Capital gains tax on shares: the rules
| Item | Short-term (STCG) | Long-term (LTCG) |
|---|---|---|
| Holding period | 12 months or less | More than 12 months |
| Tax rate | 20% | 12.5% |
| Exemption | None | First ₹1.25 lakh a year |
| Cess | 4% on the tax | 4% on the tax |
These rates apply to listed equity shares and equity-oriented mutual funds on which STT was paid. Very high earners also pay a surcharge on these gains, capped at 15%, which this calculator does not include.
How the calculation works
- Capital gain = sale value − purchase cost − brokerage and other transfer costs (the brokerage calculator shows these).
- Type: short-term if held 12 months or less, otherwise long-term.
- Exemption: for long-term gains, the unused part of the ₹1.25 lakh yearly limit is deducted.
- Tax = taxable gain × rate, plus 4% cess.
Worked example
You bought 2,000 shares at ₹200 (₹4,00,000) and sell them at ₹300 (₹6,00,000), making a gain of ₹2,00,000.
- Held 18 months (long-term): ₹1,25,000 is exempt, so ₹75,000 is taxed at 12.5% = ₹9,375, plus cess = ₹9,750. You keep ₹1,90,250.
- Held 8 months (short-term): the whole ₹2,00,000 is taxed at 20% = ₹40,000, plus cess = ₹41,600. You keep ₹1,58,400.
Waiting a few more months to cross the 12-month mark saves ₹31,850 in this example.
Ways to reduce capital gains tax legally
- Hold for more than a year where it suits your plan: the rate drops from 20% to 12.5%.
- Use the ₹1.25 lakh exemption every year. Some investors sell and buy back long-term holdings to book gains within the limit each year (tax harvesting).
- Set off losses. Short-term losses can reduce both short- and long-term gains; long-term losses only reduce long-term gains. Unused losses carry forward for 8 years if you file your return on time.
- Remember FIFO. When you sell part of a holding, the oldest shares are treated as sold first, which decides the holding period. Your average buy price is useful for tracking, but tax uses the cost of the shares actually sold.
For your salary and other income, use the income tax calculator. The rebate that makes income up to ₹12 lakh tax-free does not cover these capital gains.
Frequently asked questions
What is the tax on short-term capital gains from shares?
Gains on listed shares and equity mutual funds held for 12 months or less are short-term and taxed at a flat 20%, plus 4% cess, whatever your income slab.
What is the tax on long-term capital gains from shares?
Gains on listed shares and equity mutual funds held for more than 12 months are long-term. The first ₹1.25 lakh of such gains in a year is tax-free, and the rest is taxed at 12.5% plus 4% cess, without indexation.
Is the ₹1.25 lakh exemption per stock?
No. It is a single limit for all your long-term gains on listed shares and equity mutual funds in a tax year. That is why the calculator asks for other long-term gains you have already made this year.
Can I deduct brokerage and STT from capital gains?
Brokerage and other costs of buying or selling can be deducted. STT cannot be deducted.
Does this apply to debt mutual funds?
No. Gains on debt mutual funds bought on or after 1 April 2023 are taxed at your income slab rate regardless of holding period. This calculator is for listed equity shares and equity-oriented mutual funds.
What about shares bought before 1 February 2018?
For listed shares bought before 1 February 2018, gains up to that date are protected: the cost can be taken as the higher of the actual cost and the price on 31 January 2018 (capped at the sale price). Enter that adjusted cost as the buy price.
Sources
Last updated 19 September 2026. Results are estimates for planning only and are not investment, tax or legal advice. See our disclaimer.