Two dates run Indian equity tax today. On 23 July 2024 the rates changed: short term gains on listed shares went from 15% to 20%, long term gains from 10% to 12.5%, and the yearly exemption from ₹1 lakh to ₹1.25 lakh. On 1 April 2026 the law itself changed: the Income-tax Act, 2025 replaced the 1961 Act, the "previous year" became the "tax year", and every familiar section number moved. The rates did not move again. This module is the map of both.
LTCG on listed equity held 12 months or more
s112A (1961), s198 (2025 Act)
Long term gains on listed equity exempt every year
Since 23 Jul 2024
The year of the new Income-tax Act, in force from 1 April 2026
Tax year 2026-27 onward
The July 2024 capital gains overhaul
The Finance (No. 2) Act, 2024 changed capital gains for every transfer made on or after 23 July 2024. The sale date decides the rate, not the purchase date. A share bought in 2019 and sold in August 2024 pays the new rates.
Three holding periods, indexation
- Listed equity: STCG 15%, LTCG 10% above ₹1 lakh
- Other assets: LTCG mostly 20% with indexation
- Holding periods of 12, 24 or 36 months
Two holding periods, no indexation
- Listed equity: STCG 20%, LTCG 12.5% above ₹1.25 lakh
- Most other long term gains: 12.5% without indexation
- 12 months for listed securities, 24 for the rest
Short term capital gains: the 20% reality
Listed shares, equity oriented mutual fund units and business trust units held for less than 12 months are taxed at a flat 20% on the gain, provided STT was paid on the sale. That condition is automatic for anything you sell on NSE or BSE. If the sale did not carry STT, the gain is taxed at your slab rate instead.
Worked example. You buy 100 shares at ₹500 in January 2026 and sell them at ₹1,000 in September 2026. Gain ₹50,000, held eight months, so short term. Tax at 20% is ₹10,000, plus 4% cess, ₹10,400. Under the old 15% rate it would have been ₹7,800. The extra ₹2,600 is the cost of one fast trade under the new rules.
MythThe new regime makes income up to ₹12 lakh tax free, so my trading gains are covered too.
FactThe rebate does not apply to income taxed at special rates. STCG on shares pays 20% and LTCG above ₹1.25 lakh pays 12.5% even when total income is below ₹12 lakh.
The ₹12 lakh rebate does not cover it
Since FY 2025-26, the new tax regime gives a rebate that makes total income up to ₹12 lakh tax free. Many people assume that covers their trading gains too. It does not. The Finance Act 2025 made explicit that the rebate does not apply to income taxed at special rates, which includes STCG at 20% and LTCG at 12.5%. A salaried person with ₹10 lakh of salary and ₹1 lakh of short term gains pays no tax on the salary and still pays ₹20,000 plus cess on the gains.
Two other details. Surcharge on these equity gains is capped at 15%, however high your income. And a resident individual whose other income is below the basic exemption limit can use the unused part of that limit against the gains.
Long term capital gains: 12.5% and the exemption
Listed equity held for 12 months or more pays 12.5% on long term gains above ₹1.25 lakh in a financial year. The exemption is per person, per year, and it applies only to this category of gains: listed shares, equity oriented fund units and business trust units sold with STT.
Worked example. You sell shares held for three years with a long term gain of ₹3,00,000. The first ₹1,25,000 is exempt. Tax is 12.5% of ₹1,75,000: ₹21,875, plus cess, ₹22,750. Had you sold a day before the 12 month mark, the whole ₹3,00,000 would have been short term: ₹62,400 with cess. One day of patience, about ₹39,650 of difference.
Grandfathering for shares bought before February 2018
Long term gains on listed equity were tax free until 31 March 2018. To protect gains made before the tax came back, the law lets you use a higher cost for shares bought on or before 31 January 2018. The cost is the higher of what you actually paid, and the lower of the highest price quoted on 31 January 2018 and your sale price.
Say you bought at ₹400 in 2016, the highest price on 31 January 2018 was ₹600, and you sell at ₹1,000 today. Your cost for tax is ₹600, not ₹400. The gain is ₹400 a share. If you had sold at ₹500, below the 2018 price, your cost would be ₹500 and the gain zero, but never a loss created by the rule.
Indexation removal: the change that hit other assets
Equity never had indexation. The July 2024 change mattered for everything else. Long term gains on property, unlisted shares, physical gold and listed bonds are now taxed at 12.5% without indexation. One exception survived: for land or buildings bought before 23 July 2024, a resident individual or HUF can pick the lower of 12.5% without indexation or 20% with indexation.
Debt mutual funds are a separate story, and a common source of mistakes. Units bought on or after 1 April 2023 in a fund with no more than 35% in Indian equity are taxed at your slab rate however long you hold them. There is no long term rate for them. Module 11.2 has the full map.
Holding periods, simplified
| Asset | Long term after | Long term rate | Short term rate |
|---|---|---|---|
| Listed shares, equity funds, equity ETFs, listed REIT and InvIT units | 12 months | 12.5% above ₹1.25 lakh | 20% |
| Listed bonds, gold ETFs and other listed securities | 12 months | 12.5%, no exemption | Slab |
| Unlisted shares, property, physical gold | 24 months | 12.5%, no indexation | Slab |
| Debt funds bought from 1 April 2023 | Never long term | Slab | Slab |
| Unlisted bonds and debentures | Never long term | Slab | Slab |
For transfers on or after 23 July 2024. Surcharge and 4% cess apply on top. Check the asset's own rules before selling.
- Grandfathering date
Gains made up to this date on listed equity stay protected.
- New rates
STCG 20%, LTCG 12.5% above ₹1.25 lakh, indexation removed for most assets.
- ₹12 lakh rebate in the new regime
Not available on capital gains taxed at special rates.
- Income-tax Act, 2025 in force
Tax year replaces previous year; 111A, 112A become 196, 198.
- Buybacks back to capital gains
Finance Act 2026; promoters pay an effective 30%.
Finance (No. 2) Act 2024, Finance Act 2025, Income-tax Act 2025, Finance Act 2026.
The new law from 1 April 2026
The Income-tax Act, 2025 applies from tax year 2026-27, which began on 1 April 2026. Income earned up to 31 March 2026 is still taxed and filed under the 1961 Act. The new Act keeps the capital gains rates and renumbers the sections.
| What | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| STCG on listed equity, STT paid | Section 111A | Section 196 |
| LTCG, general | Section 112 | Section 197 |
| LTCG on listed equity above ₹1.25 lakh | Section 112A | Section 198 |
| Carry forward of capital losses | Section 74 | Section 111 |
| Year of income | Previous year and assessment year | Tax year |
Source: Income-tax Act, 2025 and the Finance Act 2026 memorandum. Losses from years before 1 April 2026 carry forward under the saving clause.
The Finance Act 2026 also changed one thing that touches equity investors directly. From 1 April 2026, money received on a company buyback is taxed as capital gains again, not as a dividend, so the cost of your shares is deducted properly. Promoters pay an additional tax that brings their effective rate to 30%, or 22% for promoter companies.
What this means for systematic investors
Turnover decides which rate you pay. A rule that holds a stock for six weeks will realise almost every gain as short term. That is not a flaw; it is the price of a signal that decays in weeks. But it has to be in the numbers.
RupeeCase publishes the rebalance record of every index, so you can see this for yourself. In the model, back tested records, a name in Allcap was held a median of 42 days, and every one of its 1,646 exits came within 12 months. In Focused Largecap 20, rebalanced every four weeks, the median was 84 days. In Nifty 50 Equal Weight, names barely change: the median completed holding was 812 days. Same tax law, very different tax profiles.
Model, back tested rebalance records from RupeeCase published data, first record 14 May 2021, records to April to July 2026. Holding measured from a name's first appearance to its exit. Not actual client trades.
Median days a name was held, model records
- Allcap, 2 wk42 days
- Large Midcap, 2 wk56 days
- 5Paisa Focused Alpha 5, 3 wk63 days
- Focused Largecap 20, 4 wk84 days
- Nifty 50 Equal Weight, 4 wk812 days
Model, back tested rebalance records from RupeeCase published data, records to Apr to Jul 2026. 365 days is the 12 month line. Not actual client trades.
Every rebalance inside 12 months turns what could have been a long term gain into a short term one. RupeeCase indices rebalance on a fixed cadence; Module 11.3 shows how a harvest overlay limits exactly this leakage.
The useful comparison is after tax return against after tax return. A fast rotation that earns more before tax can still come out ahead after a 20% rate; a slower one keeps more of a smaller number. Model both, with your own slab and your other gains, before you decide.
Common mistakes
- Selling in month 11. On a large gain, waiting a few weeks for month 12 can cut the rate from 20% to 12.5% and bring the ₹1.25 lakh exemption into play.
- Assuming the ₹12 lakh rebate covers gains. It does not cover STCG at 20% or LTCG at 12.5%.
- Applying the ₹1.25 lakh exemption to everything. It is only for listed equity, equity fund and business trust units. Gold ETFs, bonds and property do not get it.
- Assuming debt funds become long term after two years. Units bought from 1 April 2023 never do.
- Quoting old section numbers for 2026-27 income. Sections 196, 197 and 198 of the 2025 Act now carry the rates.
How this shows up in RupeeCase
Because the stocks sit in your own demat, every rebalance sale is your sale, with your purchase date and your cost. Your broker's capital gains statement shows each trade as short or long term, and the contract notes back it up. The index pages show the cadence and the full rebalance history, so you can estimate the holding pattern before you start. Path 11 then walks through harvesting losses, reconciling AIS, and building a portfolio that keeps more after tax.
Questions people ask me
Is the ₹1.25 lakh LTCG exemption per person or per account?
Per person, per financial year, across all your accounts. It applies to long term gains on listed equity, equity oriented fund units and business trust units together.
Did the Income-tax Act, 2025 change capital gains tax rates?
No. It renumbered the sections, from 111A, 112 and 112A to 196, 197 and 198, and replaced the previous year with the tax year. The rates set in July 2024 carried over. It applies from tax year 2026-27.
Are short term gains covered by the new regime's zero tax up to ₹12 lakh?
No. The rebate does not apply to gains taxed at special rates. STCG on listed equity is taxed at 20% and LTCG above ₹1.25 lakh at 12.5%, even if your total income is below ₹12 lakh.
What to remember
- Listed equity: 20% under 12 months, 12.5% above ₹1.25 lakh after 12 months.
- The sale date decides the rate. The changes apply from 23 July 2024.
- The new Act renumbers: 196 for STCG, 198 for equity LTCG, 111 for loss carry forward.
- The ₹12 lakh rebate does not reach special rate capital gains.
- Turnover sets your tax profile. Read an index's holding pattern before you invest.
Rules and figures in this module were last verified on 12 Oct 2026. Tax and regulatory rules change; check the source before acting.