If you trade or invest in the stock market, understanding how your gains are taxed is just as important as picking the right stocks. The rules differ significantly depending on what you're trading, how long you hold it, and when you bought it. Here's a complete breakdown for FY 2025-26 (AY 2026-27).
Capital Gains Tax Rates at a Glance
Equity delivery trades held for 12 months or less are treated as short-term capital gains (STCG) and taxed at a flat 20%. Hold the same shares for more than 12 months, and the gains become long-term capital gains (LTCG), taxed at 12.5%, with the first ₹1.25 lakh of LTCG in a financial year exempt from tax altogether.
Intraday trading is treated differently — since positions are squared off the same day, gains are taxed as speculative business income at your applicable slab rate, which can run anywhere from 5% to 30% depending on your total income.
Futures & Options (F&O) trading, regardless of how long a position is held, is also taxed at slab rates as non-speculative business income.
Unlisted shares have a longer holding period threshold. STCG applies if held for 24 months or less, taxed at slab rate. LTCG applies beyond 24 months, taxed at 12.5% — importantly, without the benefit of indexation.
Note: Securities Transaction Tax (STT) must have been paid for the equity/mutual fund rates above to apply. These capital gains rates are identical whether you've opted for the old or the new tax regime.
The Grandfathering Rule: Don't Overpay on Pre-2018 Holdings
This is the part investors most often miss. Long-term capital gains on listed equity shares and equity mutual funds were completely tax-exempt until FY 2017-18. When the government reintroduced LTCG tax from 1 April 2018, it "grandfathered" gains that had already accrued up to 31 January 2018 — meaning only appreciation after that date is actually taxable.
Under Section 112A, if you acquired equity shares or equity mutual fund units on or before 31 January 2018, your deemed cost of acquisition is calculated as the higher of:
- Your actual purchase cost, or
- The lower of the Fair Market Value (FMV) as on 31 January 2018, and the actual sale price
For listed shares, the FMV is the highest quoted price on a recognised stock exchange on 31 January 2018 (or the previous trading day if there was no trade that day). For equity mutual funds, it's simply the NAV as on 31 January 2018.
A Worked Example
Scenario
- Bought shares in 2016 for ₹100
- FMV on 31 Jan 2018 = ₹200
- Sold in FY 2025-26 for ₹300
Notice that the ₹100 gain that occurred before 31 January 2018 is completely exempt — you're only taxed on the appreciation that happened afterward. The formula's safeguard prevents tax from being charged on gains that never actually materialized.
Key Takeaways
| ✓ LTCG above ₹1.25 lakh (from all eligible equity assets) taxed at flat 12.5% | ✓ No indexation benefit available on equity LTCG |
| ✓ STT must be paid for concessional rates to apply | ✓ Applies identically under both Old & New Tax Regimes |
Crucially, the grandfathering provision was untouched by the Budget 2024 rate hike (from 10% to 12.5%) and the exemption increase (from ₹1 lakh to ₹1.25 lakh) — it remains fully in force today.
If you're holding equity investments purchased before 31 January 2018, always apply the grandfathered cost of acquisition before calculating your taxable gains. Skipping this step is one of the most common — and costly — mistakes investors make while filing their returns.