Capital gains on listed equity shares and equity-oriented mutual funds are taxed under distinct rates for short-term and long-term holdings, with securities transaction tax (STT) paid on exchange transactions affecting eligibility for concessional rates.
Finance Act changes introduced tax on long-term gains above exemption with grandfathering for acquisitions before 31 January 2018. Portfolio investors and employees exercising ESOPs must track holding periods and cost of acquisition.
This article summarises current framework for individuals and HUFs on listed equity.
Holding period
- Listed equity / equity MF (STT paid): Holding > 12 months — long-term; otherwise short-term.
- Unlisted shares and immovable property have different holding periods — not covered in detail here.
Tax rates (typical — verify year)
| Asset | Short-term | Long-term |
|---|---|---|
| Listed equity (STT paid on sale & purchase) | 20% u/s 111A | 12.5% above ₹1.25 lakh exemption u/s 112A |
| Equity-oriented mutual fund units | 20% if STT paid | 12.5% above exemption where 112A applies |
Surcharge and cess apply as per total income slab. Set-off and carry forward of capital losses per Sections 70 and 74.
Grandfathering — Section 55(2)(ac)
For shares acquired before 1 February 2018 and sold after, cost is higher of actual cost or fair market value as on 31 January 2018 (subject to sale price cap). Compute separately for each ISIN lot; maintain broker contract notes.
Steps for LTCG computation
- Identify acquisition date and cost / grandfathered value.
- Compute full value of consideration minus eligible brokerage.
- Apply exemption of ₹1.25 lakh annually across all 112A gains.
- Report in Schedule 112A of ITR-2/3.
STT and loss harvesting
STT must be paid for 111A/112A rates. Loss harvesting before year-end may offset gains within permitted set-off rules; beware of wash sale economic substance.
ESOP and foreign portfolio
Perquisite taxation at exercise for eligible startups under Section 80-IAC; sale later may be capital gains. Foreign listed shares taxed under different provisions — not eligible for 112A.
General professional information only. Tax rates change by Finance Act; verify current sections for your assessment year.