Taxation of Listed Equity Shares & Equity Mutual Funds
Trading in the stock market generates either Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) depending on your holding period.
1. Short-Term Capital Gains (STCG - Section 111A)
- Holding Period: Less than or equal to 12 months.
- Tax Rate: 20% (plus applicable 4% cess).
- No standard exemption available; taxed at flat 20% on net gains.
2. Long-Term Capital Gains (LTCG - Section 112A)
- Holding Period: More than 12 months.
- Exemption: First ₹1.25 Lakhs of cumulative LTCG in a financial year is completely tax-free.
- Tax Rate: Gains exceeding ₹1.25 Lakhs are taxed at a flat 12.5% without indexation benefit.
Grandfathering Provisions (Pre-Jan 31, 2018)
For shares acquired prior to 31st January 2018, the cost of acquisition is stepped up to the Fair Market Value (FMV) on 31-01-2018, shielding all pre-2018 profits from long-term capital gains tax.
Loss Set-Off & Carry Forward Rules
- Short-term capital loss can be set off against both STCG and LTCG.
- Long-term capital loss can ONLY be set off against LTCG.
- Unabsorbed capital losses can be carried forward for up to 8 consecutive assessment years provided the ITR is filed before the statutory due date.