap Fund units in September 2025 for Rs. 1,50,000, sold in February 2026 for Rs. 1,38,000. Holding period: 5 months. Short-term loss: Rs. 12,000.
- Net 111A short-term gain: Rs. 1,08,000.
Calculation:
- 111A gain: Rs. 1,08,000
- Tax at 20 per cent: Rs. 21,600
- Add 4 per cent cess: Rs. 864
- Total tax under 111A: Rs. 22,464
Vikram cannot use Section 80C or 80D to reduce this. His salary income is taxed separately at slab rates, and the 111A gain is added on top with the 20 per cent flat rate applied. Because the gain crossed Rs. 10,000, he had to pay the 20 per cent on the gain via the 15 December and 15 March advance-tax instalments.
What to do this week
- Download your broker's tax P&L statement for FY 2025-26 and split it cleanly into short-term and long-term buckets based on the 12-month holding rule.
- Match the broker statement against the AIS on incometax.gov.in to catch missing trades, especially from secondary demat accounts.
- If you are sitting on unrealised short-term losses in any holding, evaluate whether to book them before 31 March 2026 to offset 111A gains realised earlier in the year.
- Estimate your 111A liability and ensure the March advance-tax instalment covers at least 100 per cent of the cumulative tax due to avoid Section 234C interest.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Has the 15 per cent rate gone away completely?
For STT-paid listed equity transfers on or after 23 July 2024, yes. The 15 per cent rate only applies to transfers up to 22 July 2024 and is now relevant only for revisions and updated returns for AY 2025-26.
Are intraday equity gains covered under 111A?
No. Intraday equity trading is treated as speculative business income under Section 43(5), not capital gains. It is taxed at your slab rate, and losses can only be set off against other speculative gains.
Can I claim the standard deduction of Rs. 75,000 against 111A gains?
No. The standard deduction applies only to salary and pension income, not capital gains.
Does the holding period count from contract note date or settlement date?
The Central Board of Direct Taxes and most case law treat the date of contract (broker note date) as the date of acquisition and sale. The T+1 settlement date is administrative and does not change the holding period.
What if my broker statement shows 15 per cent but the assessment is at 20 per cent?
Some broker tools have not yet updated for the post-23-July-2024 rate. Use the income tax portal's calculator or re-compute manually. The 20 per cent rate is what the ITR utility applies for AY 2026-27.
Are STCG from equity F&O covered under 111A?
No. Futures and options income is taxed as business income, not capital gains, and Section 111A does not apply.
Can I file ITR-1 if I have 111A gains?
No. ITR-1 (Sahaj) does not have a Schedule CG. Even small short-term equity gains require ITR-2 or ITR-3 for AY 2026-27.
Sources
- https://incometax.gov.in/iec/foportal/help/individual/return-applicable-1
- https://incometaxindia.gov.in/Pages/acts/income-tax-act.aspx
- https://www.sebi.gov.in/sebi_data/faqfiles/jun-2023/1686642373540.pdf
- https://www.nseindia.com/regulations/regulatory-circulars
- https://www.bseindia.com/markets/equity/EQReports/StockPrcHistori.aspx
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
