Every Indian investor who has sold stocks or mutual funds faces one confusing question: how much tax do I actually owe? The answer depends on two things — what you sold, and how long you held it. Here's a clear, plain-language guide.
Step 1: Identify LTCG or STCG
For listed equity shares and equity mutual funds, the rule is simple. If you held the investment for more than 12 months, your profit is Long-Term Capital Gain (LTCG). If you sold within 12 months, it is Short-Term Capital Gain (STCG).
Step 2: Apply the Correct Tax Rate
For FY 2025-26, the tax rates are:
- LTCG on equity: 12.5% on gains above ₹1.25 lakh (plus 4% cess)
- STCG on equity: Flat 20% (plus 4% cess)
- Debt MF (post Apr 2023): Your income slab rate, regardless of holding period
Step 3: Use Your ₹1.25 Lakh Exemption
Every financial year, the first ₹1.25 lakh of LTCG on equity is completely tax-free. This exemption applies to your total LTCG from all equity sales combined in that year — not per trade.
So if your total LTCG is ₹90,000, you pay zero tax. If it's ₹2 lakh, you pay 12.5% only on ₹75,000 (i.e., ₹2L minus ₹1.25L).
Step 4: Set Off Your Losses
Capital losses reduce your taxable gains. Short-term losses can offset both STCG and LTCG. Long-term losses can only offset LTCG. Unused losses can be carried forward for up to 8 years — but only if you file your ITR on time.
What is Tax Harvesting?
Tax harvesting is a simple, legal strategy. Every year before March 31, sell your long-term equity holdings to book up to ₹1.25 lakh in gains tax-free, then immediately rebuy the same shares or funds. This resets your cost of acquisition to the current market price, reducing future tax liability. Over 10 years, this can save you lakhs.
Try it now: Use NiveshKar's free calculator above to compute your exact capital gains tax in under 30 seconds.