You bought shares, they rose, you sold — and now the taxman wants a cut of the profit. Capital gains tax is how India taxes profits from selling investments, and for shares and mutual funds the rules changed materially in July 2024 and continue into 2026. The headline rates are simple: 20 per cent on short-term equity gains, 12.5 per cent on long-term gains above 1.25 lakh rupees a year. The details — holding periods, what counts as equity, how mutual fund categories differ — are where money is quietly won or lost.

What counts as a capital gain

A capital gain is the difference between your sale price and your purchase price (your cost of acquisition), after adjusting for certain expenses like brokerage. If you bought 100 shares at 500 rupees and sold at 800, the 30,000 rupee difference is the gain — not the 80,000 rupee sale proceeds, a confusion that costs beginners unnecessary worry. Gains are classified as short-term or long-term based on how long you held the asset, and the two categories are taxed at very different rates. Losses, importantly, are not worthless: capital losses can be set off against gains under defined rules, which makes tax-loss harvesting a legitimate year-end strategy.

Shares and equity mutual funds: the 2026 rules

For listed equity shares and equity-oriented mutual funds — funds holding at least 65 per cent in equities — the holding period is 12 months. Sell within a year and the gain is short-term, taxed at 20 per cent plus applicable surcharge and cess. Hold for more than a year and it becomes long-term, taxed at 12.5 per cent — but only on gains exceeding 1.25 lakh rupees in a financial year, a tax-free threshold that makes small investors’ long-term gains effectively exempt. There is no indexation benefit for equity: you pay on the nominal gain. Securities transaction tax paid at the time of trade does not reduce your capital gains liability; it is a separate levy.

Debt funds and other mutual funds: different rules

The 2024 changes redrew the map for non-equity funds. For mutual fund units acquired on or after July 23, 2024, specified funds — those investing 65 per cent or less in equity, which covers most debt funds — no longer enjoy long-term capital gains treatment at all: gains are taxed at your income-tax slab rate regardless of holding period. Units bought before that date follow the older rules for their holding periods. Gold funds, fund-of-funds and international funds each have their own classifications worth checking before you invest, because the post-2024 regime rewards holding the right fund in the right account rather than clever timing.

• Listed equity / equity funds: 12-month holding; 20% STCG, 12.5% LTCG above 1.25 lakh/year.
• Debt funds (bought after Jul 2024): taxed at slab rate, no LTCG benefit.
• Set-off: short-term losses can offset both STCG and LTCG; long-term losses only against LTCG.
• Carry forward: unabsorbed losses can be carried forward 8 years — but only if you file on time.

How to compute and pay

Your broker’s capital gains statement and your mutual fund’s statements give you the raw numbers, but the responsibility for correct computation is yours. Aggregate gains across all transactions for the year, apply the holding-period classification per asset, subtract the 1.25 lakh LTCG exemption where applicable, and compute tax per category. Large gains may trigger advance tax liability — if your total tax due exceeds 10,000 rupees in a year, you are expected to pay it in quarterly instalments, with interest penalties for shortfalls. Report everything in the ITR schedule for capital gains; the Annual Information Statement already shows your securities transactions to the department, so omission is not a strategy.

FAQs

Are dividends taxed separately from capital gains? Yes. Dividends are taxed at your slab rate in the year received (with TDS above thresholds), while capital gains apply only when you sell.

What if I sell at a loss? Report it. Capital losses set off against gains reduce your tax, and unabsorbed losses carry forward for eight years if you file your return on time.

Does the 1.25 lakh exemption apply per stock or in total? In total — it is the aggregate long-term equity gains across all your holdings in the financial year.

Capital gains tax rewards patience twice: lower rates for longer holding, and a generous annual exemption for long-term equity gains. Understand the holding periods, respect the advance-tax calendar, harvest losses intelligently — and keep more of what your investments earned.

Compiled by the Khabar 24h Editorial Desk from publicly available sources.