Capital Gains Tax on Stocks & Mutual Funds AY 2026-27 | STCG & LTCG

Capital Gains on Stocks & Mutual Funds in India: Complete Guide to STCG, LTCG, Tax Rates and ITR Filing for AY 2026-27

Investing in stocks and mutual funds can help create long-term wealth.

But once you sell an investment at a profit, another question arises:

How much tax do I have to pay on my investment gains?

The answer depends on several factors, including:

• What you sold
• When you purchased it
• When you sold it
• Whether it is a short-term or long-term capital asset
• Whether Securities Transaction Tax (STT) conditions are satisfied
• Whether the gain is covered by Section 111A or 112A
• Whether you have capital losses
• Your residential status
• The type of mutual fund
• The applicable provisions for the relevant year

For AY 2026-27, the tax framework for many listed equity shares and equity-oriented mutual funds generally distinguishes between short-term capital gains (STCG) and long-term capital gains (LTCG).

For specified equity transactions covered by Section 111A, the current rate is 20%. For specified long-term gains covered by Section 112A, the current rate is 12.5% on the portion exceeding ₹1.25 lakh, subject to the applicable conditions. The notified AY 2026-27 ITR forms reflect these rates. Income Tax Department

But there is much more to calculating the final tax than simply applying 20% or 12.5%.

This guide explains the entire process.

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1. What Are Capital Gains?

A capital gain generally arises when you transfer a capital asset for more than its applicable cost.

For an investor, common capital assets include:

• Equity shares
• Mutual fund units
• Exchange-traded funds
• Certain securities
• Bonds and other investments
• Property
• Other investments covered by the capital-gains provisions

The Income Tax Department describes capital gains as profits or gains arising from the transfer of a capital asset during the year. Income Tax Department

Simple example

Suppose you purchase shares for:

₹5,00,000

and later sell them for:

₹7,00,000

Your basic gain is:

₹7,00,000 − ₹5,00,000 = ₹2,00,000

The tax treatment then depends on the nature and period of the asset and the provisions applicable to that transaction.

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2. STCG vs LTCG: What's the Difference?

Capital gains are broadly classified as:

Short-Term Capital Gain — STCG

A gain arising from a capital asset that is treated as short-term under the applicable holding-period rules.

Long-Term Capital Gain — LTCG

A gain arising from a capital asset that qualifies as long-term under the applicable holding-period rules.

The holding period is particularly important because the tax rate can change substantially depending on whether the gain is short-term or long-term.

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3. When Are Listed Shares Treated as Long-Term?

For listed equity shares, the relevant holding period is generally more than 12 months for long-term classification.

The Income Tax Department's capital-gains guidance recognises a 12-month holding period for specified listed securities and equity-oriented mutual fund units. Income Tax Department

So, broadly:

However, this simple rule should not be blindly applied to every type of investment.

Different assets can have different holding-period rules.

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4. Tax on STCG From Listed Equity Shares

Suppose you purchase listed equity shares and sell them within the applicable short-term period.

If the transaction falls within the conditions of Section 111A, the current STCG tax rate is:

20%

The AY 2026-27 notified ITR forms specifically show Section 111A gains on specified shares/units/business-trust transactions where the STT conditions are satisfied at a 20% special rate. Income Tax Department

Example

You purchase shares for:

₹4,00,000

You sell them for:

₹5,00,000

STCG:

₹1,00,000

Assuming the transaction qualifies for Section 111A:

Tax = ₹1,00,000 × 20% = ₹20,000

This is before considering applicable surcharge and cess.

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5. Tax on LTCG From Equity Shares

For specified long-term capital gains covered by Section 112A, the current framework provides:

12.5% tax on LTCG exceeding ₹1.25 lakh

The notified AY 2026-27 ITR forms identify Section 112A gains on equity shares, equity-oriented fund units and business-trust units on which the relevant STT conditions are satisfied, with a 12.5% rate. Income Tax Department

The important point is that the ₹1.25 lakh threshold is not a blanket tax exemption on every type of capital gain.

It specifically applies within the Section 112A framework.

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6. How the ₹1.25 Lakh LTCG Threshold Works

Suppose you have:

Equity LTCG = ₹4,00,000

Assuming the gain qualifies under Section 112A and other conditions are satisfied:

First:

₹4,00,000 − ₹1,25,000

= ₹2,75,000

Tax:

₹2,75,000 × 12.5%

= ₹34,375

This is before applicable surcharge and health & education cess.

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7. What If Your LTCG Is Only ₹1 Lakh?

Suppose:

Section 112A LTCG = ₹1,00,000

Since it does not exceed ₹1.25 lakh, there is no tax under Section 112A on that amount, subject to the overall provisions and conditions applicable to the taxpayer.

This is why investors should not simply apply 12.5% to their entire equity LTCG.

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8. STCG vs LTCG on Equity Shares

Here's the simplified comparison:

The actual tax computation can be affected by the precise asset, transaction, STT conditions, losses, surcharge, cess and other provisions.

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9. What About Equity Mutual Funds?

Equity-oriented mutual funds can also generate capital gains.

The broad concept is similar:

Purchase → Hold → Redeem → Calculate gain → Determine ST/LT → Apply relevant tax provisions

For equity-oriented mutual fund units, the relevant holding period is generally 12 months for determining long-term status under the applicable framework. Income Tax Department

Example

You invest:

₹3 lakh

in an equity mutual fund.

You redeem it for:

₹4.5 lakh

Gain:

₹1.5 lakh

If the units qualify as long-term and the gain falls within Section 112A, the ₹1.25 lakh threshold becomes relevant.

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10. Equity Shares vs Equity Mutual Funds

For many investors, the treatment is broadly similar when the relevant statutory conditions are satisfied.

The exact classification should be checked against the nature of the security/fund and the statutory conditions.

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11. What About Debt Mutual Funds?

This is where investors need to be particularly careful.

Do not assume that every mutual fund is taxed like an equity mutual fund.

The tax treatment of mutual fund units can depend on:

• Type of fund
• Date of acquisition
• Applicable statutory definition
• Holding period
• Whether special provisions apply
• Whether the gain is covered by a specific deeming provision

Therefore, a statement such as:

"All mutual funds held for more than one year get 12.5% LTCG"

is not correct.

Investors should identify the precise fund category and acquisition date before calculating tax.

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12. What About Indexation?

One of the major changes investors need to understand is that the current capital-gains framework does not simply work on the old assumption that every long-term investment gets indexation plus a 20% rate.

For AY 2026-27, the notified ITR framework reflects the post-23 July 2024 capital-gains structure, including 12.5% treatment for specified long-term gains. Income Tax Department

Therefore, when preparing a return, investors should calculate gains under the provisions applicable to the relevant transaction rather than relying on an old capital-gains calculator.

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13. Can Capital Losses Reduce Your Tax?

Yes, subject to the applicable rules.

Capital losses can be extremely important when calculating your final tax liability.

Suppose you have:

Stock A

STCG = ₹3 lakh

Stock B

STCL = ₹1 lakh

Your net short-term capital gain may be:

₹3 lakh − ₹1 lakh = ₹2 lakh

The actual set-off rules depend on the type of loss and gain.

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14. Short-Term Capital Loss vs Long-Term Capital Loss

The distinction matters.

Broadly:

Short-Term Capital Loss

Can generally be set off against eligible:

• Short-term capital gains
• Long-term capital gains

subject to the applicable provisions.

Long-Term Capital Loss

Can generally be set off against:

• Long-term capital gains

subject to the applicable provisions.

This means you should not simply subtract every investment loss from every investment gain.

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15. Don't Forget to Report Capital Losses

A common mistake is:

"I only made losses, so I don't need to report them."

That can be a costly mistake.

If you want to preserve eligible losses for future set-off, timely and correct reporting becomes important.

Capital losses that are properly eligible for carry-forward can potentially be used against future eligible capital gains, subject to the statutory conditions and filing requirements.

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16. Example: Investor With Both Gains and Losses

Suppose an investor has:

You cannot simply calculate:

₹2,00,000 + ₹3,00,000 − ₹50,000 − ₹75,000

and apply one tax rate.

Each gain/loss must first be classified correctly.

Then the applicable set-off rules are applied.

Then the appropriate tax rate is applied.

This is why capital-gains computation can become complicated even for an individual investor.

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17. What Is Section 112A?

Section 112A is particularly important for equity investors.

It covers specified long-term capital gains arising from transfer of:

• Equity shares of a company
• Units of an equity-oriented fund
• Units of a business trust

where the prescribed conditions, including the relevant STT requirements, are satisfied.

The AY 2026-27 ITR form contains a dedicated Schedule 112A for these transactions. Income Tax Department

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18. What Information Is Required for Schedule 112A?

For applicable transactions, the ITR framework can require detailed information including:

• ISIN
• Name of share/unit
• Number of shares/units
• Sale price
• Acquisition cost
• Relevant acquisition information
• Fair Market Value in applicable legacy cases
• Transfer expenses
• Resulting capital gain

The AY 2026-27 notified Schedule 112A contains these fields. Income Tax Department

This is one reason why simply looking at the profit displayed by your broker app is not always sufficient for ITR preparation.

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19. Why Your Broker's "P&L" Is Not Your ITR

Your broker may show:

Realised P&L = ₹4,20,000

But your tax computation may require additional classification.

You may need to determine:

• STCG
• LTCG
• Section 111A gains
• Section 112A gains
• Other capital gains
• Capital losses
• Eligible transfer expenses
• Relevant acquisition cost
• Applicable adjustments

Therefore:

Broker P&L is an important input — not necessarily the final taxable capital-gains figure.

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20. What Documents Should Stock Investors Keep?

Before filing an ITR, collect:

From your broker

• Capital gains statement
• Realised P&L statement
• Trade book
• Contract notes, where required
• Dividend statement
• Corporate-action information

For mutual funds

• Capital gains statement
• Transaction statement
• Redemption details
• Consolidated account statement

From the Income Tax portal

• AIS
• TIS
• Form 26AS

Other documents

• Bank statements
• Previous ITR
• Foreign investment statements, if applicable
• ESOP/RSU documents
• Demat statements, where relevant

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21. Why AIS Is Important for Investors

Your AIS can contain information relating to financial transactions and other reported information.

The Income Tax Department's AIS guidance states that AIS provides a comprehensive view of information available to the taxpayer and includes information such as TDS/TCS and specified financial transaction information. It also allows taxpayers to submit feedback where information is incorrect. Income Tax Department

For investors, this makes AIS reconciliation particularly important.

You should compare:

Broker statement

vs

Mutual fund statement

vs

AIS

vs

Your own records

before filing.

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22. What If AIS Shows a Different Capital Gain?

Don't blindly copy AIS.

If you identify an apparent mismatch:

1. Check your broker statement.
2. Check the mutual fund statement.
3. Check the transaction date.
4. Check purchase cost.
5. Check sale/redemption value.
6. Check whether the transaction has been duplicated.
7. Check corporate actions.
8. Check whether the reported information relates to the correct PAN.
9. Submit appropriate feedback where applicable.
10. File the return using the correct verified figures.

AIS is an important information source, but taxpayers remain responsible for reporting their complete and accurate income.

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23. What About Dividend Income?

Dividend income is not capital gain.

If you receive:

₹50,000 dividend

from shares or mutual funds, that is generally considered separately from capital gains.

So an investor may have:

• Salary
• Interest
• Dividend income
• STCG
• LTCG

All of these need to be considered separately while preparing the return.

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24. What About Bonus Shares?

Bonus shares require careful treatment because their acquisition cost and holding period can differ from ordinary purchases.

Do not simply enter:

Purchase price = ₹0

and stop there.

The correct tax computation needs to follow the applicable provisions governing bonus shares and the relevant dates.

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25. What About ESOPs and RSUs?

ESOPs and RSUs can involve multiple tax events.

For example, an employee may face:

1. Tax treatment when shares are allotted/exercised, depending on the plan and applicable provisions.
2. Capital gains when the shares are subsequently sold.

Foreign RSUs can introduce additional:

• Foreign asset disclosure
• Foreign income
• Tax withholding
• DTAA
• Foreign tax credit
• Reporting considerations

This is why employees with ESOPs/RSUs should not treat the transaction like a simple stock-market sale.

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26. What About US Stocks?

Indian residents investing in US stocks may have additional reporting considerations.

Apart from capital gains, you may need to consider:

• Foreign assets
• Foreign income
• Dividends
• Foreign tax deducted
• Foreign tax credit
• DTAA provisions
• Appropriate ITR schedules

For such taxpayers, ITR form selection itself can become important.

For example, ITR-1 has specific restrictions relating to foreign assets and foreign income. Income Tax Department

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27. Which ITR Should a Stock Market Investor File?

A very common question is:

"I am salaried and invest in stocks. Should I still file ITR-1?"

Not necessarily.

Salaried + only salary/interest

Potentially ITR-1, subject to eligibility.

Salaried + capital gains

Generally ITR-2, if there is no business/professional income.

Business/professional income + capital gains

Generally ITR-3.

The Income Tax Department specifically states that ITR-2 can be used for individuals/HUFs with capital gains who do not have business/professional income. Income Tax Department

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28. What About Frequent Stock Trading?

This is an important distinction.

Not every person who buys and sells shares automatically has "business income."

The tax treatment can depend on the nature of the activity and applicable classification principles.

A taxpayer carrying on trading activity may have business/professional income considerations, whereas investments held as capital assets can generate capital gains.

This classification should be reviewed based on the taxpayer's facts rather than determined purely by the number of trades.

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29. Example: Salaried Investor

Rahul earns:

Salary: ₹20 lakh

He also has:

Equity STCG: ₹2 lakh

Equity LTCG: ₹3 lakh

Interest: ₹50,000

He has no business/professional income.

His return cannot simply be treated as a basic salary return.

His capital gains need to be separately calculated and reported, and ITR-2 is generally the relevant form for an individual without business/professional income who has capital gains. Income Tax Department

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30. Example: Investor With ₹10 Lakh Capital Gains

Suppose:

Equity LTCG = ₹10 lakh

Assume the entire gain qualifies under Section 112A.

The first:

₹1.25 lakh

falls within the Section 112A threshold.

Remaining:

₹8.75 lakh

Tax at 12.5%:

₹1,09,375

before applicable surcharge and cess.

The actual tax liability must be calculated considering the taxpayer's complete income and applicable provisions.

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31. Example: Investor With ₹2 Lakh STCG

Suppose:

Section 111A STCG = ₹2 lakh

Tax:

₹2,00,000 × 20%

= ₹40,000

before applicable surcharge and cess.

This is different from adding the ₹2 lakh to ordinary income and applying the normal slab rate.

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32. Capital Gains Are Not Always Taxed at Your Slab Rate

This is one of the most important concepts for investors.

Many people assume:

"My income is ₹25 lakh, so my capital gain is taxed at 30%."

Not necessarily.

Specified capital gains can be subject to special rates.

For AY 2026-27, the notified ITR forms identify:

• Section 111A STCG → 20%
• Section 112A LTCG → 12.5%
• Other capital gains can have different treatment depending on the asset and applicable provision. Income Tax Department

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33. But Don't Use 20% and 12.5% for Every Investment

This is equally important.

The rates above are not universal rates for every stock, security or mutual fund transaction.

The correct rate depends on:

• Asset type
• Section applicable
• Acquisition date
• Transfer date
• Holding period
• STT conditions
• Residential status
• Special provisions
• DTAA where relevant

Therefore, online articles that say:

"All investments are now taxed at 12.5% LTCG"

should be treated with caution.

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34. Capital Gains and the New Tax Regime

Capital gains subject to special rates do not simply become ordinary slab-rate income because you choose the new tax regime.

The capital-gains provisions and applicable special rates continue to need to be considered separately.

The Income Tax Department's AY 2026-27 guidance separately identifies the special-rate treatment of Sections 111A and 112A. Income Tax Department

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35. Don't Forget Surcharge and Cess

The headline capital-gains rate is not necessarily your final tax payable.

Depending on the taxpayer's income level, surcharge can apply.

Health and Education Cess is also applicable at 4% on income tax plus surcharge, subject to the applicable rules. Income Tax Department

The surcharge treatment for income under Sections 111A, 112 and 112A is also subject to specific limits; the Income Tax Department notes that enhanced surcharge rates are not levied on these specified incomes, with a maximum surcharge rate of 15% in the circumstances described by the Department. Income Tax Department

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36. Capital Gains and ITR Filing: A Practical Workflow

A good investor tax workflow should look like this:

Step 1 — Download broker capital-gains report

Get the complete financial-year report.

Step 2 — Download mutual-fund capital-gains statements

Don't rely only on the broker if you have direct mutual-fund investments.

Step 3 — Download AIS

Check whether the reported transactions broadly reconcile.

Step 4 — Download Form 26AS

Review TDS/TCS.

Step 5 — Separate STCG and LTCG

Classify every transaction correctly.

Step 6 — Identify Section 111A transactions

Check applicable STT and other conditions.

Step 7 — Identify Section 112A transactions

Calculate the applicable LTCG and threshold.

Step 8 — Calculate capital losses

Determine eligible set-offs and carry-forward.

Step 9 — Check foreign investments

Particularly for US stocks, foreign ETFs and other overseas holdings.

Step 10 — Select the correct ITR

ITR-2 or ITR-3 may be relevant depending on the taxpayer's income profile.

Step 11 — Reconcile the final computation

Only then file and e-verify the return.

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37. Capital Gains Checklist for Investors

Before filing your ITR, ask:

☐ Did I sell any shares?

☐ Did I redeem any mutual funds?

☐ Did I sell ETFs?

☐ Did I sell any property or other capital asset?

☐ Did I receive dividends?

☐ Did I receive bonus shares?

☐ Did I receive ESOPs/RSUs?

☐ Did I invest outside India?

☐ Did I realise any capital losses?

☐ Did I download my broker capital-gains statement?

☐ Did I download mutual-fund capital-gains statements?

☐ Did I check AIS?

☐ Did I check TIS?

☐ Did I check Form 26AS?

☐ Did I classify STCG and LTCG correctly?

☐ Did I check Section 111A?

☐ Did I check Section 112A?

☐ Did I check the ₹1.25 lakh threshold where applicable?

☐ Did I carry forward eligible losses correctly?

☐ Did I select the correct ITR?

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38. The Biggest Mistakes Stock Investors Make

Mistake 1 — Using broker P&L as final taxable income

Broker P&L is an input, not always the final tax computation.

Mistake 2 — Applying 12.5% to every LTCG

Different assets and provisions have different tax treatment.

Mistake 3 — Ignoring losses

Losses can have significant tax value when properly reported and carried forward.

Mistake 4 — Filing ITR-1 because you're salaried

Capital gains can change the applicable ITR form.

Mistake 5 — Ignoring mutual funds

Investors often remember their stocks but forget redemptions from several mutual funds.

Mistake 6 — Ignoring foreign investments

US stocks and other foreign assets can create additional reporting requirements.

Mistake 7 — Not reconciling AIS

Reported information should be checked before filing.

Mistake 8 — Using an old capital-gains calculator

Tax rules and rates change. The calculation should correspond to the relevant assessment year.

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39. A Simple Capital-Gains Formula

For a basic transaction:

Capital Gain = Sale Consideration − Cost of Acquisition − Eligible Transfer Expenses − Other Applicable Adjustments

But the actual computation can become more complex depending on:

• Asset type
• Acquisition date
• Holding period
• Corporate actions
• Applicable statutory provisions
• Losses
• Special-rate provisions

Therefore, this formula should be treated as a conceptual starting point rather than a universal tax computation.

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40. Why Capital-Gains Tax Planning Matters

Capital gains shouldn't be looked at only after selling an investment.

For investors with substantial portfolios, tax planning can be considered before executing transactions, subject of course to the investment objective and applicable law.

For example, investors may need to consider:

• Timing of sales
• Existing gains
• Existing losses
• Carry-forward losses
• Portfolio rebalancing
• Tax impact of redemptions
• Dividend income
• Foreign investments
• Family-level financial planning

The objective should not be:

"How do I avoid tax?"

It should be:

"How do I make financially sensible investment decisions while understanding the tax consequences?"

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Frequently Asked Questions

What is the STCG tax rate on listed shares for AY 2026-27?

For specified transactions covered by Section 111A, the current STCG rate is 20%, subject to the applicable conditions. Income Tax Department

What is the LTCG tax rate on equity shares?

For specified long-term gains covered by Section 112A, the current rate is 12.5% on the amount exceeding ₹1.25 lakh, subject to the applicable conditions. Income Tax Department

Is the first ₹1.25 lakh of every capital gain tax-free?

No. The ₹1.25 lakh threshold is relevant to specified Section 112A long-term capital gains and should not be treated as a universal capital-gains exemption.

Are mutual funds taxed at 12.5% LTCG?

Not necessarily. The tax treatment depends on the type of mutual fund, acquisition date and applicable provisions.

Can I deduct my stock-market losses from salary?

Capital losses generally cannot simply be deducted from salary income. Their set-off is governed by the capital-loss provisions.

Can STCL be set off against LTCG?

Subject to the applicable provisions, short-term capital loss can generally be set off against both short-term and long-term capital gains.

Can I carry forward capital losses?

Eligible capital losses can generally be carried forward subject to the prescribed conditions, including applicable return-filing requirements.

Which ITR should a salaried stock investor file?

A salaried individual with capital gains but no business/professional income will generally look to ITR-2, subject to eligibility. The Income Tax Department specifically includes capital gains within ITR-2's scope. Income Tax Department

What if I have business income and stock-market gains?

If the taxpayer has business/professional income, ITR-2 is not appropriate; ITR-3 may become relevant depending on the facts.

Do I need to report shares that I bought but did not sell?

Simply holding listed shares does not ordinarily create a capital gain merely because their market value increased. However, foreign assets and other reporting requirements can create separate disclosure obligations.

Do I have to report mutual funds that I haven't redeemed?

Holding itself generally does not create a realised capital gain, but other disclosure and reporting considerations can apply depending on the investment.

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Final Takeaway

For most investors, capital-gains taxation comes down to four questions:

1. What did you sell?

Stock, equity mutual fund, debt fund, ETF, property or another asset?

2. When did you buy and sell it?

This determines the relevant holding-period classification.

3. Which tax provision applies?

For specified equity transactions, Sections 111A and 112A are particularly important.

4. Have you reported everything correctly?

Your broker statement, mutual-fund statements, AIS, TIS and Form 26AS should all be reviewed before filing.

For AY 2026-27, the notified ITR framework includes dedicated capital-gains reporting and Schedule 112A for specified equity transactions. Income Tax Department

The biggest mistake an investor can make is treating capital gains as simply "profit shown in my broker account × tax rate."

A proper tax computation requires classification, reconciliation and reporting.

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Need Help With Capital Gains or ITR Filing?

If you have:

• Multiple stock transactions
• Mutual fund redemptions
• Large capital gains
• Capital losses
• US stocks or foreign investments
• ESOPs/RSUs
• Property transactions
• Multiple brokers
• Complex AIS mismatches

Taxomic can help review the investment transactions, reconcile the available tax information and prepare the applicable ITR.

Get Your Capital Gains & ITR Reviewed by a CA

Taxomic — Chartered Accountants & Tax Advisory

ITR Filing · Tax Planning · Capital Gains · Investment Taxation

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