Guide · 8 min read
Capital Gains Tax on Shares, Explained Simply
Every profitable share sale creates a tax event, yet most investors meet the rules only in February, under deadline pressure. The framework is genuinely simple once separated from folklore: how long you held decides the category, the category sets the rate, and the calendar year sets exemptions. This guide walks the whole path with 2026-current figures and points out the corners where people actually lose money to confusion rather than tax.
Holding period: the twelve-month fork
Listed shares held more than twelve months qualify as long-term; anything sold earlier is short-term. The clock runs trade-date to transfer-date per lot, and demat statements apply FIFO — first purchased, first sold — whenever quantities blur together. Buying in tranches therefore matters: selling half your holding may mean selling all your oldest lots, changing the tax character of what felt like one decision.
This is why our capital gains calculator asks for purchase price, sale value and dates rather than a single profit figure — the same rupee gain can carry wildly different tax depending on which lot narrative the FIFO queue produces.
The rates themselves
Short-term gains on listed equity are taxed at 20% flat — added to income, not taxed as slabs. Long-term gains enjoy 12.5%, but only on the portion exceeding ₹1.25 lakh in a financial year; below that threshold, LTCG on listed equity is simply zero. The exemption resets every April, which makes March a strategic month: booking long-term gains up to the limit costs nothing and resets cost basis higher.
Both concessional rates assume STT was paid on acquisition and sale — the default for anyone trading through normal broking accounts, which is precisely why off-market transfers occasionally trigger unpleasant surprises at slab rates instead.
Carry-forward losses and set-off
Losses offset gains within the same category first: short-term losses against any capital gains, long-term losses only against long-term gains. Unused losses carry forward eight assessment years provided the return was filed by the due date — a paperwork condition that quietly voids many traders' cushions.
Planning follows directly: harvest losses before year-end to neutralise realised gains, and be deliberate about which category absorbs each sale. The STCG and LTCG calculators on this site let you rehearse December scenarios without touching a live position.
Filing mechanics worth knowing early
Broker-issued capital gains statements feed ITR-2 for residents with capital gains. Advance-tax obligations kick in once liability crosses ten thousand rupees for the year — quarterly, not April — and interest under sections 234B/234C applies to those who discover this in March.
Keep contract notes, not just summary statements: acquisition-date evidence resolves grandfathering questions for pre-2018 holdings and any future regime tweaks. One folder per financial year, updated quarterly, converts filing season from archaeology into data entry.