LTCG and STCG on Shares: 12.5% and 20% Rules
LTCG on listed shares is 12.5% with Rs 1.25 lakh exempt a year; STCG is 20%. How the exemption applies, loss set-off rules and reporting traps.
Sell listed shares held more than 12 months and the gain is long term, taxed at 12.5% with the first ₹1.25 lakh of gains each year exempt. Sell within 12 months and it is short term, taxed at 20%. Both rates changed on 23 July 2024, up from 10% and 15% respectively.
The rate rise got the headlines. The detail that actually changes what people owe is how the ₹1.25 lakh exemption is applied, and that is where most explanations are wrong.
The rates, before and after
| Until 22 July 2024 | From 23 July 2024 | |
|---|---|---|
| LTCG on listed equity | 10% | 12.5% |
| Annual LTCG exemption | ₹1,00,000 | ₹1,25,000 |
| STCG on listed equity | 15% | 20% |
| Holding period for long term | 12 months | 12 months, unchanged |
The short-term change is the harsher one and got far less attention. Going from 15% to 20% is a one-third increase in the tax on active trading, while the long-term rate rose by a quarter and came with a larger exemption.
The ₹1.25 lakh exemption, precisely
Three things about it that people get wrong.
It is annual, not per transaction. It applies to your total long-term gains for the financial year across all listed equity and equity-oriented mutual funds, not to each sale.
It is a deduction from gains, not an income threshold. If your LTCG for the year is ₹3,00,000, you pay 12.5% on ₹1,75,000, not on the whole amount.
It is a single threshold across both rate periods. The ₹1.25 lakh applies to your total long-term gains for the year, covering gains realised before and after 23 July 2024 together. You do not get one exemption for each half.
A worked case. Long-term gains of ₹2,00,000 in the year:
- Exempt: ₹1,25,000
- Taxable: ₹75,000
- Tax at 12.5%: ₹9,375, plus cess
Holding period: the 12-month line
For listed equity shares and equity-oriented mutual funds, the boundary is 12 months. Held for more than 12 months, long term. Held 12 months or less, short term.
Count from the date of purchase to the date of sale. For shares this is the trade date, and your broker’s capital gains statement will apply it correctly. Where it gets awkward is bonus shares, rights issues and shares received through a merger, each of which has its own rule for cost and holding period. If your year includes any of those, check the broker statement against your own view rather than assuming.
The rate difference across that line is large: 20% against 12.5%, plus the exemption. On a ₹5 lakh gain, selling at month 11 rather than month 13 costs roughly ₹53,000 more in tax. If a holding is close to the boundary and you have no pressing reason to sell, the date is worth checking.
Set-off: the part that saves the most money
Losses are not wasted, and this is where most retail investors leave money on the table.
- Short-term capital loss can be set off against both short-term and long-term gains.
- Long-term capital loss can be set off only against long-term gains.
- Unabsorbed losses can be carried forward for eight assessment years.
The condition that catches people: you must file your return by the due date to carry a loss forward. File late and the carry-forward is lost, permanently. For someone sitting on a large unrealised loss, that single deadline can be worth lakhs.
The practical consequence is that short-term losses are the more valuable kind, because they can absorb long-term gains too. If you are going to realise a loss, understanding which bucket it falls into changes what it can offset.
Tax-loss harvesting, and the ₹1.25 lakh version of it
Two legitimate year-end techniques.
Harvesting losses. Selling a losing position before 31 March realises the loss, which offsets gains you have already booked. You can buy the position back, though doing so immediately invites scrutiny about whether the sale was genuine.
Harvesting the exemption. Less well known and entirely straightforward: if your long-term gains for the year are below ₹1.25 lakh, selling and immediately repurchasing resets your cost base upward at zero tax cost. Done annually, it prevents a single very large gain accumulating for a decade and then landing in one year where most of it sits above the exemption.
Both are ordinary tax planning rather than avoidance. Neither works if you file late or fail to report the transactions.
Where the numbers must come from
Your broker issues a capital gains statement for the financial year. Use it, and reconcile it against your Annual Information Statement, which the department populates from registrar and depository reporting.
Three reporting traps:
- The AIS may show sale value, not gain. Sale proceeds of ₹8 lakh is not income of ₹8 lakh. Do not panic at the figure, and do not declare it as income.
- Mutual fund switches are redemptions. Moving from one scheme to another is a sale and a purchase, and it triggers capital gains even though no money reached your bank.
- SIP units are separate purchases. Each instalment has its own date and holding period, so one redemption can produce both short-term and long-term gains at once.
You will generally file ITR-2, or ITR-3 if you also have business income. ITR-1 cannot carry capital gains, and filing it with gains present is a common cause of a defective return notice under Section 139(9).
Other assets, briefly
The 23 July 2024 changes were broader than equity, and the rules differ by asset:
- Property: long term after 24 months, 12.5% without indexation, with a 20%-with-indexation computation still available to resident individuals and HUFs who bought before 23 July 2024.
- Specified mutual funds under Section 50AA: gains are deemed short term and taxed at slab rate regardless of holding period.
- Unlisted shares and gold: their own holding periods and rates, generally 12.5% long term without indexation.
The direction of travel across all of them is the same: a flatter rate, and indexation withdrawn.
Common questions
What is the LTCG tax rate on shares now?
12.5% on listed equity held over 12 months, with the first ₹1.25 lakh of long-term gains in the year exempt.
Is the ₹1.25 lakh exemption per year or per transaction?
Per financial year, across all your long-term equity gains combined.
What is STCG on shares?
20% for listed equity sold within 12 months, up from 15% before 23 July 2024.
Can I set off share losses against salary?
No. Capital losses can only be set off against capital gains, not against salary income.
How long can I carry forward a capital loss?
Eight assessment years, but only if you filed the return for the loss year by the due date.
Do I pay tax if I do not withdraw the money from my broker?
Yes. Tax arises on the sale, not on transferring money to your bank.
The short version
12 months is the line. Above it, 12.5% with ₹1.25 lakh exempt for the year; below it, 20%. The exemption is annual and shared across the whole year, not per trade or per rate period. Short-term losses are the more useful kind because they offset long-term gains too, and none of it carries forward unless you file by the due date. Reconcile your broker statement against the AIS before filing, and remember a fund switch is a sale.
