The plain answer
Yes, selling shares is taxable on the capital gains, and the amount depends on one number: how long you held the shares. Listed shares held for 12 months or less produce short-term capital gains, taxed at 20% under Section 111A. Shares held for more than 12 months produce long-term capital gains, and the first ₹1.25 lakh of those gains in each financial year is exempt, with the excess taxed at 12.5% under Section 112A.
Both sets of rates apply to transfers on or after 23 July 2024, when the Finance (No. 2) Act 2024 raised the short-term rate from 15% to 20% and the long-term rate from 10% to 12.5%, and lifted the long-term exemption from ₹1 lakh to ₹1.25 lakh. A sale before that date follows the old schedule, and your broker's statements record the dates so the correct regime can be applied trade by trade.
The tax is not computed sale by sale in isolation. Gains and losses from all your trades net together across the financial year under the set-off rules, and the resulting figure goes into your income tax return. The broker's annual capital gains statement supplies the numbers; the return reports the net position. This page explains the mechanics of all of that, one section at a time.
The two sections
The Income Tax Act splits share gains into two regimes that never mix. The table below is the whole rate card for listed equity shares held by an individual:
| Item | Short-term (12 months or less) | Long-term (more than 12 months) |
|---|---|---|
| Section | 111A | 112A |
| Rate | 20% | 12.5% |
| Exemption | None dedicated | ₹1.25 lakh per financial year |
| Old rate (before 23 July 2024) | 15% | 10% above ₹1 lakh |
| Surcharge | As per your income slab | Capped at 15% |
| Health and education cess | 4% on the tax | 4% on the tax |
Two rows deserve a sentence each. The surcharge cap means that on Section 112A long-term gains, the surcharge never exceeds 15% however high your income, a relief introduced for high earners. And the 4% health and education cess is computed on the tax (including surcharge), so the effective payable on a short-term gain is 20.8% of the gain, not 20%.
The cap can be illustrated on a large gain. Take ₹2,00,000 of taxable long-term gain: 12.5% is ₹25,000. Even in the top income bracket, the surcharge on this piece is capped at 15%, ₹3,750, and the 4% cess runs on the combined ₹28,750, adding ₹1,150. The total payable is ₹29,900, an effective 14.95% on the taxable gain. The cap is the difference between that number and the 16.25% effective rate that would otherwise apply in the top surcharge bracket.
A word on scope: these sections cover listed equity shares and units of equity-oriented funds on which STT was paid at acquisition and transfer. Unlisted shares, listed debt and other assets follow different sections and holding periods. Everything on this page assumes listed equity shares bought and sold on a recognised exchange.
How the rates changed
The schedule has moved three times in eight years, which is why older articles and older memories disagree. The full arc:
| Period | Short-term (111A) | Long-term (112A) |
|---|---|---|
| Up to 31 March 2018 | 15% | Fully exempt under Section 10(38) |
| 1 April 2018 to 22 July 2024 | 15% | 10% above ₹1 lakh |
| From 23 July 2024 | 20% | 12.5% above ₹1.25 lakh |
The middle row is the one that catches people out: between April 2018 and July 2024, long-term gains were taxable but at the old 10% rate with the old ₹1 lakh exemption, and short-term at 15%. Any article written in that six-year window states yesterday's numbers as if they were current. The only schedule that matters is the one in force on your sale date.
How the holding period works
The holding period runs from the trade date of the buy to the trade date of the sell, not from settlement to settlement and not from when the shares appeared in your demat account. Twelve months exactly is still short-term. One day more, and the same shares cross into the long-term regime with its lower rate and its exemption.
Special acquisition routes have their own clock rules:
- IPO shares: the period starts on the allotment date, not the application date. The weeks between applying and allotment do not count.
- Bonus shares: the period starts on the date the bonus shares are allotted, not on the date you bought the original shares.
- Rights shares: the period starts on the date of allotment of the rights shares.
- Inherited or gifted shares: the period held by the previous owner is added to your period under Section 49, so shares held for years by a parent and sold by you shortly after inheritance can be long-term immediately.
The classification is mechanical, and the broker's annual statement prints the short or long-term tag against every delivery trade. The same ₹20,000 gain changes tax from ₹4,000 to zero purely on the holding period, which is why the date arithmetic matters more than the profit figure.
Cost and proceeds
Tax is charged on the gain, and the gain is sale proceeds minus cost of acquisition minus any expenditure on the transfer. The cost is not just the share price. The buy-side charges that you paid to acquire the shares, brokerage, STT and stamp duty, sit inside the cost of acquisition. STT paid on a delivery buy specifically adds to your cost, which lowers the gain.
On the sell side, brokerage reduces the net sale proceeds. Your broker's annual capital gains statement already builds both numbers this way: the buy value it reports includes the buy-side charges, and the sale value is the net amount. Where you bought the same share on several dates, the statement applies the broker's cost convention, first-in-first-out or average, to the shares it reports as sold, and prints the basis it used. That is why the statement, rather than your memory of prices, is the input for the return.
One line on the contract note is worth recognising when you reconcile: the DP charge printed on every delivery sell. Whether and how a specific sell-side line enters the computation is settled by your CA under Section 48, using the statement as the base record. The point of this section is simpler: the taxable gain is never just sale price minus buy price.
Shares bought before 2018
Section 112A taxes long-term gains on listed shares from 1 April 2018 onwards. To make sure gains earned before the tax existed are not taxed, the law grandfathers shares acquired on or before 31 January 2018. For those shares, the cost of acquisition becomes the higher of the actual cost and the lower of the fair market value on 31 January 2018 and the sale price. The fair market value is the highest price quoted on the stock exchange on 31 January 2018, or on the immediately preceding trading day if the share did not trade that day.
The published department illustrations show how the formula plays out. Take a share bought for ₹100 whose 31 January 2018 price was ₹200:
| Sold at | Cost taken | Taxable gain |
|---|---|---|
| ₹250 | ₹200 (the FMV) | ₹50 |
| ₹150 | ₹150 (the sale price) | Nil |
| ₹50 | ₹100 (the actual cost) | A long-term loss of ₹50 |
In every case, appreciation up to 31 January 2018 stays exempt. The same treatment applies to bonus and rights shares acquired before 1 February 2018, which take the 31 January 2018 fair market value as their cost. If you hold any pre-2018 shares, this section is the one your CA will apply first, before any rate discussion.
Selling part of a holding
Most investors do not sell everything at once, and partial sales are where the holding period arithmetic gets practical. When you bought the same share on several dates and sell only part, the shares sold are identified under the broker's cost convention, first-in-first-out at many brokers, and the holding period of those specific shares decides the short or long-term classification.
A worked case: you buy 300 shares on 1 April 2024 and 200 more on 1 July 2025, then sell 250 shares on 15 August 2025. Under first-in-first-out, the 250 sold are drawn from the April 2024 lot, held for more than 12 months, so the entire sell is long-term, even though part of your remaining holding is younger. The gain uses the cost of the April lot, and the statement prints both the basis and the classification it used.
The consequence runs both ways. Selling shortly after adding to a position can produce long-term or short-term gains depending on which lot the convention identifies, and the answer is not a matter of opinion: it is the broker's printed basis, which the return follows.
Worked examples
Example one: a short-term gain. You buy 1,000 shares at ₹100 each (₹1,00,000 total) on 10 January 2025 and sell them at ₹120 (₹1,20,000) on 5 September 2025. The holding period is under 12 months, so the ₹20,000 gain is short-term. Tax is 20% of ₹20,000, which is ₹4,000, plus the 4% cess of ₹160, so ₹4,160 in all.
Example two: the same gain, long-term. You buy 500 shares at ₹200 each (₹1,00,000) on 1 June 2024 and sell at ₹240 (₹1,20,000) on 15 September 2025. The holding period is now more than 12 months, so the same ₹20,000 is long-term. It sits below the ₹1.25 lakh exemption, so the tax is zero. The holding period alone turned ₹4,160 into nothing.
Example three: a long-term gain above the exemption. Across the financial year your total long-term gains are ₹2,50,000. The first ₹1,25,000 is exempt, leaving ₹1,25,000 taxable at 12.5%, which is ₹15,625. With the 4% cess of ₹625, the payable is ₹16,250. Notice that the effective rate on the full gain is 6.5%, not 12.5%, because of the exemption.
Example four: a mixed year. The same year also has a ₹25,000 short-term loss on another share. The ₹40,000 short-term gain on share A and the ₹25,000 short-term loss on share B net to ₹15,000, taxed at 20%: ₹3,000, plus ₹120 cess, ₹3,120. The long-term gain is untouched, because long-term and short-term never mix. The return reports both lines, and the netting is where the year's arithmetic happens.
| Example | Gain | Holding | Taxable amount | Tax before cess |
|---|---|---|---|---|
| Short-term | ₹20,000 | Under 12 months | ₹20,000 | ₹4,000 (20%) |
| Long-term, small | ₹20,000 | Over 12 months | ₹0 (within ₹1.25 lakh exemption) | ₹0 |
| Long-term, large | ₹2,50,000 | Over 12 months | ₹1,25,000 | ₹15,625 (12.5%) |
| Mixed year | ₹40,000 STCG, ₹25,000 STCL, ₹30,000 LTCG | Both | ₹15,000 short-term; LTCG exempt | ₹3,000 (20%) |
Intraday and F&O are different
Everything above applies to delivery shares, shares that enter and leave your demat. Intraday and derivatives follow different law. An intraday square-off produces speculative business income under Section 43(5), and futures and options produce non-speculative business income. Neither is capital gains, the ₹1.25 lakh exemption does not exist for either, and both are reported as business income, which for F&O means ITR-3 rather than ITR-2.
The broker's paperwork mirrors the split. Delivery trades feed the capital gains statement; intraday and F&O feed a separate trading report. When a single day contains both, the two reports keep them apart, because the two tax treatments never merge. The pages on this site that cover STT and the records page both preserve that separation, and so should any filing.
Buybacks, mergers and gifts
Selling on the exchange is the common exit, but shares also leave in other ways, and each has its own rule. Tender your shares in a company's buyback and the tender is a transfer: capital gains apply on the difference between the buyback price and your cost, with the same holding period rules as any sale. The buyback proceeds arrive through the same settlement machinery, and the broker's statement reports the transaction.
Gifting shares is not a taxable event for the donor: transfers by gift are not treated as transfers under Section 47, so no capital gains arise when the shares leave your account. The person who receives them takes your cost of acquisition and your holding period under Section 49, which is why a gifted share's history matters to the recipient, not the giver.
In a scheme of amalgamation, the exchange of your shares for shares of the merged company is generally not taxed at the moment of the swap, and the period for which you held the original shares counts toward the new ones under the holding period rules. The new shares' cost ties back to the old cost through the scheme's share ratio. These are the three exits beyond the plain sell, and each deserves its own conversation with a CA when it actually happens.
Losses and set-off
The tax works on the net position of the financial year, not on each sale. Suppose the year has a ₹40,000 short-term gain on one share and a ₹25,000 short-term loss on another. Only ₹15,000 is taxable. The same netting runs across every delivery trade in the year, and the return reports the result.
The set-off rules are asymmetric, and that asymmetry is the part people most often misapply:
- Short-term losses can be set off against both short-term and long-term gains.
- Long-term losses can be set off only against long-term gains, never against short-term gains.
- Unabsorbed losses carry forward for up to eight assessment years under Section 74, and the carried-forward losses follow the same short or long-term character.
The practical consequence: the annual capital gains statement from the broker is the working document, and the CA does the set-off arithmetic on top of it. If you used two brokers in a year, both statements combine first. Keep the statements and the records behind them, which the records page maps in full.
Advance tax and the ITR
Capital gains can create an advance tax obligation, because tax on capital gains is due in the instalment that follows the quarter in which the gain arises. The standard instalments are 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. A gain that arises between 1 October and 31 December joins the 75% instalment due on 15 December. If your total tax liability for the year stays below ₹10,000, no advance tax is required at all under Section 208. Shortfalls carry interest under Section 234C, which is why a large gain in October is not something to discover in July.
The instalment arithmetic in practice: suppose your expected total tax for the year was ₹60,000, and a share sale on 5 November adds ₹20,000 of capital gains tax. By 15 December you should have paid 75% of the revised ₹80,000, which is ₹60,000, instead of the 75% of ₹60,000, ₹45,000, you had been tracking. The same logic moves a March gain into the 100% instalment of 15 March. The broker's statements supply the gain dates; the CA maps them to the instalments.
At filing time, capital gains from delivery shares go into Schedule CG of the return. Individuals with only capital gains (no business income) file ITR-2. If you also have trading business income, including futures and options, you file ITR-3. The standard due date is 31 July after the financial year ends, which for the financial year 2025-26 (assessment year 2026-27) is 31 July 2026, and 31 October where a tax audit applies.
Before filing, cross-check the return against the Annual Information Statement, where the department lists the securities transactions it already knows about. The goal is that your return and the AIS agree, so nothing arrives as a surprise notice later.
The limits of this page
This page states the published rules and the arithmetic behind them. It does not plan your sales, and it takes no position on whether holding a position for the long-term rate suits your situation, because that is a personal decision with more inputs than a rate table. The division of labour on this site is constant: these pages explain mechanics, and the decisions belong to you and your CA.
What people usually get wrong
All gains above ₹1 lakh are taxed at 10%
The post-July-2024 schedule is 12.5% above ₹1.25 lakh for long-term gains, and 20% for short-term gains. Older articles still quote the pre-2024 numbers.
The exemption applies to short-term gains too
The ₹1.25 lakh exemption is for long-term gains under Section 112A only. Short-term gains have no dedicated exemption.
Each sale is taxed separately as it happens
Gains and losses net across the financial year under the set-off rules, and the net position is what the return reports.
The broker reports my trades, so I can skip them in the return
The department receives transaction data, but you must report the correct gain in your return. A return that disagrees with the AIS invites a notice.
Share gains get the benefit of indexation
Indexation does not apply to Section 112A gains on listed shares. The published department FAQs confirm the cost is not inflation-adjusted.
Questions people ask
Holding for 12 months or less. Anything more than 12 months is long-term. The period runs from trade date to trade date, so shares bought on 10 January 2025 and sold on 10 January 2026 are short-term, while a sale on 11 January 2026 is long-term. For IPO shares the clock starts on the allotment date, and for bonus and rights shares on the date those shares are allotted. Inherited shares carry the holding period of the person you inherited them from.
No dedicated allowance like the long-term exemption exists. A resident taxpayer can, however, set short-term gains against any part of the basic exemption limit that remains after other income is absorbed, under the proviso to Section 111A. The Section 87A rebate does not apply to tax computed on these special-rate gains, so a small gain can still produce tax. The offset arithmetic runs across the whole year, which is why the annual statement matters more than any single sale.
It applies per person per financial year, and only to long-term gains under Section 112A. The first ₹1.25 lakh of such gains in a year is exempt, and the excess is taxed at 12.5%. The exemption resets every 1 April and an unused balance cannot be carried forward. Gains from different shares, different brokers and different depositories are pooled for this test.
The grandfathering rule sets your cost at the higher of the actual cost and the lower of the fair market value on 31 January 2018 and the sale price. The fair market value is the highest quoted price on that date, or on the immediately preceding trading day if the share did not trade that day. The effect is that appreciation up to 31 January 2018 stays outside the taxable gain. The formula sits in Section 55(2)(ac), and your broker statement and CA apply it.
Yes, within the set-off rules. Short-term losses offset short-term and long-term gains; long-term losses offset only long-term gains. Any unabsorbed loss carries forward for up to eight assessment years under Section 74. The net position across the whole financial year is what the return reports, so keep the annual statement and let your CA run the arithmetic.
ITR-2 when your only market income is capital gains from delivery shares, because the form has no business income section. ITR-3 applies when you also have business income, which includes futures and options trading. The gains go into Schedule CG of the return. The standard due date is 31 July after the financial year ends, and 31 October where a tax audit applies.
Where to go next
Sources
- ITAT Online. “CBDT issues FAQs on taxation of LTCG as per Finance Bill 2018.” Accessed 16 August 2026.
- Business Standard. “CBDT responds to queries of taxpayers regarding long-term capital gains taxation.” Accessed 16 August 2026.
- Upstox. “Brokerage charges.” Accessed 16 August 2026.
- Income Tax Department. “Annual Information System (AIS) tutorial.” Accessed 16 August 2026.