Loading
Market Intelligence › Blogs And Updates
What capital gains tax is, STCG vs LTCG, tax on stocks and mutual funds — a complete guide for Indian investors.
Published by The Retail Trader · AUG 03, 2026 · Features
What capital gains tax is, STCG vs LTCG, tax on stocks and mutual funds — a complete guide for Indian investors.
Capital gains tax is the tax you have to pay when you sell an asset (stocks, mutual funds, property) and make a profit.
Simple definition: > Capital gains = Selling price - Buying price. Tax is charged on that profit.
Keep these five points in mind:
• Equity Stocks — STCG (Short-Term): < 12 months, LTCG (Long-Term): > 12 months
• Equity MF — STCG (Short-Term): < 12 months, LTCG (Long-Term): > 12 months
• Debt MF — STCG (Short-Term): < 36 months, LTCG (Long-Term): > 36 months
• Gold — STCG (Short-Term): < 36 months, LTCG (Long-Term): > 36 months
• Property — STCG (Short-Term): < 24 months, LTCG (Long-Term): > 24 months
Equity Stocks & Equity Mutual Funds:
• STCG — Holding Period: < 12 months, Tax Rate: 20%
• LTCG — Holding Period: > 12 months, Tax Rate: 12.5% (above ₹1.25L exemption)
Debt Mutual Funds:
• Any duration — Holding Period: Any, Tax Rate: Slab rate (your income tax rate)
Note: After April 2023, debt MF no longer gets indexation benefit.
Gold / Gold ETFs:
• STCG — Holding Period: < 36 months, Tax Rate: Slab rate
• LTCG — Holding Period: > 36 months, Tax Rate: 12.5% with indexation
₹1.25 lakh per year of LTCG on equity is tax-free.
Example:
• You bought Reliance at ₹2,000, sold at ₹2,800 after 15 months
• Profit: ₹800 per share × 100 shares = ₹80,000
• LTCG: ₹80,000 (below ₹1.25L exemption)
• Tax: ₹0
Example 2:
• Profit: ₹3,00,000
• Exemption: ₹1,25,000
• Taxable: ₹1,75,000
• Tax: ₹1,75,000 × 12.5% = ₹21,875
Keep these seven points in mind:
• Equity Stocks — STCG: 20% (< 12 months), LTCG: 12.5% (> ₹1.25L, > 12 months)
• Equity MF — STCG: 20% (< 12 months), LTCG: 12.5% (> ₹1.25L, > 12 months)
• Debt MF — STCG: Slab rate, LTCG: Slab rate (no indexation)
• ELSS — STCG: 20% (< 36 months), LTCG: 12.5% (> 36 months)
• Gold ETF — STCG: Slab rate (< 36 months), LTCG: 12.5% with indexation
• SGB — STCG: Exempt if held till maturity, LTCG: 12.5% if sold early
• F&O — STCG: Slab rate (business income), LTCG: N/A
F&O income = Business income (not capital gains)
Keep these four points in mind:
• F&O Profits — Business income, slab rate
• F&O Losses — Can set off against other income
• Speculative income — Can't set off losses
• Non-speculative (F&O) — Can set off, carry forward 8 years
Important: F&O losses can be set off against salary income. This is very powerful for tax planning.
Strategy 1: Harvest LTCG:
• LTCG up to ₹1.25L every year is tax-free
• Sell stocks, buy them back immediately
• The tax-free profit gets booked
• The cost price gets reset
Strategy 2: Set Off Losses:
• Short-term capital losses → Set off against STCG or LTCG
• Long-term capital losses → Set off only against LTCG
• You can carry forward losses for 8 years
Strategy 3: ELSS (Tax Saving MF):
• ₹1.5L deduction under Section 80C
• 3-year lock-in
• Equity returns + tax saving
Strategy 4: Hold for 12 Months:
• STCG 20% vs LTCG 12.5%
• Hold for 12 months → save 7.5% in tax
• Plus ₹1.25L exemption
"Made a profit, great!" — Calculate the tax before celebrating.
Don't sell at 11 months. Wait 1 more month → LTCG rate (12.5% vs 20%).
F&O = Business income. Showing it as capital gain = tax notice.
You can carry forward losses for 8 years. File your ITR every year (even if there is no income).
Keep these points in mind:
• 📌 CAPITAL GAINS TAX QUICK REFERENCE
• EQUITY STOCKS:
• 📊 STCG (< 12 months): 20%
• 📊 LTCG (> 12 months): 12.5% (above ₹1.25L)
• EQUITY MF:
• 📊 STCG (< 12 months): 20%
• 📊 LTCG (> 12 months): 12.5% (above ₹1.25L)
• DEBT MF:
• 📊 Any duration: Slab rate
• F&O:
• 📊 Business income: Slab rate
• 📊 Losses: Set off + 8 year carry forward
• EXEMPTION:
• 📊 ₹1.25L LTCG per year = tax-free
• TAX SAVING:
• ✅ Harvest LTCG (sell + rebuy up to ₹1.25L)
• ✅ Set off losses against gains
• ✅ Hold 12+ months for LTCG rate
• ✅ ELSS for 80C deduction
• ✅ F&O losses against salary income
• AVOID:
• ❌ Ignoring tax
• ❌ Selling within the STCG window (wait 1 more month)
• ❌ F&O as capital gain (it's business income)
• ❌ Forgetting to carry forward losses
Keep these four points in mind:
• What Is a Mutual Fund?
• What Is the Share Market?
• What Is the Stock Market?
• NISM Certification Guide
The Retail Trader — educational market analysis. Not investment advice. Consult a CA for tax advice.
This article is for educational purposes only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advisory. Rules, rates and mechanics of the exchanges, SEBI and RBI change from time to time, so verify every number yourself with your broker or an official source.