LTCG Tax on Shares Explained: How Long-Term Capital Gains Tax Works in India

When you sell shares at a profit, you may have to pay tax on that profit. If you held the shares for more than a year, the tax is called LTCG tax. This article explains the LTCG tax rate, the Rs 1.25 lakh exemption, the 12-month rule and how to work out your tax with simple examples.

In short: LTCG tax is the tax on long-term capital gains, which is profit from selling listed shares held for more than 12 months. As per the rules at the time of writing, long-term gains on listed shares are taxed at 12.5 percent, and the first Rs 1.25 lakh of such gains in a financial year is tax free. If you sell within 12 months, the profit is short-term and is taxed at 20 percent. This is as per the rules at the time of writing. Please check the current position before you invest.

A capital gain is the profit you make when you sell an asset for more than you paid. Shares, mutual fund units, property and gold are all assets.

Say you buy shares for Rs 50,000 and sell them for Rs 70,000. Your capital gain is Rs 20,000. If you sell them for Rs 40,000 instead, you have a capital loss of Rs 10,000.

The tax you pay depends on how long you held the shares.

For listed equity shares, the line is 12 months.

• Short-term capital gain (STCG): You sell the shares within 12 months of buying them.

• Long-term capital gain (LTCG): You sell the shares after holding them for more than 12 months.

The holding period is counted from the date you bought the shares to the date you sold them. For shares you got in an IPO, it is counted from the date of allotment.

This one rule can change your tax a lot. Selling a few days before the 12-month mark can turn a long-term gain into a short-term gain.

Here are the current rates for listed equity shares, as per the rules at the time of writing.

Health and education cess of 4 percent is added to the tax. A surcharge may also apply if your income is high.

These rates came in from 23 July 2024, through the Union Budget 2024. Before that, the LTCG tax rate was 10 percent on gains above Rs 1 lakh, and the STCG rate was 15 percent.

From 1 April 2026, India's new Income-tax Act, 2025 replaced the old Income-tax Act, 1961. As per the rules at the time of writing, the new law keeps the same 12.5 percent rate and Rs 1.25 lakh exemption for long-term gains on listed shares. Only the section numbers changed.

The 12.5 percent LTCG tax rate applies when:

• The shares are listed on a recognised stock exchange in India.

• Securities transaction tax (STT, a small tax charged on each share trade) was paid when you bought and when you sold the shares.

• You held the shares for more than 12 months.

There is no indexation benefit (an adjustment of your buying cost for inflation) on listed shares.

The first Rs 1.25 lakh of long-term gains in a financial year is not taxed. This limit is for your total long-term gains from listed shares and equity-oriented mutual fund units together. It is not Rs 1.25 lakh per stock.

If your total long-term gains in a year are Rs 1 lakh, you pay no LTCG tax. If they are Rs 3 lakh, you pay tax only on Rs 1.75 lakh.

These are simple, made-up examples to show how the maths works. Real cases may involve surcharge and other details.

Priya buys shares for Rs 4 lakh. She sells them after 18 months for Rs 6 lakh.

Now say Priya sells the same shares after 11 months for the same Rs 6 lakh. The gain is still Rs 2 lakh, but it is now short-term.

• STCG tax at 20 percent on Rs 2 lakh = Rs 40,000

• Add 4 percent cess = Rs 1,600

• Total tax = Rs 41,600

The profit is the same, but the tax is very different. This is why the holding period matters.

LTCG tax on listed shares came back in the Budget of 2018. To protect gains made before that, there is a "grandfathering" rule.

For shares bought before 1 February 2018, your buying cost is taken as the higher of:

• the price you actually paid, or

• the share's fair market value on 31 January 2018 (but not more than the price you sold at).

In simple words, gains made up to 31 January 2018 are protected from LTCG tax. Only the gain after that date is counted.

Losses can reduce your tax, but there are rules on how to use them. (Some investors book losses on purpose to do this. Read about tax-loss harvesting and its risks.)

• Short-term capital loss can be set off against both short-term and long-term gains.

• Long-term capital loss can be set off only against long-term gains.

• Losses you cannot use in a year can be carried forward for up to 8 years. To do this, you must file your income tax return on time.

Example: You have a long-term gain of Rs 2 lakh and a short-term loss of Rs 50,000 in the same year. You can set off the loss, so your long-term gain becomes Rs 1.5 lakh. After the Rs 1.25 lakh exemption, only Rs 25,000 is taxable.

In October 2026, there has been public debate on cutting the LTCG tax, mainly to bring back foreign investors.

• On 13 October 2026, Finance Minister Nirmala Sitharaman said proposals on LTCG tax would be heard during the Union Budget consultations. She did not announce any change.

• A Jefferies report suggested options such as a general rate cut, a cut only for foreign portfolio investors, or working out foreign investors' gains in US dollars.

• SBI Research has suggested removing the tax and making the long-term holding period two or three years.

These are only ideas and proposals. There has been no change in the law. Any change would most likely come through the Union Budget, which is usually presented on 1 February. Until then, the current rules apply.

• Keep a record of your buying date, buying price, selling date and selling price for each trade.

• Your broker's capital gains statement (also called a P&L or tax report) can help you see your gains for the year.

• Short-term and long-term gains are taxed differently, so check the holding period before you sell.

• Before the financial year ends, a year-end tax planning checklist can help you review your gains and losses.

• Tax rules can change every Budget. Check the current position or speak to a tax advisor before you plan any trade around tax.

LTCG tax applies when you sell listed shares at a profit after holding them for more than 12 months. As per the rules at the time of writing, the rate is 12.5 percent, and the first Rs 1.25 lakh of long-term gains each year is tax free. Sell within 12 months and the rate is 20 percent with no exemption. A cut in LTCG tax is being discussed, but no change has been made. This is as per the rules at the time of writing. Please check the current position before you invest.

Indira Securities acts only as a distributor for such products. They are not exchange traded, and Exchange investor redressal or arbitration is not available for distribution activities.

Ans. As per the rules at the time of writing, long-term gains on listed shares are taxed at 12.5 percent. The first Rs 1.25 lakh of such gains in a financial year is tax free. Cess of 4 percent is added, and surcharge may apply for high incomes.

Ans. A gain on listed shares is long-term when you sell after holding them for more than 12 months. If you sell within 12 months, it is a short-term gain taxed at 20 percent.

Ans. No. The Rs 1.25 lakh limit is for your total long-term gains in a financial year from listed shares and equity-oriented mutual fund units together. It is not a separate limit for each stock.

Ans. Yes. A short-term capital loss can be set off against both short-term and long-term gains. A long-term capital loss can be set off only against long-term gains. Unused losses can be carried forward for up to 8 years if you file your return on time.

Ans. No. As of 30 October 2026, there has been no change. The Finance Minister has said proposals will be heard during Budget consultations, and some reports have suggested a cut, but these are only proposals.

Facts and rules verified as of 30 October 2026.

• Income Tax Department of India: capital gains provisions under the Income-tax Act, 1961 (Section 112A and Section 111A) and the Income-tax Act, 2025 (in force from 1 April 2026).

• Union Budget 2024 (Finance (No. 2) Act, 2024): revised LTCG and STCG rates from 23 July 2024.

• Finance Minister's remarks on LTCG proposals (13 October 2026), as reported by VisaVerge.

• Jefferies report on equity LTCG tax, as reported by Business Standard (29 October 2026).

• This is as per the rules at the time of writing. Please check the current position before you invest.