LTCG vs STCG on shares in India: what's the real difference?

How is short-term capital gain taxed differently from long-term gain on Indian shares?

On listed Indian shares, gains from a holding of 12 months or less are short-term and taxed at 20% plus cess. Hold beyond 12 months and the gain is long-term, taxed at 12.5% plus cess, with the first Rs 1,25,000 of long-term gain each year exempt. These rates have been in force since 23 July 2024.

Key Takeaways

• The dividing line for listed shares on NSE or BSE is 12 months, counted from purchase date to sale date.
• Short-term gain is taxed at a flat 20% plus 4% cess — it does not go into your slab.
• Long-term gain is taxed at 12.5% plus 4% cess, and only the portion above Rs 1,25,000 in a financial year.
• Demat holdings are sold first-in-first-out, so one sell order can create both short-term and long-term gain.
• Short-term losses offset both kinds of gain; long-term losses offset only long-term gain.
• Intraday and F&O are business income at slab rates, not capital gains at all.

What exactly counts as short-term and long-term on listed shares?

For shares listed on the NSE or BSE, the rule is a plain 12-month clock. You count from the date you acquired the share to the date you transferred it. Twelve months or less and the profit is a short-term capital gain. More than twelve months and it is a long-term capital gain. There is no partial credit and no sliding scale. A share bought on 10 March and sold on 9 March the following year is short-term. Sold on 11 March, the same share, at the same price, with the same profit, is long-term.

Two details trip people up. First, this 12-month rule applies to listed equity shares and equity-oriented mutual funds. Unlisted shares, gold, property and debt instruments run on different clocks and different rates, so do not carry the 12-month number across asset classes. Second, shares sitting in your demat account are treated as sold first-in-first-out. If you bought the same company in March, in September and again in January, a single sell order eats the oldest lots first. That means one transaction can throw up a long-term gain on part of the quantity and a short-term gain on the rest. Your broker's capital gains statement will show the split; your own mental average price will not.

Illustrative tax on a Rs 500,000 gain, at the statutory rates in force from 23 July 2024

If you sell	Rate applied	Tax	You keep
Within 12 months	20.0% plus 4.0% cess, on the whole gain	Rs 104,000	Rs 396,000
Beyond 12 months	12.5% plus 4.0% cess, on the gain above Rs 1,25,000 a year	Rs 48,750	Rs 451,250
Difference	Holding period alone	Rs 55,250 less tax	Rs 55,250 more

What are the actual tax rates after 23 July 2024?

Where securities transaction tax has been paid on a delivery trade, short-term gain on listed equity is taxed at 20% plus 4% cess on the whole gain. It is a flat rate. It does not get added to your salary and taxed at your slab, and it does not fall if you are in a low bracket. Long-term gain on the same shares is taxed at 12.5% plus 4% cess, but only on the amount above Rs 1,25,000 of long-term gain in a financial year. That exemption is per person per year, not per stock and not per trade. Indexation does not apply to listed equity, so you cannot inflate your cost for inflation.

The figures in the table on this page were computed for this article. It is a worked calculation at the statutory rates in force from 23 July 2024, not tax advice, and not a return of any service of ours. Surcharge is not included — high total incomes attract surcharge on top, and that is a personal computation you should run with your chartered accountant. One more thing worth knowing: these rates replaced the older 15% and 10% rates partway through a financial year, so gains booked before and after that date in FY 2024-25 were split into two buckets in the return. From FY 2025-26 onward the whole year sits on the current rates.

How much does the 12-month mark actually change my take-home?

The table above uses an illustrative gain of Rs 500,000 on a single position to show the size of the gap. The figures are illustrative and assume no other capital gains in the year, no surcharge, and no losses available to set off. Read it as a sense of scale, not as your number. On a gain that size, the holding date alone is worth Rs 55,250 — roughly a ninth of the profit — moved from the tax department to you. On smaller gains the gap narrows in rupee terms but stays the same in percentage terms, and for a first long-term gain under Rs 1,25,000 in a year the tax can be nil.

Now the part most tax articles skip. That gap is not free money. To collect it you must hold a share you were ready to sell for however many more weeks or months the calendar demands, and you carry the price risk for all of it. On a Rs 500,000 gain built on, say, a Rs 20 lakh position, a 3% fall in the stock while you wait wipes out the entire tax saving. So the honest way to frame the decision is not tax versus no tax. It is: how much price risk am I accepting, and for how long, to save this specific amount? If the wait is three weeks on a business you are happy owning, the answer is usually easy. If it is seven months on a business you have gone cold on, the tax tail is wagging a very large dog.

Can I use my losses to reduce the tax on my gains?

Yes, and this is where most retail investors leave money on the table. A short-term capital loss can be set off against short-term gains and against long-term gains. A long-term capital loss can only be set off against long-term gains. Neither can be set off against your salary, rental income or interest income. Whatever you cannot absorb this year can be carried forward for eight assessment years — but only if you file your income tax return by the due date. Miss the deadline and the carry-forward right is simply gone, even if the loss is real and documented.

The practical routine is to look at your realised gains and your unrealised losses in the same sitting, usually in the last quarter of the financial year. If you already hold a position that is down and that you no longer believe in, booking that loss in the same year as a gain reduces the tax on the gain. Separately, if your long-term gains for the year are well under Rs 1,25,000, some investors deliberately book a little long-term profit to use up the exemption that otherwise expires unused. Both of these are housekeeping, not strategy. Never sell a business you want to own for another decade to save a few thousand rupees of tax, and remember that repurchasing immediately puts you back at the start of a fresh 12-month clock on the new lot.

Do intraday, F&O and dividends follow the same rules?

No, and this is the single biggest source of confusion at filing time. Intraday equity trades — bought and sold the same day without delivery — are not capital gains at all. They are treated as speculative business income and taxed at your normal slab rate. Futures and options on recognised exchanges are treated as non-speculative business income, also at slab rates. Neither gets the 20% flat rate, neither gets the 12.5% rate, and neither gets the Rs 1,25,000 exemption. If you have F&O or intraday activity alongside your delivery portfolio, you are usually filing a different return form and may cross into audit and bookkeeping requirements.

Dividends are separate again. Since the abolition of dividend distribution tax, dividends you receive are added to your total income and taxed at your slab rate, and the company may deduct TDS before paying you if the amount crosses the threshold in the Act. So a high-dividend portfolio and a low-turnover growth portfolio can produce very different tax outcomes for two investors sitting on identical paper returns. Bonus shares and splits do not create a taxable event by themselves, but they do change your per-share cost and, for bonus shares, start a fresh holding period on the new shares. Keep the contract notes.

Should the tax date ever decide when I sell a stock?

Tax is a tiebreaker, not a reason. The order of questions that keeps people out of trouble is: has anything changed in the business, is the price still sensible, and only then, what does the calendar say? If the reason you bought has broken — margins collapsing, promoter pledging rising, the growth story stalling, an accounting question you cannot answer — sell now and pay the higher rate. A 20% tax on a gain you still have is cheaper than a 12.5% tax on a gain that has evaporated while you waited for a date.

If nothing has broken and the holding period is a few weeks away, waiting usually makes sense. The risk you take is small and the saving is certain. If the date is many months away, treat the tax as a rounding error and decide on the business alone. And if you find yourself hoping a stock holds up just long enough to hit the 12-month mark, that hope is information: you are not confident in the company, you are confident in the calendar. Those are not the same thing, and the second one has never protected anybody's capital.

What does a quality checklist have to do with my tax bill?

The lower rate is only available to investors who can comfortably hold something for more than a year. That is much more a portfolio-construction problem than a tax problem, and the numbers explain why. As of August 2026, our universe covers 1,843 listed Indian companies, of which 1,518 have full-year fundamentals we can screen on. Of those 1,518, 458 (30.2%) earn a return on equity above 15% and 464 (30.6%) earn a return on capital employed above 15%. A comfortable 1,282 (84.5%) carry debt-to-equity below 1. But only 334 companies — 22.0% — clear all three bars at the same time. Add a valuation check of PE under 40 and you are left with 241 names, or 15.9%. The median PE across the set is 24.0.

Read that as a holding-period statement, not a stock list. Roughly four in five listed companies fail a basic test of returns, returns on capital and balance sheet strength simultaneously. Those are the businesses that give investors a reason to panic-sell in month eight, which is exactly how a long-term gain turns into a short-term one. One caveat on the debt screen: banks and non-banking finance companies are unfairly penalised by a flat debt-to-equity rule, because borrowing is literally their business model, so they need to be assessed on capital adequacy and asset quality instead. The broader point stands. The cheapest way to pay the long-term rate is to own fewer things you would still be happy to own next year.

What goes wrong when it is time to file the return?

Three mistakes repeat every year. The first is a mismatch between the broker's capital gains statement and the Annual Information Statement on the income tax portal. Reconcile them before you file rather than after you get a notice; differences usually come from corporate actions, off-market transfers or shares held with a second broker. The second is forgetting grandfathering. For listed shares bought before 1 February 2018, the cost is taken as the higher of your actual cost and the fair market value on 31 January 2018, which can reduce a long-term gain substantially. This is reported scrip-wise, so keep the detail.

The third is advance tax. A large gain booked in March leaves little room to plan, but a large gain booked in June creates an advance tax obligation for that quarter, and interest accrues if you ignore it. Also pick the right form: delivery-based capital gains alone generally go in one return form, while F&O or intraday activity pushes you into a business-income form with a profit and loss statement. None of this is complicated, but all of it is easier in April with a clean trade log than in July from memory. If your holdings are spread across several brokers, download each statement the day the financial year ends.

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Conclusion

The tax rule itself is simple: twelve months, 20% plus cess on one side, 12.5% plus cess above Rs 1,25,000 on the other. What is hard is owning something for long enough that the question even comes up, and that is decided by what you bought, not by what the calendar says. Build the portfolio so that holding is the comfortable choice and the lower rate arrives on its own. Which businesses in our universe currently clear that quality bar is the work we do behind KYC in the app.

BossInvestor is a SEBI Registered Research Analyst (INH000024143). This article is for educational and informational purposes only. It explains a method and is not investment advice, nor a recommendation to buy, sell or hold any security. Market-wide figures are computed from our universe as of August 2026; past metrics do not guarantee future results. Always do your own research or consult a registered adviser before investing.

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Frequently Asked Questions

Is the Rs 1,25,000 exemption per stock or per year?

It is per person, per financial year, across all your long-term gains on listed equity and equity mutual funds put together. It is not per stock, not per broker and not per transaction. So if your total long-term gain for the year is Rs 1,00,000 across five shares, no long-term tax arises. If it is Rs 3,00,000, tax at 12.5% plus cess applies to Rs 1,75,000. Unused exemption does not carry forward to next year.

Do I pay short-term tax at 20% even if I am in the 5% slab?

Yes. Short-term capital gain on listed shares where securities transaction tax has been paid is taxed at the flat rate of 20% plus 4% cess, regardless of your income slab. It does not merge into your slab income. One narrow relief exists: if your total income is below the basic exemption limit, the shortfall can be adjusted against such gains. That is a computation to run with your tax adviser, since the rules around rebates differ for these special-rate gains.

If I sell some shares of a company I bought in tranches, which lot is sold?

For shares held in demat form, the first-in-first-out method applies. The earliest-purchased shares are treated as sold first, whatever your intention was. This is why one sell order can produce a long-term gain on part of the quantity and a short-term gain on the rest. Your broker's capital gains report does this split for you. If you want the long-term rate on the whole sale, check how much of your position has actually crossed twelve months before placing the order.

Can a long-term loss be set off against a short-term gain?

No. A long-term capital loss can only be set off against long-term capital gains. It cannot reduce a short-term gain, and it cannot reduce salary or interest income. A short-term capital loss is more flexible: it can be set off against both short-term and long-term gains. Unabsorbed losses of either kind carry forward for eight assessment years, but only if you file your income tax return by the due date for that year.

Should I hold a falling stock just to reach the 12-month mark?

The tax saving is a fixed percentage of the gain; the price risk you accept while waiting has no ceiling. On an illustrative Rs 500,000 gain, a fall of about 3% in the underlying position can erase the entire saving from waiting. So decide on the business first. If the reason you bought has broken, sell and pay the higher rate. If the business is intact and the date is weeks away, waiting is usually a reasonable trade.