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Simple & Secure Tax Filing ITR Filed by Tax Expert
Updated for FY 2026-27

Short Term Capital Gain Tax on Shares

A Practical Guide to STCG Tax on Equity Shares in India

Understand how short-term gains from shares are classified, when the 20% Section 111A rate can apply, how taxable gains are calculated and what you should consider while filing your return. This guide also explains the tax rules for equity trading in simple, practical terms.

Qualifying STCG Rate 20%
Listed Equity Holding Up to 12 Months
Key Condition STT Rules Apply
Guidance for Indian equity investors and taxpayers

Sold listed shares within a year and made a profit? Short term capital gain tax on shares may apply, but the tax treatment depends on factors such as the type of security, holding period, transaction conditions and whether the gain falls under Section 111A.

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Why does this matter? Applying the wrong tax rate, holding-period rule or ITR reporting treatment can lead to an incorrect tax calculation and create unnecessary compliance issues later.

This guide explains how STCG tax on shares works in India, when the Section 111A tax rate can apply, how short-term capital gains are calculated and how they should generally be reported in your Income Tax Return. It also covers practical tax-planning points that investors should understand before filing.

STCG Tax Rate Understand when the special equity short-term capital-gains rate can apply.
Gain Calculation Learn how sale value, purchase cost and permitted expenses affect taxable gains.
ITR Reporting See how short-term equity gains are generally reported in the applicable capital-gains schedules.
Tax Planning Understand set-off rules, timing considerations and other practical factors before filing.
STCG Quick Reference

Quick Summary: STCG on Shares at a Glance

Short-term capital gain tax on shares generally becomes relevant when shares are sold before they qualify as long-term capital assets. For listed equity shares, a holding period of 12 months or less generally results in short-term classification. The actual tax rate then depends on whether the transaction satisfies the conditions of Section 111A.

20%
Current Section 111A STCG Rate

For qualifying transfers of specified listed equity securities taking place on or after 23 July 2024, short-term capital gains covered by Section 111A are taxed at 20%. Applicable surcharge and 4% health and education cess may also apply.

STCG Rules at a Glance

Use this as a quick reference. The final tax treatment can depend on the nature of the security, transaction and your complete income profile.

Topic General Rule
Listed equity shares Short-term if held 12 months or less
Unlisted shares Short-term if held 24 months or less
Section 111A rate for qualifying transfers on or after 23 July 2024 20% + applicable surcharge and cess
Section 111A rate for qualifying transfers before 23 July 2024 15% + applicable surcharge and cess
STT condition for Section 111A STT is generally required on the transfer, subject to specified exceptions
Chapter VI-A deductions such as Section 80C Cannot be deducted from the portion of income consisting of Section 111A gains
ITR form ITR-2 generally applies where there is no business/professional income; ITR-3 applies where such income is present
Short-term capital loss Can generally be set off against both short-term and long-term capital gains
Capital-loss carry-forward Up to 8 assessment years, subject to applicable return-filing conditions
Historical rate: the earlier 15% Section 111A rate remains relevant when dealing with qualifying transfers completed before 23 July 2024. For current transactions, the applicable Section 111A rate is generally 20%.

What You'll Learn in This Guide

01

Section 111A Conditions

Understand when the special STCG rate can apply to listed equity shares and which transaction conditions matter.

02

STCG Calculation

Learn how short-term capital gain is calculated using sale consideration, acquisition cost and permitted transfer expenses.

03

STCG vs LTCG

See how the holding period changes the classification of your share transaction and can affect its tax treatment.

04

ITR & Loss Reporting

Understand how capital gains and short-term capital losses are generally reported, set off and carried forward.

STCL
Important If You Have a Capital Loss

A short-term capital loss can generally be adjusted against either short-term or long-term capital gains. Unabsorbed capital loss can generally be carried forward for up to eight assessment years, but the return containing the loss should be filed within the applicable due-date requirements if you want to preserve the carry-forward benefit.

STCG Basics

What Is Short Term Capital Gain (STCG) on Shares?

A short-term capital gain (STCG) on shares arises when shares treated as capital assets are sold at a profit before they cross the prescribed long-term holding period.

For listed equity shares, the key threshold is generally 12 months. If the shares are held for 12 months or less before transfer, they are generally treated as short-term capital assets. If they are held for more than 12 months, they generally qualify as long-term capital assets.

STCG
Simple Definition

Buy listed equity shares, hold them for no more than 12 months and sell them at a profit — the resulting gain will generally be classified as a short-term capital gain, assuming the shares are held as investments rather than as trading stock.

How the 12-Month Holding Period Works

Short Term

Held for 12 Months or Less

Listed equity shares sold within this period are generally classified as short-term capital assets. A profit arising on the transfer is therefore generally a short-term capital gain.

Long Term

Held for More Than 12 Months

Once the holding period exceeds 12 months, listed equity shares generally qualify as long-term capital assets, so any resulting gain is generally treated as LTCG.

Simple Example

Listed Share Sold Within One Year

Suppose you purchase listed shares for ₹2,00,000 and sell them nine months later for ₹2,50,000. The shares were held for no more than 12 months, so the ₹50,000 gain would generally be classified as a short-term capital gain. The actual tax rate would then depend on whether the transaction satisfies the conditions of Section 111A.

EMF
What About Equity-Oriented Mutual Funds?

Units of equity-oriented mutual funds also generally use the 12-month holding-period threshold. Units held for 12 months or less are generally short-term, while units held for more than 12 months are generally long-term.

Key Point: the holding period determines whether the asset is classified as short-term or long-term, but it does not by itself determine the final tax rate. For listed equity STCG, you must also check whether the transaction satisfies the conditions of Section 111A.
Important Tax Change

STCG Tax Changes from 23 July 2024

The Finance (No. 2) Act, 2024 increased the special short-term capital-gains tax rate applicable to qualifying equity transactions under Section 111A. The date of transfer is important because transactions before and after 23 July 2024 fall under different rates.

Before 23 July 2024 15%

Earlier Section 111A Rate

Qualifying short-term capital gains from transfers completed before 23 July 2024 continue to be taxed at the earlier 15% rate, plus applicable surcharge and cess.

On or After 23 July 2024 20%

Revised Section 111A Rate

Qualifying short-term capital gains from transfers taking place on or after 23 July 2024 are taxed at 20%, plus applicable surcharge and health and education cess.

What Changed — and What Did Not?

01

Tax Rate Increased

The special Section 111A rate increased from 15% to 20% for qualifying transfers taking place on or after 23 July 2024.

02

Transfer Date Matters

A qualifying transfer completed before 23 July 2024 remains subject to the earlier 15% rate. The revised 20% rate applies from 23 July 2024.

03

12-Month Rule Remains

Listed equity shares are still generally treated as short-term capital assets when held for 12 months or less.

Simple Comparison

Same Type of Gain, Different Transfer Date

Suppose an investor has a qualifying Section 111A short-term capital gain of ₹1,00,000. If the transfer took place on 22 July 2024, the special rate would be 15%, resulting in ₹15,000 of tax before applicable surcharge and cess. If the qualifying transfer took place on 23 July 2024 or later, the rate would be 20%, resulting in ₹20,000 of tax before applicable surcharge and cess.

!
Check the Transfer Date, Not Just the Purchase Date

The 15% versus 20% distinction is based on when the transfer takes place. The purchase date remains important for determining the holding period, but the transfer date determines which of these Section 111A rates applies.

For current qualifying transfers, the 20% rate is the relevant Section 111A rate. The earlier 15% rate mainly remains relevant when reviewing or filing returns involving transfers completed before 23 July 2024.

Equity STCG Special Rate

When Does the Section 111A / Section 196 Tax Rate Apply?

One of the most common mistakes investors make is assuming that every short-term gain from shares is automatically taxed at a special flat rate.

The special 20% STCG rate applies only to specified short-term capital gains from qualifying equity shares, equity-oriented fund units and business-trust units when the prescribed transaction conditions are satisfied.

TAX
Section 111A Is Now Section 196

Under the Income-tax Act, 1961, this special equity STCG provision was known as Section 111A. From 1 April 2026, the Income-tax Act, 2025 applies and the corresponding provision is Section 196. The applicable special rate for qualifying transactions remains 20%.

When Does the 20% Special STCG Rate Apply?

01

The Asset Must Qualify

The short-term capital asset must be an equity share in a company, a unit of an equity-oriented fund, or a unit of a business trust.

02

It Must Be a Short-Term Gain

The transaction must first result in a short-term capital gain. For listed equity shares, this generally means the shares were held for 12 months or less.

03

STT Condition Must Be Met

For the normal Section 196 framework, the transaction of sale must be chargeable to Securities Transaction Tax (STT), subject to the specific IFSC exception explained below.

20%
Special Rate for Qualifying STCG

Where these conditions are satisfied, the qualifying short-term capital gain is taxed at 20%. Applicable surcharge and 4% health and education cess may be added separately.

When the Special 20% Rate Does Not Normally Apply

If the gain does not satisfy the special equity-STCG conditions, it is generally treated as ordinary short-term capital gain and taxed under the rate otherwise applicable to the taxpayer, unless another specific provision applies.

Short-term capital gains from unlisted shares.
Ordinary off-market transfers where the sale does not satisfy the applicable STT condition.
Shares or securities that do not fall within the specified asset categories covered by the special provision.
Important: do not assume that every share transaction automatically qualifies for the 20% rate. First determine whether the gain is short-term and then check whether the security and transaction satisfy the applicable Section 196 conditions.
IFSC
Important IFSC Exception

The normal STT requirement does not apply where the transaction is undertaken on a recognised stock exchange located in an International Financial Services Centre (IFSC) and the consideration is paid or payable in foreign currency.

Simple Way to Check Your Transaction

Likely Covered

Listed Share + Short-Term + STT

You sell a qualifying listed equity share within the short-term holding period through the normal exchange mechanism and the sale is chargeable to STT. The special 20% STCG provision can generally apply.

Normally Not Covered

Unlisted Share or Non-Qualifying Transaction

You realise a short-term gain from an unlisted share or another transaction that does not satisfy the prescribed conditions. The gain is generally outside the special equity-STCG provision.

Share Tax Comparison

STCG on Listed Shares vs Unlisted Shares

The tax treatment of short-term capital gains on shares depends significantly on whether the shares are listed or unlisted. The distinction affects both the holding period used to classify the gain and whether the special equity STCG rate can apply.

Listed Equity Shares 12 Months

Short-Term Holding Period

Listed equity shares are generally treated as short-term capital assets when held for 12 months or less. Where the applicable special-rate conditions are satisfied, the resulting STCG can be taxed at 20%.

Unlisted Shares 24 Months

Short-Term Holding Period

Shares that are not listed on a recognised stock exchange in India are generally short-term when held for 24 months or less. Their STCG does not receive the special listed-equity 20% rate.

Listed vs Unlisted Shares: Tax Comparison

The table below compares the general treatment where the shares are held as capital assets rather than as trading stock.

Feature Listed Equity Shares Unlisted Shares
Short-Term Holding Period 12 months or less 24 months or less
STCG Tax Rate 20% where the special equity-STCG conditions are satisfied Generally taxed at the normal rate applicable to the taxpayer
STT Condition Sale must generally be chargeable to STT for the special rate, subject to the applicable IFSC exception Not relevant to special rate
Special Equity STCG Rate Available if conditions are met Not available
Current Provision Section 196 of the Income-tax Act, 2025 General short-term capital-gain provisions, subject to any other specific rule that may apply
TAX
Section 111A vs Section 196

Under the earlier Income-tax Act, 1961, the special rate for qualifying listed-equity STCG was commonly referred to as Section 111A. From 1 April 2026, the corresponding provision under the Income-tax Act, 2025 is Section 196.

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Key Takeaway

A short-term gain from qualifying listed equity shares can receive the special 20% rate when the prescribed conditions are satisfied. Short-term gains from unlisted shares do not receive this special treatment and are generally taxed at the normal rate applicable to the taxpayer.

Historical rate note: qualifying listed-equity STCG under the earlier Section 111A was taxed at 15% for transfers before 23 July 2024. The rate increased to 20% for qualifying transfers on or after that date.
STCG Tax Calculation

STCG Tax Rate Explained

For qualifying short-term capital gains from specified equity transactions, the current base tax rate is 20%. Under the Income-tax Act, 2025, this special treatment is contained in Section 196; under the earlier Income-tax Act, 1961, investors commonly knew the corresponding provision as Section 111A.

The 20% rate is only the starting point. Depending on your income and taxpayer status, surcharge may also apply, followed by 4% Health and Education Cess.

20%
Current Base Rate for Qualifying Equity STCG

Qualifying short-term capital gains covered by the special equity-STCG provision are taxed at 20%. This is the base tax rate before adding any applicable surcharge and Health and Education Cess.

What Makes Up Your Final STCG Tax?

01

Base STCG Tax

Qualifying equity STCG is currently taxed at a 20% base rate.

02

Surcharge, If Applicable

Surcharge can apply where total income crosses the prescribed thresholds. The applicable rate depends on the taxpayer's status and total income.

03

4% Health & Education Cess

Cess is calculated at 4% on the income-tax amount after adding any applicable surcharge.

Effective STCG Rate with 4% Cess

The following example assumes the gain qualifies for the 20% special rate and that no surcharge applies.

Component Rate Tax on ₹1,00,000 STCG
Qualifying STCG Tax 20% ₹20,000
Health & Education Cess 4% of tax ₹800
Total Tax Effective 20.8% ₹20,800
20.8%
Effective Rate Without Surcharge

A 20% base STCG rate plus 4% cess on that tax produces an effective tax burden of 20.8% of the taxable gain where no surcharge applies.

%
What About Surcharge?

Surcharge may apply where the taxpayer's total income exceeds the prescribed limits. For individuals, HUFs and certain other taxpayers, the surcharge on income-tax attributable to capital gains under Sections 196, 197 and 198 is capped at 15%. The exact surcharge depends on the taxpayer's total income and applicable provisions.

Important: Health and Education Cess is not calculated directly as 4% of your capital gain. It is calculated at 4% of the income-tax plus applicable surcharge.
Historical Rate

The earlier special rate was 15% for qualifying transfers completed before 23 July 2024. With 4% cess and no surcharge, that historical rate produced an effective rate of 15.6%. For qualifying transfers from 23 July 2024 onward, the base rate increased to 20%.

STT & Equity STCG

The Role of Securities Transaction Tax (STT)

Securities Transaction Tax (STT) is an important part of the special tax treatment available for certain short-term capital gains from equity shares, equity-oriented funds and business-trust units.

Under the current Income-tax Act, 2025, the relevant special equity-STCG provision is Section 196. Investors may still recognise the earlier Section 111A terminology from the Income-tax Act, 1961.

STT
Why STT Matters for the 20% STCG Rate

For the normal special-rate framework, the sale of the qualifying equity share or unit must generally be chargeable to STT. Where the prescribed conditions are satisfied, qualifying short-term capital gains can be taxed at the special 20% rate.

Three Things to Understand About STT

01

STT Applies to Specified Transactions

STT is levied on specified taxable securities transactions. The applicable rate and whether the purchaser or seller pays it depend on the type of transaction.

02

STT Helps Determine Special-Rate Eligibility

For ordinary qualifying listed-equity transactions, the sale generally needs to be chargeable to STT for the special equity-STCG provision to apply.

03

STT Is Not Deductible from Capital Gains

When shares are held as capital assets, STT is not allowed as a deduction while computing capital gains, even though certain other eligible transfer expenses may be deductible.

How This Works in Practice

Potentially Qualifying

Listed Equity Sale Chargeable to STT

You sell a qualifying listed equity share within the short-term holding period through a transaction that is chargeable to STT. Subject to the other prescribed conditions, the gain can generally qualify for the special 20% STCG rate.

Normally Outside Special Rate

Ordinary Off-Market Sale Without STT

If an ordinary share transfer is not chargeable to STT, the gain will generally fall outside the special equity STCG provision and may instead be taxed at the rate otherwise applicable to the taxpayer.

TAX
Can You Deduct STT While Calculating Capital Gains?

No. Where the securities are held as capital assets, Securities Transaction Tax itself is not allowed as a deduction when computing the capital gain. This is different from eligible expenses such as certain brokerage or transfer-related charges that may form part of the capital-gain computation.

Important exception: the normal STT condition does not apply to a qualifying transaction undertaken on a recognised stock exchange located in an International Financial Services Centre (IFSC) where the consideration is paid or payable in foreign currency.
✓
Simple Rule to Remember

For a normal listed-equity transaction, first confirm that the asset is short-term and then check whether the sale is chargeable to STT. If the other special-rate conditions are also satisfied, the gain can generally qualify for the 20% equity STCG rate. If those conditions are not met, do not automatically apply the special rate.

STCG Calculation

How to Calculate Short Term Capital Gain on Shares

Calculating a short-term capital gain becomes easier once you separate the sale consideration, eligible transfer expenses and cost of acquisition. The resulting amount is the capital gain on which the applicable tax treatment is determined.

STCG Formula
STCG = Sale Consideration − Transfer Expenses − Cost of Acquisition

Cost of improvement can also be relevant where applicable, although it is generally not a practical component in an ordinary equity-share transaction.

Calculate STCG in Four Steps

01

Find the Sale Consideration

Start with the full value received or receivable from transferring the shares.

02

Deduct Eligible Transfer Expenses

Deduct expenditure incurred wholly and exclusively in connection with the transfer, such as eligible sale brokerage.

03

Deduct Cost of Acquisition

Subtract the amount recognised as the cost of acquiring the shares under the applicable capital-gains rules.

04

Arrive at the Capital Gain

The balance is your short-term capital gain where the shares qualify as short-term capital assets.

STT
Do Not Deduct Securities Transaction Tax

Securities Transaction Tax (STT) is specifically excluded from deductions while computing capital gains. Do not subtract STT from the sale value when calculating your taxable STCG.

Worked Example

Short-Term Gain on Listed Equity Shares

Particulars Amount
Sale consideration (1,000 shares × ₹150) ₹1,50,000
Less: Eligible brokerage / transfer expense (₹600)
Net consideration after transfer expense ₹1,49,400
Less: Cost of acquisition (1,000 shares × ₹100) (₹1,00,000)
Short-Term Capital Gain ₹49,400

Tax on ₹49,400 Qualifying STCG

Tax @ 20% ₹9,880
4% Cess ₹395.20
Total Tax ₹10,275.20

This example assumes the gain qualifies for the special 20% equity STCG rate and that no surcharge applies. The effective rate after 4% cess is 20.8%.

Comparison Example

What If the Gain Is from Unlisted Shares?

Suppose the same ₹49,400 short-term gain arises from unlisted shares. The special 20% equity-STCG rate does not normally apply. Instead, the gain is generally taxed at the normal rate applicable to the taxpayer based on their total income and applicable tax regime.

For illustration only, if this ₹49,400 is effectively taxed at a 30% marginal rate, the calculation would look like this:

Tax @ 30% ₹14,820
4% Cess ₹592.80
Total ₹15,412.80

This 30% example is not a universal rate for unlisted-share STCG. Your actual tax depends on your total taxable income, taxpayer category, applicable tax regime and other relevant provisions.

Important: the examples above explain the basic calculation only. Your final tax liability can differ because of the basic exemption adjustment available in eligible cases, surcharge, other income, capital losses, tax regime and other provisions applicable to your return.

Need Help Filing a Capital Gains ITR?

Easy Return can help you prepare and file your Capital Gains ITR through a qualified CA, including review of share transactions, gain calculations and applicable tax treatment.

File Your Capital Gains ITR
Equity Capital Gains

STCG vs LTCG: What's the Difference?

The holding period helps determine whether your gain from listed equity shares is classified as a short-term capital gain (STCG) or long-term capital gain (LTCG). That classification matters because qualifying equity STCG and LTCG are taxed at different rates and the LTCG rules include a separate annual threshold.

Short-Term Capital Gain 20%

Listed Shares Held for 12 Months or Less

Where listed equity shares qualify for the special equity-STCG provision, the gain is currently taxed at 20%, plus applicable surcharge and Health and Education Cess.

Long-Term Capital Gain 12.5%

Listed Shares Held for More Than 12 Months

Qualifying equity LTCG is currently taxed at 12.5% on the aggregate qualifying gain exceeding ₹1.25 lakh for the tax year.

STCG vs LTCG on Listed Equity Shares

This comparison assumes the shares are held as capital assets and the transaction satisfies the relevant special equity capital-gains conditions.

Feature STCG LTCG
Holding Period 12 months or less More than 12 months
Current Special Tax Rate 20% 12.5%
Annual Special Threshold No ₹1.25 lakh LTCG-style threshold Tax at 12.5% applies to aggregate qualifying LTCG exceeding ₹1.25 lakh
STT Condition Sale must generally be chargeable to STT, subject to the applicable IFSC exception For equity shares, STT is generally required on acquisition and transfer, subject to prescribed exceptions
Current Provision Section 196 Section 198
Earlier Act Reference Section 111A Section 112A
Health & Education Cess 4% on income-tax plus applicable surcharge 4% on income-tax plus applicable surcharge
✓
Key Takeaway

For qualifying listed equity investments, holding the shares for more than 12 months can shift the gain from STCG to LTCG. LTCG currently carries a 12.5% rate on qualifying gains above the ₹1.25 lakh annual threshold, compared with the 20% special rate applicable to qualifying STCG. Tax should still be only one factor when deciding when to sell an investment.

Pre-2018 Investments

Grandfathering for Shares Acquired Before 1 February 2018

Special cost-of-acquisition rules continue to apply to qualifying equity shares and units acquired before 1 February 2018. Broadly, these rules use the actual cost together with the relevant 31 January 2018 fair market value calculation to determine the recognised cost for LTCG purposes. This can protect gains that accrued before the equity-LTCG tax regime was introduced.

Current-law terminology: from 1 April 2026, the Income-tax Act, 2025 applies. The qualifying equity STCG provision is now Section 196 and the corresponding qualifying equity LTCG provision is Section 198. Sections 111A and 112A remain relevant when discussing the earlier Income-tax Act, 1961.
Historical rate note: for qualifying transfers before 23 July 2024, the earlier special equity STCG rate was 15%, while qualifying equity LTCG was taxed at 10% above the then-applicable ₹1 lakh threshold. For qualifying transfers on or after 23 July 2024, the rates became 20% for STCG and 12.5% for LTCG above ₹1.25 lakh.
Share Income Classification

Is Income From Selling Shares Always a Capital Gain?

No. Shares can be held either as investments / capital assets or as stock-in-trade of a trading business. This distinction determines whether the profit is generally taxed under the head Capital Gains or Profits and Gains of Business or Profession.

TAX
The Number of Trades Alone Does Not Decide the Answer

Frequency, volume, holding period and the taxpayer's treatment of the shares can all be relevant, but there is no simple rule saying that a particular number of trades automatically converts investment gains into business income. The overall facts and the way the shares are held matter.

Investment Portfolio

Capital Gains Treatment

Shares are held as investments rather than stock-in-trade.
Profit or loss is generally reported under Capital Gains.
The gain can be classified as STCG or LTCG depending on the applicable holding period.
Special equity capital-gains rates can apply where the prescribed conditions are satisfied.
For an individual or HUF with no business/professional income, ITR-2 is generally the relevant return under the current filing structure.
Trading Portfolio

Business Income Treatment

Shares are held as stock-in-trade / trading assets of the business.
Profit or loss is generally reported under Profits and Gains of Business or Profession.
Eligible business expenses can be considered subject to the normal business-income rules.
Intraday equity activity can fall within speculative business treatment where transactions are settled without actual delivery.
Eligible exchange-traded derivatives are generally excluded from speculative-transaction treatment and are commonly dealt with as non-speculative business activity.

How Different Share-Market Activities Are Typically Reported

This is a general classification guide. The actual treatment depends on the facts of the taxpayer's activity and the return requirements applicable for the relevant year.

Activity General Tax Treatment Typical Return Form
Delivery-Based Shares Held as Investment Capital Gains STCG or LTCG depending on the holding period ITR-2 where there is no business/professional income
Delivery-Based Shares Held as Stock-in-Trade Business Income Generally ITR-3 for an individual / HUF
Intraday Equity Trading Speculative Business Income where the transaction is settled without actual delivery and no statutory exception applies Generally ITR-3
Eligible F&O / Derivative Trading Non-Speculative Business Income where the qualifying recognised-exchange conditions are satisfied Generally ITR-3
!
Frequent Trading Does Not Automatically Mean Business Income

High transaction volume or short holding periods can be relevant indicators, but they are not the only factors. The classification should reflect whether the shares were actually held as investments or as trading stock and should be supported by the taxpayer's records and consistent treatment.

CBDT Consistency Guidance

What Did CBDT Circular No. 6/2016 Clarify?

Under the earlier Income-tax Act, 1961, CBDT clarified that where a taxpayer itself treats listed shares and securities as stock-in-trade, income arising from their transfer is to be treated as business income.

It also provided that where listed shares or securities were held for more than 12 months and the taxpayer chose capital-gains treatment, that position should generally not be disputed by the Assessing Officer. However, once such a position was adopted, consistency was expected in subsequent assessment years.

For other situations, the capital-gain-versus-business-income question remained dependent on the relevant facts and existing guidance. Therefore, the circular should not be read as giving every taxpayer an unrestricted year-by-year choice.

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Why the Classification Matters

The classification affects the applicable tax computation, treatment of expenses and losses, possible special capital-gains rates, reporting schedules and the return form you use. If your portfolio contains both investments and trading activity, keep the records for each clearly identifiable and use a consistent basis for classification.

ITR forms and eligibility conditions can change between assessment years. Under the current notified return structure, ITR-2 is for individuals and HUFs without income from business or profession, while ITR-3 covers individuals and HUFs having business or professional income.

Capital Gains Filing

How to Report STCG in Your Income Tax Return

If you have short-term capital gains from shares held as investments, the gains generally need to be reported in the capital-gains section of your Income Tax Return. The return form you use depends mainly on whether your income also includes business or professional income.

ITR
Select the Correct ITR Before Reporting the Gain

For an individual or HUF with capital gains but no income from business or profession, ITR-2 is generally the relevant return. If business or professional income is also present, ITR-3 is generally required.

ITR-2 or ITR-3: Which One Applies?

ITR-2

Capital Gains Without Business Income

Generally used by individuals and HUFs who have short-term or long-term capital gains but do not have income chargeable under the head Profits and Gains of Business or Profession. This commonly includes salaried investors who sell shares held as investments.

ITR-3

Capital Gains With Business Income

Generally used by individuals and HUFs where the return also includes business or professional income. This can include taxpayers carrying on share-trading, intraday or F&O business activity where the applicable income is reported as business income.

What Do You Report in Schedule CG?

Schedule CG is used to report capital gains arising from the transfer of capital assets. The exact fields can vary depending on the asset and the return form for the relevant year.

Sale Consideration Report the value received or receivable from the transfer of the shares.
Cost of Acquisition Enter the recognised acquisition cost of the shares under the applicable capital-gains rules.
Eligible Transfer Expenses Report permitted expenditure incurred wholly and exclusively in connection with the transfer.
Short-Term Capital Gain or Loss Report the resulting gain or loss after applying the relevant computation rules.
Applicable Gain Category Classify the gain under the appropriate special-rate or general capital-gain category based on the transaction.
Period-Wise Breakup, Where Required Complete the period-wise capital-gain details required by the notified return form for interest and tax computation, where applicable.

Reconcile These Records Before Filing

BR

Broker Reports

Review contract notes, transaction statements, capital-gain reports and broker ledgers supporting your actual purchase and sale transactions.

AIS

Annual Information Statement

Compare relevant information appearing in AIS with your own transaction records and identify unexplained differences before filing.

TAX

Tax & Payment Records

Review TDS/TCS information where relevant, advance-tax payments, self-assessment tax and other tax records used in the final return computation.

✓
Use AIS for Reconciliation — Not as Your Only Calculation

AIS provides a consolidated view of information reported to the Income Tax Department from different information sources and allows taxpayers to review and provide feedback. Your final capital-gain computation should still be supported by your actual broker statements, contract notes and other relevant records.

Filing Check

What If Broker Records and AIS Do Not Match?

A difference does not automatically mean that your broker calculation is wrong or that a tax notice will be issued. First identify why the figures differ — for example, reporting timing, duplicate information, cost data or classification. Use the correct transaction records for your return and address material discrepancies before filing wherever possible.

ITR schedules, validation rules and reporting fields can change between tax / assessment years. Always use the notified return form and latest e-filing utility applicable to the year being filed.

STCG Tax Planning

STCG Tax Planning, Loss Set-Off & Common Mistakes

Short-term capital gains can interact with your basic exemption limit, capital losses, advance-tax liability and ITR requirements. Understanding these rules helps you calculate your liability and avoid common filing errors.

Can the Basic Exemption Limit Reduce Your STCG Tax?

In eligible cases, resident individuals and resident HUFs may use an unused portion of the applicable basic exemption limit against qualifying special-rate equity STCG before calculating tax at 20%.

Only the Unused Exemption Limit Can Be Adjusted

If your other taxable income already uses the entire basic exemption limit, no unused amount remains for this adjustment. The relevant amount depends on the tax regime and taxpayer category.

01

Resident Individuals and HUFs

The qualifying adjustment is available to resident individuals and HUFs subject to the prescribed conditions.

02

Non-Resident Taxpayers

The specific basic exemption adjustment for special-rate equity STCG is not generally available to non-residents.

03

Deductions Against Special-Rate Gains

Eligible deductions under the applicable framework do not directly reduce the qualifying special-rate equity gain.

Short-Term Capital Loss Set-Off and Carry Forward

Capital losses are subject to separate adjustment and carry-forward rules. Correct reporting may preserve eligible tax benefits for future years.

Short-Term Capital Loss Eligible STCL can generally be set off against short-term or long-term capital gains.
Long-Term Capital Loss Eligible LTCL can generally be adjusted only against long-term capital gains.
No General Inter-Head Set-Off Capital losses generally cannot be adjusted against salary, business, house property or income from other sources.
Eight-Year Carry Forward Eligible unabsorbed capital losses can generally be carried forward for up to eight succeeding tax years.
File the Loss Return Within the Due Date

To preserve the normal right to carry forward an eligible capital loss, the return generally needs to be filed within the relevant prescribed deadline. For Tax Year 2026–27, the Income-tax Act, 2025 includes the applicable loss-return provisions under Section 121.

Common STCG Tax Mistakes to Avoid

Many errors arise from using outdated rates, incorrectly claiming expenses or failing to reconcile transaction details.

Using the Old 15% Tax Rate Applying the historical 15% rate to qualifying transfers on or after 23 July 2024 instead of the revised 20% rate.
Deducting STT as an Expense Incorrectly deducting Securities Transaction Tax in capital gains computation.
Using an Outdated ITR Schedule Reporting gains using old capital gains schedules instead of the applicable return form for the relevant year.
Ignoring Broker and AIS Mismatches Relying on a single information source without checking differences in trade records, AIS and broker statements.
Filing a Capital Loss Return Late Missing the filing deadline and potentially losing the normal right to carry forward losses.
Applying 20% to Every STCG Assuming every short-term capital gain qualifies for the special rate regardless of the asset and statutory conditions.

Do All Short-Term Capital Gains Have the Same Tax Rate?

No. The applicable short-term capital gains tax rate depends on the asset type, relevant holding period and applicable tax provisions.

For qualifying listed equity shares and equity-oriented mutual funds, the special STCG rate is generally 20% for transfers made on or after 23 July 2024, subject to the prescribed Securities Transaction Tax (STT) conditions.

20%

Qualifying Equity STCG

Special rate for eligible listed equity shares and equity-oriented mutual fund transactions, subject to the applicable conditions.

Slab

Many Other Short-Term Gains

Many other short-term capital gains are taxed at the applicable normal income-tax rates, unless another special provision applies.

For a broader asset-wise comparison, explore our guide to short-term capital gains tax rates in India to understand how tax treatment differs across investments and other capital assets.

ध्यान दें: सभी short-term capital gains पर एक ही tax rate लागू नहीं होता। सही rate के लिए asset type और applicable tax rules जांचें।

Practical Tax Planning for STCG on Shares

Tax implications should be considered alongside investment objectives, transaction costs and market risks.

Review the Holding Period Before Selling

Listed equity shares held as investments generally move from short-term to long-term classification after 12 months. Consider tax effects together with market risk.

Use Capital Losses Correctly

Review genuinely realised eligible capital losses and whether they can be set off against gains under applicable rules.

Consider Timing of Asset Sales

Significant sales can affect total income, surcharge and applicable annual thresholds. Review the consequences before selling.

Maintain Transaction-Level Records

Preserve purchase and sale dates, acquisition costs, contract notes and supporting capital gains statements.

Review Advance Tax When a Large Gain Arises

A substantial taxable capital gain may create an advance-tax obligation. Review overall liability, applicable instalments and payments. For Tax Year 2026–27, Sections 424 and 425 of the Income-tax Act, 2025 address specified advance-tax interest matters.

Capital-Gain Timing Relief: Special relief from deferment interest may apply where capital gains could not reasonably have been anticipated before earlier advance-tax instalments, provided the relevant conditions and payment deadlines are satisfied.
STCG FAQs

Frequently Asked Questions About STCG on Shares

These answers cover common questions about the short-term capital gains tax on shares, including tax rates, losses, ITR filing, STT, advance tax and equity mutual funds.

01 Is short-term capital gain tax on shares always 15%?

No. The 15% rate is historical for qualifying transfers completed before 23 July 2024. Qualifying short-term capital gains on specified equity transactions are currently taxed at a base rate of 20%.

Under the current Income-tax Act, 2025, this special rate is contained in Section 196. Under the earlier Income-tax Act, 1961, the comparable provision was commonly known as Section 111A. Short-term gains that do not qualify for the special equity provision are generally taxed at the rate otherwise applicable to the taxpayer.

02 Can I claim Section 80C deductions against my equity STCG?

Not against the qualifying special-rate STCG itself. Under the earlier Act, Chapter VI-A deductions such as Section 80C were not allowed from Section 111A gains. Under the current Income-tax Act, 2025, deductions under Chapter VIII are similarly allowed from gross total income only after reducing it by the qualifying Section 196 STCG.

03 Which ITR form should I use to report STCG?

For an individual or HUF, ITR-2 is generally used where capital gains are present but there is no income from business or profession. ITR-3 is generally relevant where business or professional income is also present.

For example, a salaried investor who holds shares as investments may commonly use ITR-2, while a taxpayer who also has reportable share-trading, intraday or F&O business income may need ITR-3.

04 Can I set off a short-term capital loss against salary?

No. A capital loss cannot generally be set off against salary or income under other heads. A short-term capital loss can generally be set off against both short-term and long-term capital gains.

Any eligible unabsorbed capital loss can generally be carried forward for up to 8 succeeding tax years, subject to the applicable return-of-loss filing requirements.

05 Can the basic exemption limit reduce my STCG tax?

Yes, in specified cases. Where a resident individual or resident HUF has other income below the applicable maximum amount not chargeable to tax, the unused portion can reduce the qualifying special-rate STCG before the 20% rate is applied.

This particular adjustment is not available to a non-resident.

06 How is short-term capital gain on equity mutual funds taxed?

Units of an equity-oriented mutual fund held for 12 months or less are generally treated as short-term. Where the applicable special-rate conditions are satisfied, the resulting STCG is currently taxed at a base rate of 20%, plus applicable surcharge and Health and Education Cess.

The earlier 15% rate remains relevant only for qualifying transfers completed before 23 July 2024.

07 Is brokerage deductible when calculating STCG?

Eligible expenditure incurred wholly and exclusively in connection with the transfer can generally be considered in the capital-gain computation. This can include eligible sale-related brokerage.

However, Securities Transaction Tax (STT) itself is not deductible while computing capital gains.

08 Is advance tax payable on short-term capital gains?

Yes, advance-tax provisions can apply when your estimated advance-tax liability for the year is ₹10,000 or more, after considering the applicable tax computation and eligible tax deducted or collected at source.

Under the current Income-tax Act, 2025, Sections 424 and 425 deal with interest for default and deferment of advance tax. These correspond broadly to the earlier Sections 234B and 234C.

09 Is intraday equity trading treated as STCG?

Generally, no. Equity transactions settled without actual delivery can fall within speculative business treatment, subject to the statutory rules and exceptions. They are therefore not normally reported as STCG merely because the position was opened and closed on the same day.

For an individual or HUF with such business income, ITR-3 is generally the relevant return rather than ITR-2.

10 What happens if I don't report STCG in my ITR?

Securities transaction information can be reported to the Income Tax Department by reporting entities and may appear in your Annual Information Statement (AIS). If taxable gains are omitted or your return materially differs from available information, the mismatch may require clarification and can lead to additional tax, interest or other compliance action, depending on the facts.

If you have received communication relating to share transactions, see our guide to a tax notice for capital gains.

TAX
Section Numbers Changed from 1 April 2026

Many taxpayers still know the equity-STCG rules by their earlier Income-tax Act, 1961 references such as Section 111A. Under the Income-tax Act, 2025 applicable from 1 April 2026, the corresponding qualifying equity-STCG provision is Section 196. Older section numbers remain relevant when dealing with tax years governed by the earlier Act.

Final Takeaway

Conclusion

Understanding short-term capital gain tax on shares requires more than simply knowing the tax rate. You need to identify the correct holding period, determine whether the transaction qualifies for the special equity-STCG rate, calculate the gain correctly and report it in the appropriate Income Tax Return.

Your final tax position can also be affected by capital-loss set-off, the basic exemption limit, surcharge, advance tax and the way your share activity is classified. Keeping accurate broker records and reconciling them with available tax information before filing can make the process much easier.

Before You File, Remember These Four Points

01

Check the Holding Period

Listed equity held for 12 months or less is generally short-term; more than 12 months is generally long-term.

02

Check Special-Rate Eligibility

Do not automatically apply the 20% rate. Confirm the asset and transaction satisfy the required conditions.

03

Reconcile Your Records

Review broker statements, contract notes, AIS and tax records before finalising the capital-gain figures.

04

Use the Correct ITR

ITR-2 or ITR-3 may apply depending on whether your return also contains business or professional income.

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Accurate Filing Starts With Accurate Records

Maintaining purchase dates, acquisition costs, sale values, eligible transfer expenses and supporting statements makes it easier to calculate the correct gain and explain the figures reported in your return if questions arise later.

Need Help Filing Your Capital Gains ITR?

Easy Return can help you prepare and file your Capital Gains ITR through a qualified CA, including review of your share transactions, capital-gain computation and applicable return reporting.

Capital Gains ITR Filing from ₹1,000
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CA Sagar Batra - Chartered Accountant
Written & Reviewed By

CA Sagar Batra

ICAI Registered Chartered Accountant · 10+ Years of Professional Experience · 12,000+ Tax Filings

Chartered Accountant with experience in taxation, compliance and business advisory. His work covers Income Tax, GST, TDS, tax notices, business compliance and financial documentation for individuals and businesses across India.

✓ Income Tax ✓ GST ✓ TDS ✓ Tax Notices ✓ Business Compliance
✓ Content reviewed for tax accuracy, practical relevance and compliance context.