LTCG tax on listed shares and equity funds
12.5% on long-term gains above ₹1.25 lakh a year, for listed equity held more than 12 months.
Long-term capital gains (LTCG) tax on listed shares is 12.5% of the gain above ₹1.25 lakh in a year. It applies when you sell listed equity shares, or units of an equity-oriented mutual fund, held for more than 12 months, with securities transaction tax (STT) paid as the law requires.
The rate has applied to sales on or after 23 July 2024, when the Finance (No.2) Act, 2024 raised it from 10%. From tax year 2026-27 the rule sits in section 198 of the Income-tax Act, 2025, which replaced section 112A of the 1961 Act. The rate and the threshold did not change in the move.
LTCG and STCG on listed equity at a glance
Applies to listed equity shares, equity-oriented fund units and business trust units where STT is paid.
Rate, sale on or after 23 July 2024
Long-term (held more than 12 months)
12.5%
Short-term (held 12 months or less)
20%
Rate, sale before 23 July 2024
Long-term (held more than 12 months)
10%
Short-term (held 12 months or less)
15%
Tax-free slice each year
Long-term (held more than 12 months)
First ₹1.25 lakh of total LTCG
Short-term (held 12 months or less)
None
Section, tax year 2026-27 onwards
Long-term (held more than 12 months)
s.198, Income-tax Act 2025
Short-term (held 12 months or less)
s.196, Income-tax Act 2025
Section, up to tax year 2025-26
Long-term (held more than 12 months)
s.112A, Income-tax Act 1961
Short-term (held 12 months or less)
s.111A, Income-tax Act 1961
| Point | Long-term (held more than 12 months) | Short-term (held 12 months or less) |
|---|---|---|
| Rate, sale on or after 23 July 2024 | 12.5% | 20% |
| Rate, sale before 23 July 2024 | 10% | 15% |
| Tax-free slice each year | First ₹1.25 lakh of total LTCG | None |
| Section, tax year 2026-27 onwards | s.198, Income-tax Act 2025 | s.196, Income-tax Act 2025 |
| Section, up to tax year 2025-26 | s.112A, Income-tax Act 1961 | s.111A, Income-tax Act 1961 |
Terms used in the rule
- Long-term capital gain
- Profit on selling a capital asset held longer than the period the law sets. For listed securities that period is 12 months: hold for more than 12 months and the gain is long-term.
- STT (securities transaction tax)
- A small tax collected on trades through a recognised stock exchange. The 12.5% rate applies only where STT has been paid as the section requires; for equity shares that means on both purchase and sale.
- Equity-oriented fund
- A mutual fund scheme that invests mainly in listed equity shares, as defined in the Act. Its units get the same 12.5% treatment as shares.
- Grandfathering
- Protection for gains made before LTCG on equity became taxable. For shares bought before 1 February 2018, the cost used is the higher of the actual cost and the lower of the 31 January 2018 market value and the sale price.
Worked example: working out the tax
Illustrative numbers. Meera, a resident salaried investor, sells two lots of listed shares in tax year 2026-27, both held for more than 12 months and with STT paid.
- 1
1. Gain on lot A
Bought in 2021 for ₹3,00,000, sold for ₹4,80,000. Gain ₹1,80,000.
- 2
2. Gain on lot B (grandfathered)
Bought in 2016 for ₹1,00,000. Value on 31 January 2018 was ₹1,60,000; sold for ₹2,20,000. Cost taken is the higher of ₹1,00,000 and the lower of ₹1,60,000 and ₹2,20,000, so ₹1,60,000. Gain ₹60,000, not ₹1,20,000.
- 3
3. Add up and apply the threshold
Total LTCG ₹2,40,000. The first ₹1,25,000 is not taxed, leaving ₹1,15,000.
- 4
4. Apply the rate
12.5% of ₹1,15,000 is ₹14,375, before surcharge and cess.
Free account, this exam preselected.
Rules people miss
- check_circleThe ₹1.25 lakh is a yearly limit on the total of all such gains, not a limit per share or per fund.
- check_circleNo indexation is allowed on these gains. Cost is not adjusted for inflation.
- check_circleA resident individual whose other income is below the basic exemption limit can set that unused limit against these gains before the 12.5% applies.
- check_circleHolding is counted from the date of purchase to the date of sale. Sell on day 365 and the gain is short-term; you need more than 12 months.
- check_circleDebt funds, specified mutual funds and IDCW payouts follow different rules. See the V-A fund taxation page for those.
How X-A tests this
Taxation is not a named chapter in the X-A curriculum, so expect it inside caselets rather than as a standalone question: a client sells shares, and you work out the after-tax gain or compare two choices. The paper is 150 marks with a pass at 90 out of 150 (60%), and caselet arithmetic is where marks slip.
The traps are the old figures. Options offer 10% and ₹1 lakh (pre-2024 rules), 15% for short-term gains, or apply indexation to listed equity. A second trap applies the ₹1.25 lakh to each sale separately. Read the sale date first; it decides the rate.
FAQs
What is the LTCG tax rate on shares in 2026?expand_more
12.5% on long-term gains above ₹1.25 lakh in the tax year, for listed equity shares and equity-oriented fund units held more than 12 months with STT paid. Surcharge and cess are added on top.
Is LTCG up to ₹1.25 lakh tax free?expand_more
Yes. The first ₹1.25 lakh of total long-term gains on such shares and units in a year is not taxed. Tax applies only on the amount above it.
What replaced section 112A?expand_more
From tax year 2026-27 the Income-tax Act, 2025 applies, and section 198 carries the same rule: 12.5% on such gains above ₹1.25 lakh. Section 112A still governs earlier years.
How is LTCG calculated on shares bought before 2018?expand_more
Under grandfathering, the cost is the higher of what you paid and the lower of the 31 January 2018 market value and your sale price. Gains made up to 31 January 2018 stay untaxed.
Is indexation available on listed shares?expand_more
No. Long-term gains on listed equity shares and equity-oriented fund units are taxed without indexation.
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