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For an Indian resident who sells listed equity held as an investment, the tax result depends mainly on the holding period, the sale date and whether the transaction meets the Securities Transaction Tax (STT) conditions for the special capital-gains sections. Shares held for 12 months or less are generally short-term: qualifying gains under section 111A are taxed at 20% for transfers on or after 23 July 2024, compared with 15% for earlier transfers. Shares held for more than 12 months are generally long-term: qualifying section 112A gains are taxed at 12.5% on the amount above ₹1,25,000 in FY 2025-26. Section 112A provides no indexation benefit.
Which tax category applies when you sell shares?
Start by deciding whether the shares were held for a short-term or long-term period. For listed equity shares held as investments, the long-term threshold is 12 months. A holding period of 12 months or less is generally short-term; a holding period of more than 12 months is generally long-term.
The holding period is measured for each lot, not simply for the account as a whole. If you bought the same company’s shares on several dates, match the shares sold with the corresponding purchase lots using the records in your contract notes or broker’s capital-gains statement. Corporate actions such as mergers, demergers, bonuses and splits can alter the acquisition date or cost, so use the adjusted information supplied by the company, registrar or broker rather than relying on an unadjusted portfolio display.
Classification alone does not establish the special tax rate. The transaction must also fall within the relevant statutory section and satisfy the applicable STT and other conditions. Listed shares sold in an unusual transaction, shares held as business stock, unlisted shares, intraday positions and derivatives require a separate analysis.
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Short-term capital gains under section 111A
Section 111A covers qualifying short-term gains from transfers of equity shares, units of equity-oriented funds and units of business trusts when the transaction is chargeable to STT, subject to statutory exceptions. For listed shares held for no more than 12 months, check the contract note and tax report to confirm that the STT and section 111A conditions are met.
| Transfer date | Qualifying section 111A short-term rate | What to verify |
|---|---|---|
| Before 23 July 2024 | 15% | Short-term classification, STT charge and section 111A eligibility |
| On or after 23 July 2024 | 20% | Short-term classification, STT charge and section 111A eligibility |
The date that matters is the transfer date, so a portfolio containing sales from both periods may require two calculations. Do not apply the 20% rate to an older transfer merely because you are filing the return now. Conversely, the 15% rate does not continue for a sale made on or after 23 July 2024.
When the special short-term rate may not apply
The 20% or 15% figures are not a blanket rate for every profit connected with shares. If the sale does not meet the STT or section 111A conditions, the gain may be governed by another provision. Trading activity that is treated as a business, intraday transactions and some transactions involving non-residents or special exemptions need different treatment. Keep evidence of the transaction type and obtain professional advice when the facts do not match an ordinary exchange sale of investment shares.
Long-term capital gains under section 112A
Listed equity held for more than 12 months can qualify for section 112A, which also covers qualifying long-term gains from equity-oriented fund units and business-trust units. For FY 2025-26, the section 112A threshold is ₹1,25,000. The 12.5% rate applies to the qualifying long-term gain above that threshold, rather than to the entire gain when the gain exceeds the threshold.
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| Item | FY 2025-26 treatment |
|---|---|
| Holding period for listed equity | More than 12 months for long-term status |
| Annual section 112A threshold | ₹1,25,000 of qualifying long-term gains |
| Rate on excess over threshold | 12.5% |
| Indexation | Not available under current section 112A guidance |
For comparison, the listed-security long-term rate for transfers before 23 July 2024 was 10%, under the rules applicable to those earlier transfers. The current 12.5% rate and ₹1,25,000 threshold should therefore be applied with the correct transfer date and tax year.
How the ₹1,25,000 threshold works
Suppose your qualifying section 112A gains for FY 2025-26 total ₹1,80,000 after allowable costs. The amount above the threshold is ₹55,000, so the section 112A rate is applied to ₹55,000, not ₹1,80,000. If qualifying gains do not exceed ₹1,25,000, there is no section 112A tax on the excess because there is no excess. Keep separate totals for qualifying section 112A gains and gains that fall under another provision.
The threshold is not a general exemption for every kind of share profit. It belongs to the section 112A regime and cannot be assumed for intraday trading, business income, unlisted shares or a transaction that fails the statutory conditions.
How to calculate the taxable gain or loss
Use the sale consideration shown in the contract note or the broker’s capital-gains statement. Then deduct eligible transfer expenses and the applicable acquisition cost. The result is the capital gain or capital loss for that lot.
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- Identify the sale: Record the trade date, transfer date, quantity, security and net sale consideration.
- Match the purchase lot: Use the relevant purchase date and cost, including any broker or other acquisition amount that the tax report treats as part of the cost.
- Adjust for corporate actions: Apply the revised cost or holding-period information for bonuses, splits, mergers, demergers or other reorganisations.
- Subtract eligible selling costs: Use the expenses that are permitted in the capital-gains computation and supported by the contract note or statement.
- Classify the result: Decide whether the lot is short-term or long-term and whether section 111A or section 112A conditions are met.
- Apply the rate and threshold: Use 20% or 15% for qualifying section 111A gains according to the transfer date, or 12.5% on qualifying section 112A gains above ₹1,25,000 for FY 2025-26.
Broker reports are useful starting points, but reconcile them with your own purchase records. Differences can arise when shares moved between brokers, when a corporate action was processed after the original purchase, or when a report uses a financial-year grouping that differs from your working papers.
What happens when you sell at a loss?
Capital losses are subject to set-off rules; they are not a general deduction against salary, interest or every other kind of income.
- Short-term capital loss (STCL): It can generally be set off against capital gains, including both short-term and long-term capital gains.
- Long-term capital loss (LTCL): It can be set off only against long-term capital gains.
- Unused loss: Eligible unabsorbed capital loss can be carried forward for up to eight years, provided the return reporting the loss is filed by the statutory due date.
For example, an STCL can reduce a qualifying section 112A gain after the long-term gain has been calculated, subject to the applicable ordering and reporting rules. An LTCL cannot reduce short-term gains. Track brought-forward losses year by year so that a loss is not used after its permitted carry-forward period.
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Why filing on time matters for a loss
The eight-year carry-forward is conditional. If the return reporting the loss is not filed by the statutory due date, the loss may not be available for later years. Preserve the filed return, acknowledgement and computation, not just the broker’s statement, because the tax return is the record that establishes the carry-forward.
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Filing the return for AY 2026-27
Sales made during FY 2025-26 are reported in the assessment-year process for AY 2026-27. Use the current Income Tax Department return utility and the form applicable to your income profile; do not copy an old return form simply because it was used for an earlier year. The department’s AY 2026-27 guidance specifically discusses section 112A gains and form eligibility.
- Collect source records: Download the broker’s capital-gains statement, contract notes, ledger, dividend or corporate-action records and details of any earlier-year capital losses.
- Reconcile proceeds: Check every sale against the contract note and investigate missing or duplicated trades.
- Verify dates and lots: Confirm the holding period for each lot and separate transfers before and on or after 23 July 2024 where the rate changes.
- Check STT and section eligibility: Confirm that the transactions intended for sections 111A or 112A meet the relevant conditions.
- Compute gains and losses: Apply acquisition costs, eligible transfer expenses and corporate-action adjustments, then apply the correct rate and the ₹1,25,000 section 112A threshold where relevant.
- Apply set-off and carry-forward: Use current-year losses under the STCL and LTCL rules, then enter eligible brought-forward losses and retain the filing evidence.
- Review before submission: Compare the capital-gains schedules with the broker report and submit the return through the current utility by the applicable due date.
If you hold several securities, create a lot-level worksheet with columns for security, quantity, purchase date, sale date, purchase cost, sale proceeds, transfer expenses, holding-period category, STT status, gain or loss and the section used. This makes the return easier to audit and exposes errors before submission.
Records you should keep
- Contract notes showing purchase and sale details and STT.
- Broker capital-gains statements and account ledgers.
- Bank or payment records supporting purchase consideration.
- Corporate-action notices and adjusted cost or holding-period calculations.
- Details of shares transferred between demat accounts or brokers.
- Filed returns and acknowledgements supporting carried-forward losses.
Retain the records for the period required under the tax rules and longer where a later loss carry-forward or assessment depends on them. A portfolio app’s current value is not a substitute for historical acquisition evidence.
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Common mistakes and how to correct them
Using the purchase date shown for the wrong lot
Correct the lot mapping first. A single incorrect purchase date can move a sale across the 12-month boundary and change both the section and rate.
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Applying 20% to every short-term sale
Separate transfers by date and verify section 111A eligibility. The 20% rate applies to qualifying transfers on or after 23 July 2024; qualifying earlier transfers use 15%.
Applying the ₹1,25,000 threshold to all investment profits
Use it only for qualifying section 112A long-term gains in the relevant year. It is not a universal stock-market exemption.
Claiming indexation for section 112A shares
Current section 112A guidance does not provide indexation. Recompute the gain using the applicable acquisition cost and eligible transfer expenses without an indexation adjustment.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallUsing LTCL against short-term gains
Reclassify the loss before set-off. Long-term capital loss is restricted to long-term capital gains, while short-term capital loss can generally offset either category.
Ignoring non-standard transactions
Intraday trading, futures and options, unlisted or employee shares, shares treated as business stock, non-resident taxpayers, treaty claims and unusual corporate actions can follow different provisions. Do not force those transactions into the ordinary listed-equity investment calculation.
When this framework does not answer the whole question
This framework is for the common case of an Indian resident selling listed Indian equity held as an investment. A person who trades frequently may need to determine whether the activity is business income rather than capital gains. Intraday trades and F&O have their own classification issues. Unlisted shares and employee shares can have different holding-period and valuation rules. Non-residents may need to consider residential status, withholding and treaty provisions. A merger, demerger, buyback or other corporate action may require transaction-specific adjustments.
Where any of those facts apply, gather the contract notes, demat statements, corporate-action documents and residential-status information before choosing a return schedule or tax section. The ordinary 12-month, section 111A and section 112A pathway should not be used as a shortcut for a transaction that falls outside its conditions.
Quick Recap
Quick decision checklist
- Are the shares listed Indian equity held as an investment?
- Was each lot held for 12 months or less, or for more than 12 months?
- Was the transfer before 23 July 2024 or on or after that date?
- Does the sale satisfy the relevant STT and section 111A or 112A conditions?
- Have you used the correct acquisition cost and corporate-action adjustment?
- For FY 2025-26, have you applied the ₹1,25,000 section 112A threshold only to qualifying long-term gains?
- Have you separated STCL from LTCL and filed any loss return by the due date?
- Does your AY 2026-27 return use the current utility and the form applicable to your income?
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