Income Tax on Shares and Mutual Funds — STCG 20% and LTCG 12.5% on Equity, the ₹1.25 Lakh Exemption and How to Harvest It Every Year, Debt Funds at Slab Rate, Dividends and TDS, Set-Off of Losses, Grandfathering, SIP and Switch Rules, and Reporting in ITR-2
12.5%
LTCG on listed equity and equity mutual funds held over 12 months (above the exemption)
₹1.25 lakh
LTCG exempt every financial year under section 112A
20%
STCG on listed equity and equity funds held 12 months or less (section 111A)
Slab
Debt funds bought on or after 1 April 2023 — always at slab rate, whatever the holding period
Guide by BookMyCA's Chartered Accountants · pan-India serviceLast verified against official guidelines on 7 September 2026.
Video Explanation & Insights
Save income tax on shares and mutual funds: harvest the ₹1.25 lakh exemption every year
4 videos on this topic
The rate card since 23 July 2024
| Asset | Long-term after | STCG | LTCG | STT |
|---|---|---|---|---|
| Listed equity shares (sold on exchange) | 12 months | 20% (111A) | 12.5% above ₹1.25 lakh (112A) | Paid on buy and sell |
| Equity mutual funds (≥ 65% equity), ELSS, arbitrage funds | 12 months | 20% | 12.5% above ₹1.25 lakh | Paid on redemption |
| Hybrid funds with 35–65% equity, gold funds/ETFs, international funds, fund of funds — bought after 1 Apr 2023 | 24 months | Slab | 12.5% (no indexation) | — |
| Debt mutual funds, market-linked debentures bought on/after 1 Apr 2023 | Never (deemed short-term) | Slab | — | — |
| Debt funds bought before 1 Apr 2023 | 24 months | Slab | 12.5% without indexation (for sales after 23 Jul 2024) | — |
| Unlisted shares, ESOP shares of unlisted companies | 24 months | Slab | 12.5% | — |
| Listed bonds, REIT/InvIT units | 12 months | Slab (20% for equity-oriented REIT units) | 12.5% | — |
| Sales before 23 July 2024 in FY 2024-25 | — | 15% equity | 10% above ₹1 lakh | — |
The 87A rebate does not apply to 111A/112A gains in the new regime — a person with ₹10 lakh salary and ₹2 lakh short-term equity gain pays 20% on the gain even though the salary is tax-free. Surcharge on capital gains is capped at 15%.
Gain harvesting and loss harvesting
- 1Gain harvesting (the video's tip): the ₹1.25 lakh LTCG exemption lapses if unused. Each March, sell long-term holdings with gains up to ₹1.25 lakh and buy them back (next day, to avoid the same-day rule) — the cost base steps up, the gain is tax-free, and over ten years ₹12.5 lakh of gains escape the 12.5% tax. Costs: two brokerages and STT, and a day's price risk.
- 2Loss harvesting: sell losing positions before 31 March to book a capital loss, set it off against gains booked in the year (short-term against any gain; long-term only against long-term), and carry the balance forward eight years — the return must be filed by the due date. Rebuying is allowed; India has no wash-sale rule.
- 3Order of set-off: the portal sets short-term losses against short-term gains first, then long-term; long-term losses only against long-term gains; capital losses never against salary or business income.
- 4Timing: hold equity a day past 12 months to move from 20% to 12.5%; sell before the record date if you would rather have capital gain than dividend (dividend is taxed at slab up to 30% plus surcharge).
- 5Family: gifting shares to a spouse triggers clubbing of the gains; gifts to adult children or parents shift the gains to their exemption and slabs — a legitimate plan if the gift is real and documented.
Cost, holding period and the traps
- •Grandfathering: for equity bought before 1 February 2018, the cost is the higher of actual cost and the fair market value on 31 January 2018 (capped at the sale price) — Schedule 112A asks for the ISIN, FMV and cost scrip-wise; the broker's report has it.
- •SIPs: each instalment is a separate lot with its own date and cost; redemptions follow FIFO — the oldest units go first, so a fund held for three years still has short-term units from the last twelve months of SIPs.
- •Switches, STPs and dividend-reinvestment: every switch between schemes and every reinvested dividend unit is a redemption/purchase for tax; the AIS reports them as sales.
- •Bonus shares: cost nil, holding period from the bonus allotment date; rights shares: cost equals the price paid; demerged shares: cost split in the ratio notified.
- •Buyback: since 1 October 2024 the amount received on buyback is taxed as a deemed dividend in the shareholder's hands at slab rate, and the cost of the shares becomes a capital loss.
- •Dividends: taxed at slab under 'other sources'; TDS at 10% by the company/AMC above ₹10,000 a year per payer (nil with Form 15G/15H where eligible); interest on money borrowed to earn dividends is deductible up to 20% of the dividend.
- •Advance tax: gains and dividends are counted in the instalment after they arise; ITR-2 asks for quarter-wise figures so 234C interest is computed correctly.
- •Intraday and F&O are business income, not capital gains — see the F&O trader page; frequent delivery trading can also be treated as business if the pattern shows it, though CBDT lets investors choose capital-gains treatment for listed shares consistently.
Reporting in the ITR
- 1Download the broker's tax P&L / capital-gains statement (with ISIN, buy date, sell date, cost, FMV 31 Jan 2018, sale value, STT) and the CAMS/KFintech capital-gains statements for mutual funds.
- 2File ITR-2 (ITR-3 if you also have business income). Schedule CG: fill the pre- and post-23 July 2024 blocks separately; Schedule 112A: scrip-wise long-term equity sales (CSV import in the utility); Schedule OS: dividends with quarterly breakup.
- 3Schedules CYLA/BFLA/CFL: current-year set-off, brought-forward losses from earlier returns, and the balance carried forward.
- 4Match totals to the AIS (sales of securities, dividends); submit feedback for wrong entries; pay self-assessment tax; verify within 30 days.
- 5Keep the statements for six years; the department can ask for the 31 Jan 2018 FMV working and the SIP lot-wise register.
Shares and mutual funds tax: questions we are asked
Yes, on listed equity shares and equity funds under section 112A, every financial year; gains above that are taxed at 12.5%.
Same-day buy and sell is treated as intraday (speculative business); sell one day and buy back the next to keep it a capital-gains transaction.
Units bought before 1 April 2023 and held over 24 months are long-term at 12.5% without indexation; units bought after that date are taxed at slab rate whenever sold.
TDS at 10% applies once a payer's dividends exceed ₹10,000 in a year; claim it in the return against your slab tax.
Yes — any STCG or LTCG beyond the 112A exemption takes you out of ITR-1.
Yes — a March review of lots, gains and losses with the trades to execute, and the ITR-2 filing with scrip-wise schedules.