Income from Selling Shares
Capital Gains taxation framework: LTCG at 12.5% and STCG at 20% - The new simplified structure for 2026.
Capital Gains Tax Overview
The taxation of capital assets, specifically equity shares and mutual funds, underwent a fundamental paradigm shift in recent budgets. The government introduced a simplified, uniform structure that abolished the indexation benefit while establishing clear tax rates based on holding periods.
Holding Period Classification
| Asset Type | Short-Term (STCG) | Long-Term (LTCG) |
|---|---|---|
| Listed Equity Shares & Equity MF | ≤ 12 months | > 12 months |
| Unlisted Shares | ≤ 24 months | > 24 months |
| Real Estate | ≤ 24 months | > 24 months |
| Debt Mutual Funds | ≤ 24 months | > 24 months |
New LTCG Framework (2026)
Key Changes
- • Indexation benefit abolished across almost all asset classes
- • Uniform LTCG tax rate: 12.5%
- • Annual exemption: ₹1.25 lakh for listed equities and equity MFs
- • Gains up to ₹1.25L per year are tax-free
LTCG Calculation
LTCG = Sale Price - Purchase Price
Tax = (LTCG - ₹1,25,000 exemption) × 12.5%
(Only gains exceeding ₹1.25L are taxed)
STCG Framework
| Asset Type | Tax Rate |
|---|---|
| Listed Equity + Equity MF (STT paid) | 20% (Section 111A) |
| Unlisted Shares, Real Estate, Debt MF | As per income tax slab |
Tax Loss Harvesting Strategy
Wealth Preservation Technique
Tax Loss Harvesting involves the deliberate sale of securities experiencing a loss to offset the capital gains realized from profitable assets during the same financial year.
- • Sell loss-making investments before March 31st
- • Offset short-term losses against short-term gains
- • Carry forward unadjusted losses for 8 years
- • Legally minimize overall tax liability
Capital Gains Calculation Examples
Example 1: LTCG on Equity Shares
Purchase: 100 shares @ ₹500 = ₹50,000 (Jan 2023)
Sale: 100 shares @ ₹800 = ₹80,000 (March 2026)
Holding Period: 3+ years (LTCG)
LTCG = ₹80,000 - ₹50,000 = ₹30,000
Exemption: ₹30,000 (within ₹1.25L limit)
Tax Payable: ₹0
Example 2: LTCG Above Exemption Limit
Purchase: 500 shares @ ₹1,000 = ₹5,00,000 (Feb 2022)
Sale: 500 shares @ ₹1,800 = ₹9,00,000 (April 2026)
Holding Period: 4+ years (LTCG)
LTCG = ₹9,00,000 - ₹5,00,000 = ₹4,00,000
Exemption: ₹1,25,000
Taxable LTCG = ₹4,00,000 - ₹1,25,000 = ₹2,75,000
Tax @ 12.5% = ₹34,375
Health & Education Cess @ 4% = ₹1,375
Total Tax Payable: ₹35,750
Example 3: STCG on Equity Shares
Purchase: 200 shares @ ₹600 = ₹1,20,000 (Jan 2026)
Sale: 200 shares @ ₹750 = ₹1,50,000 (March 2026)
Holding Period: 2 months (STCG)
STCG = ₹1,50,000 - ₹1,20,000 = ₹30,000
Tax @ 20% = ₹6,000
Health & Education Cess @ 4% = ₹240
Total Tax Payable: ₹6,240
Capital Loss Set-off Rules
| Type of Loss | Can be set off against | Carry Forward |
|---|---|---|
| Short-Term Capital Loss (STCL) | STCG and LTCG | 8 years |
| Long-Term Capital Loss (LTCL) | Only LTCG (not STCG) | 8 years |
Important Set-off Rules
- • STCL can be set off against both STCG and LTCG
- • LTCL can only be set off against LTCG (not against STCG)
- • Unadjusted losses can be carried forward for 8 assessment years
- • Losses can only be set off in subsequent years if return is filed on time
Reporting Capital Gains in ITR
Which ITR Form to Use?
- • ITR-1 (Sahaj): For residents with salary, one house property, and other income up to ₹50L. Cannot report capital gains.
- • ITR-2: For individuals and HUFs with capital gains, multiple house properties, or foreign income.
- • ITR-3: For individuals with business/profession income and capital gains.
- • ITR-4 (Sugam): For presumptive income. Cannot report capital gains.
Schedule CG in ITR
Details required for capital gains reporting:
- • Asset type (shares, mutual funds, property, etc.)
- • Date of acquisition and sale
- • Purchase cost and sale consideration
- • Cost of improvement (if any)
- • Expenses on transfer (brokerage, stamp duty, etc.)
- • Exemption claimed (Section 54, 54F, etc.)
Pre-filled Data from AIS
Annual Information Statement (AIS) captures capital gains data from stock exchanges, mutual fund houses, and registrars. Verify pre-filled data in ITR and report any discrepancies.
Capital Gains Exemptions (Save Tax Legally)
Section 54 - Property Reinvestment
- • LTCG from sale of house property
- • Reinvest in another residential property
- • Purchase: Within 1 year before or 2 years after sale
- • Construction: Within 3 years after sale
- • Capital Gains Account Scheme (CGAS) for temporary parking
Section 54F - Other Assets to Property
- • LTCG from sale of assets other than residential house
- • Reinvest net sale proceeds in residential property
- • Should not own more than one house at time of sale
- • Same timelines as Section 54
Section 54EC - Specified Bonds
- • Invest LTCG in specified bonds within 6 months
- • NHAI, REC, IRFC, PFC bonds
- • Lock-in period: 5 years
- • Maximum investment: ₹50 lakhs per financial year
Section 54EE - Start-up Fund
- • Invest LTCG in units of specified start-up fund
- • Lock-in period: 3 years
- • Maximum investment: ₹50 lakhs