LTCG Tax on Shares in India 2026: STCG, Dividends and How to Report Them

Direct Equity — Arc 4, Article Three

The Two Buckets

Twelve months decides almost everything

For listed shares on which securities transaction tax has been paid — which covers essentially everything bought and sold through a broker on an Indian exchange — there is one dividing line. Hold for twelve months or less and the gain is short-term. Hold for more than twelve months and it is long-term. The difference in what you keep is large.

Item	Short-term capital gain	Long-term capital gain
Holding period	12 months or less	More than 12 months
Rate	20%	12.5%
Annual exemption	None	First ₹1,25,000 of such gains in the year
Indexation	Not applicable	Not available
Effect of your income slab	None — it is a special rate	None — it is a special rate
Surcharge and cess	Apply on top	Apply on top

Those rates came in with the July 2024 budget, which raised short-term gains from 15% to 20%, long-term from 10% to 12.5%, and lifted the annual long-term exemption from ₹1 lakh to ₹1.25 lakh. The 2025 and 2026 budgets left the equity rates unchanged, so the same structure applies for 2026-27.

Two consequences deserve to be spelled out. First, on a ₹3,00,000 gain the short-term bill is ₹60,000 and the long-term bill is ₹21,875 — the same trade, the same company, a difference decided only by the calendar. Second, and less well known: the rebate that makes modest incomes tax-free does not apply to these gains. Capital gains taxed at these special rates sit outside it, so someone whose salary alone would attract no tax can still owe tax on equity gains.

The Cost Side

Getting your cost of acquisition right

The rate gets all the attention; the cost figure is where returns are actually filed away incorrectly. Six rules cover almost every case.

Shares bought before 1 February 2018 are grandfathered. For these, your cost is the higher of what you actually paid and the fair market value as on 31 January 2018. Gains that accrued before that date were never intended to be taxed when long-term gains were reintroduced. Using your original purchase price for a 2014 holding overstates the gain, sometimes enormously, and this is the most expensive single error in equity filing.

Shares leave a demat account in the order they entered it. If you accumulated the same company across five years, a partial sale is treated as selling the oldest lots first. You do not get to pick which purchase you are selling, which matters when the older lots are long-term and cheaper.

Bonus shares carry nil cost; rights shares cost what you paid. And the holding period of bonus shares runs from their allotment, not from your original purchase — so selling the bonus shares first can turn a long-held position into a short-term gain on the entire sale value. The corporate actions article works through this.

Demerged shares do not have zero cost, whatever your broker’s statement says. The original cost is apportioned between the two companies in the ratio the company publishes in its demerger tax note, and the holding period carries over. Broker software frequently shows the new shares at nil cost because it has no way of knowing the ratio; filing on that basis overstates your gain.

Brokerage and charges are deductible; securities transaction tax is not. Expenses wholly incurred in connection with the transfer — brokerage, exchange charges, stamp duty, the GST on them — reduce your gain. STT is specifically excluded when computing capital gains. It is deductible only where the activity is treated as business income, which is a different regime entirely.

Keep your own records. A broker’s tax profit and loss statement is a convenience, not an authority, and it does not know about shares transferred in from another broker, inherited holdings, gifted shares, demerger ratios or grandfathered values. Reconciling it against your own file, and against the annual information statement on the tax portal, is the actual work of filing.

Losses

Losses are an asset, if you file on time

A realised loss is worth real money against your tax bill, and the rules governing it cut in one direction more than the other, which catches people out.

Short-term capital losses can be set off against both short-term and long-term capital gains. They are the more flexible instrument. Long-term capital losses can only be set off against long-term capital gains. Neither can be set off against your salary or interest income. Whatever cannot be absorbed in the year is carried forward for up to eight assessment years, retaining its character — short-term losses stay flexible, long-term losses stay restricted.

The condition attached to that carry-forward is absolute and worth repeating: you must file your return by the due date. File late and the year’s unabsorbed losses are simply gone, permanently, no matter how carefully you recorded them. For individuals not requiring an audit the due date has generally been 31 July following the financial year, subject to any extension announced for a particular year. A year of losses is precisely the year people feel least like filing, and precisely the year when filing pays.

Two further distinctions matter if you trade. Intraday equity trading — buying and selling the same share the same day without delivery — is treated as speculative business income, not capital gains. Speculative losses can be set off only against speculative gains, and carry forward for four years rather than eight. Futures and options, by contrast, are generally treated as non-speculative business income, whose losses can be set off against most other business income and carried forward eight years. Three activities, three separate loss pools, and mixing them up in a return is a common source of notices.

Dividends And Buybacks

The distributions, which are taxed quite differently

Dividends are taxable in your hands at your slab rate under income from other sources, and have been since dividend distribution tax was abolished in 2020. There is no exemption threshold. The company deducts 10% at source once dividends from that company exceed ₹10,000 in a financial year — a threshold raised from ₹5,000 with effect from April 2025 — or 20% if PAN is not furnished. That deduction is a credit against your final liability, not the final tax, so a taxpayer in a higher slab still owes the difference and one below the threshold can claim a refund or file the relevant declaration form in advance. The only deduction allowed against dividend income is interest on money borrowed to buy the shares, capped at 20% of the dividend received.

Buybacks have moved three times in two years, so the treatment depends on when the buyback happened rather than on when you file. Until 30 September 2024 the company paid the tax and the proceeds were exempt for you. Between 1 October 2024 and 31 March 2026 the entire amount received was treated as a deemed dividend taxed at slab rates, with the cost of the shares becoming a capital loss. From 1 April 2026 the treatment reverted to capital gains — consideration minus cost — with higher rates applying to promoter shareholders. If you tendered shares in that middle window, your return for that year follows the middle rule and the capital loss it generated may still be available to carry forward.

Foreign shares follow entirely different rules — different holding periods, no ₹1.25 lakh exemption, dividends taxed at slab with foreign tax credit considerations, plus mandatory disclosure of foreign assets in the return regardless of whether anything was sold. If you hold US or other overseas stocks, the article on investing abroad covers the ground, and the disclosure requirement is not optional.

Reporting

How to report equity gains in your ITR

This is where the theory meets a form, and where most avoidable trouble begins.

Choosing the right form. Capital gains from shares generally require ITR-2, or ITR-3 if you also have business income — which includes any intraday or derivatives activity. The simplest forms have in recent years permitted small long-term gains within the exemption limit in limited circumstances, but the safe default for anyone with meaningful equity activity is ITR-2 or ITR-3. Filing the wrong form invites a defective-return notice and the work of doing it again.

Where each item goes. Delivery-based share gains go in the capital gains schedule, split between the short-term and long-term sections, with long-term gains on listed shares reported in their own dedicated part of that schedule where grandfathered values are entered. Dividends go under income from other sources. Intraday and derivatives results go in the business and profession schedule, kept separate from each other because their loss rules differ. Carried-forward losses from earlier years go in the loss schedule, and they only exist there if you filed those earlier returns on time.

Reconcile before you file, not after. The department already has a picture of your year through the annual information statement on the e-filing portal, assembled from broker, depository and company reporting — SEBI-registered intermediaries report your transactions, and the department publishes an explanation of the statement and how to respond to it. Compare it against your own records and your broker’s statement. Where they disagree, work out why before filing rather than accepting either blindly: the statement can carry duplicated or misattributed entries, and you can submit feedback on them. Common causes of mismatch are exactly the ones in this article — corporate actions, transferred holdings, grandfathered costs.

Advance tax. Tax on capital gains is payable through the year, not in one go at filing. Because a gain cannot be forecast before it happens, the rules allow it to be paid in the instalment falling due after the gain arises — but a large realisation in, say, June and no payment until the following July attracts interest. If you have booked a substantial gain, work out the tax and pay it in the next instalment.

One structural note for this year. India’s income tax law has been re-enacted, and from 2026-27 the familiar section numbers are being renumbered. The substance for equity investors — the 20% and 12.5% rates, the ₹1.25 lakh exemption, the twelve-month holding period, grandfathering, the loss rules — carries over unchanged. If a form or a professional refers to a section number you do not recognise, that is very likely why.

Legitimate Planning

What you can do about it, within the rules

Four entirely ordinary practices follow from everything above. None is aggressive, none requires a scheme, and all are simply arithmetic applied on time rather than in hindsight.

Watch the twelve-month line before selling. If a holding you intend to sell is ten months old and the thesis has not broken, the chart above is what waiting two months is worth. The obvious caveat: never let a tax saving keep you in a position you have decided to exit for business reasons. Tax is a consideration, not a thesis.

The ₹1.25 lakh exemption is annual and does not carry over. An investor who never realises anything for a decade accumulates one large gain in one year and uses one year’s exemption. Realising gains within the exemption in years where you have room is a recognised practice, though it costs brokerage and only makes sense if you were content to hold or repurchase anyway.

Realised losses can offset realised gains in the same year. If you are sitting on a position you have already decided to exit at a loss, doing so in a year when you have gains to absorb is better than doing it in a year when you do not. The decision to exit should come first and the timing second, never the reverse.

Large sales can be spread across financial years. Selling a substantial holding across a March and an April uses two years of exemption and two years of instalments. Whether that is worth the market risk of a delayed exit is a judgement, not a rule.

What ties these together is the point the portfolio article made about rebalancing: the tax cost of a decision is part of the decision, and the cheapest tax planning available to an ordinary investor is simply trading less. Every one of these practices is worth less than the habit of not selling things for no reason.

Key Takeaways

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Frequently Asked Questions

Your questions answered

My total income is below the taxable limit. Do I still pay tax on share gains?

Usually yes, and this surprises people every year. Capital gains on listed shares are taxed at special rates that sit outside the rebate which makes modest incomes tax-free, so the rebate does not wipe them out. There is a separate and different relief: a resident individual whose other income falls short of the basic exemption limit can set the shortfall against these gains before the special rate applies. That is a narrower benefit than the rebate and it is calculated differently. If your income is near these thresholds, the arithmetic is worth having a professional check rather than assuming either way.

Do I have to file a return if I only made a small gain or a loss?

File anyway, and treat it as free money rather than paperwork. A loss year only becomes an asset if the return is filed by the due date — that is what preserves the right to carry the loss forward for eight years and set it against future gains. Filing also gives you a documented record of cost and holding period that will matter years later, and it reconciles your position with the annual information statement the department already holds. Skipping a filing to save an hour can quietly cost a meaningful amount when a large gain arrives three years later with no losses left to offset it.

Can I sell and immediately rebuy to use my ₹1.25 lakh exemption?

Realising long-term gains within the annual exemption is a recognised practice, and each year’s exemption is lost if unused. Three cautions before treating it as a free lunch. You pay brokerage and charges on both legs, and STT, which eats into the saving on small amounts. Repurchasing restarts the twelve-month clock on the new lot, and the shares leave your account oldest-first, which complicates future calculations. And you carry market risk between selling and buying back. It suits an investor with room in the exemption who is content to continue holding; it does not suit someone selling purely to generate a number.

My broker’s tax report and the annual information statement disagree. Which is right?

Possibly neither, in full. The department’s statement is assembled from third-party reporting and can contain duplicated or misattributed entries, and it can be responded to with feedback. Your broker’s report is generated from its own records and knows nothing about shares transferred in from elsewhere, inherited or gifted holdings, grandfathered values, or the cost apportionment after a demerger. The right answer is your own reconciled computation, supported by contract notes, demat statements and company tax notes. Work out why the two disagree rather than picking the more convenient one — the mismatch itself usually points at the item you would otherwise have got wrong.

I trade F&O occasionally. Does that change my whole return?

It changes the form and adds obligations. Derivatives income is generally business income, which moves you to ITR-3, brings expenses and record-keeping into scope, and introduces turnover computation with audit requirements above certain thresholds. Intraday equity is a third category again, speculative, with its own shorter loss carry-forward. A modest amount of trading can therefore turn a straightforward capital gains return into a considerably more involved one, and a loss-making year does not exempt you from any of it. As the derivatives article notes, that compliance burden is a real cost of participating and deserves counting before you start.

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