LTCG Tax on Shares in India: Rates, the ₹1.25 Lakh Exemption, and Step-by-Step Calculation

 

LTCG, or Long-Term Capital Gains, is the profit you make when you sell eligible listed shares after holding them for more than 12 months. For eligible equity gains, LTCG tax is currently 12.5% on gains above ₹1.25 lakh in a financial year, subject to the applicable conditions.

But the 12.5% rate is only one part of the calculation. Surcharge, cess, capital losses, and your total income can also affect the final amount you pay. So, how much LTCG tax do you actually owe? Let’s break it down with simple examples.

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What Is Long-Term Capital Gain (LTCG) Tax on Shares?

Long-Term Capital Gain (LTCG) tax on shares is the tax you pay on profits from eligible shares held for more than 12 months. So, if you buy a stock, hold it for more than one year, and then sell it at a profit, the gain may qualify as LTCG.

The important point is the ₹1.25 lakh annual threshold. LTCG up to ₹1.25 lakh is not taxed under the applicable Section 112A rules. The 12.5% rate applies only to the gain above that amount.

What Is the Current LTCG Rate in India Right Now?

As of 2026, LTCG on eligible listed equity shares covered under Section 112A is taxed at 12.5% on gains above ₹1.25 lakh in a financial year. So, if your eligible LTCG is ₹1 lakh for the year, there is no LTCG tax under this provision.

If your gain goes above ₹1.25 lakh, the 12.5% rate applies only to the amount above the threshold.

Let’s take a simple example. Suppose you make a profit of ₹5,00,000 from eligible listed shares in one financial year.

Total LTCG: ₹5,00,000
Exempt amount: ₹1,25,000
Taxable LTCG: ₹3,75,000
LTCG tax at 12.5%: ₹46,875

So, you pay tax on ₹3,75,000 rather than the full ₹5,00,000. The ₹1.25 lakh threshold applies to your eligible LTCG for the financial year. It isn’t a separate ₹1.25 lakh exemption for every stock you sell.

Which Act and Section Applies to You Now?

Earlier, the Income-tax Act, 1961 governed these tax provisions. From 1 April 2026, the Income-tax Act, 2025 replaced the earlier Act for the relevant tax framework.

The basic LTCG concept remains broadly similar, but section numbers have changed under the new Act.

Earlier: Income-tax Act, 1961
LTCG on eligible listed shares: Section 112A
STCG on eligible listed shares: Section 111A

From 1 April 2026: Income-tax Act, 2025
LTCG on eligible listed shares: Section 198
STCG on eligible listed shares: Section 196

So, which Act applies to your transaction?

If the relevant gain arose before 1 April 2026, the earlier Income-tax Act, 1961 provisions apply.

If the relevant gain arose from 1 April 2026 onward, the corresponding provisions under the Income-tax Act, 2025 apply.

This is why older tax articles may still refer to Section 112A and Section 111A. Those references relate to the earlier Act. When dealing with transactions covered by the new Act, check the corresponding provisions under the Income-tax Act, 2025.

How Do We Calculate LTCG on Shares?

Calculating LTCG becomes much easier when you break it into three steps.

Let’s use one of the trades we captured in Tata Power as an example. We bought 1,000 Tata Power shares at ₹204 on 3 May 2023 after the stock broke a falling wedge pattern. We held the position for almost two years, or 542 days, and exited at ₹414 after it broke the support trendline.

The basic calculation starts with the sale value and the cost of acquisition. Eligible transfer expenses can then be considered according to the applicable tax rules.

Step 1: Calculate the LTCG

LTCG = Sale Price − Cost of Acquisition − Eligible Transfer Expenses

Buying cost
1,000 × ₹204 = ₹2,04,000

Selling value
1,000 × ₹414 = ₹4,14,000

Gross profit
₹4,14,000 − ₹2,04,000 = ₹2,10,000

Step 2: Deduct Eligible Transfer Expenses

For this example, the transaction charges are based on the Zerodha charges used in the calculation.

Brokerage: ₹0
STT: ₹618.00
Exchange transaction charge (NSE): ₹19.89
SEBI charges: ₹0.62
GST on applicable charges: ₹3.69
Stamp duty: ₹30.60
DP charge on sale: ₹15.93
Total charges: approximately ₹688.73

DP charges can vary between brokers. In this example, the assumed DP charge is around ₹15 to ₹20.

For the LTCG calculation below, STT is excluded from the cost adjustment and the applicable non-STT charges are considered.

Step 3: Calculate LTCG Tax

Under the Section 112A framework, eligible LTCG on listed shares where the applicable STT conditions are met gets the ₹1.25 lakh annual threshold. Gains above that amount are taxed at 12.5%, without indexation.

Taxable gain before the annual threshold:

Gross profit − non-STT charges

₹2,10,000 − ₹70.73

= ₹2,09,929

Now subtract the ₹1,25,000 annual LTCG threshold.

Net taxable LTCG:

₹2,09,929 − ₹1,25,000

= ₹84,929

The LTCG tax at 12.5% comes to approximately ₹10,616 before cess.

A 4% Health and Education Cess adds around ₹425.

Total LTCG tax:

₹10,616 + ₹425

= approximately ₹11,041

Summary of LTCG Tax

Gross profit: ₹2,10,000
Less: Zerodha charges: approximately ₹689
LTCG tax after the ₹1.25 lakh threshold and 4% cess: ₹11,041
Net take-home profit: approximately ₹1,98,270

So, from the ₹2,10,000 gross gain on Tata Power, the remaining amount is roughly ₹1,98,300 after the charges and tax used in this example.

The ₹1.25 lakh annual threshold makes a noticeable difference here. It reduces the portion of the gain that is subject to the 12.5% LTCG rate.

How Long Must You Hold Shares to Qualify?

You generally need to hold listed equity shares for more than 12 months to qualify for long-term capital gains treatment. If you sell before completing the required holding period, the gain is generally treated as short-term capital gain (STCG).

For eligible listed equity covered by the applicable STCG rules, the rate is 20%.

How Do You Reduce LTCG on Shares Legally?

There are several legitimate ways investors may manage their capital gains tax. The important point is to understand the tax rules before making the transaction. Tax should not be the only reason for selling an investment.

Four commonly discussed approaches are annual exemption harvesting, tax-loss harvesting, using eligible family-member exemptions, and grandfathering for older holdings.

Annual Exemption Harvesting

Annual exemption harvesting means realizing eligible LTCG up to the ₹1.25 lakh annual threshold and then reinvesting, subject to transaction costs and the applicable rules.

For example, suppose you bought shares for ₹5 lakh. After one year, their value rises to ₹6.25 lakh.

Total profit:

₹6.25 lakh − ₹5 lakh = ₹1.25 lakh

If the gain qualifies under the applicable LTCG rules, you can sell the shares and realize the ₹1.25 lakh gain. You can then buy the shares again, subject to market conditions and transaction costs.

Your new purchase price becomes ₹6.25 lakh.

Now suppose the investment later grows from ₹6.25 lakh to ₹8 lakh.

New gain:

₹8 lakh − ₹6.25 lakh = ₹1.75 lakh

You could again realize eligible gains within the annual threshold and reset the cost base through a fresh purchase.

Without harvesting, the total gain would be:

₹8 lakh − ₹5 lakh = ₹3 lakh

The difference is that harvesting can realize part of the gain earlier and increase the recorded cost base. However, every transaction can involve brokerage, STT, exchange charges, taxes, and other costs. The strategy also needs to make sense from an investment perspective.

Tax-Loss Harvesting

Tax-loss harvesting works in the opposite direction. Instead of only booking profitable positions, you realize a loss in another eligible investment to reduce your overall capital gain.

Suppose you have two investments. Reliance Industries has generated a ₹3 lakh gain, while HDFC Bank has a ₹1 lakh loss. You sell both positions.

Profit from Share A: ₹3 lakh
Loss from Share B: −₹1 lakh
Net Capital Gain: ₹2 lakh

The net gain becomes ₹2 lakh instead of ₹3 lakh. The applicable LTCG tax is then calculated using the net eligible gain and the relevant rules.

If you still have a long-term view on the losing stock, you may consider buying it again after realizing the loss. The decision should be based on the investment case, not tax savings alone.

Using Family Exemptions

This approach involves the separate tax positions of eligible family members or an HUF, or Hindu Undivided Family.

For example, suppose you have eligible LTCG of ₹1.25 lakh and an HUF independently has eligible LTCG of ₹1.25 lakh.

The combined eligible threshold across the two separate taxpayers can therefore total ₹2.5 lakh.

However, simply transferring shares to a spouse does not automatically create a separate tax benefit. Clubbing provisions can apply in certain situations. Ownership, transfer, source of funds, and the actual tax rules all matter.

This strategy therefore needs careful structuring rather than a simple transfer of shares.

Grandfathering for Pre-2018 Holdings

If you bought certain listed equity shares before 31 January 2018, grandfathering rules may apply.

The purpose of grandfathering was to protect the portion of gains that had accrued under the earlier tax regime before LTCG tax on listed equity was introduced in 2018.

Suppose you invested ₹1 lakh in Tata Steel before January 2018. By 31 January 2018, the relevant value becomes ₹4 lakh. Later, the shares rise to ₹6 lakh.

Your overall economic gain is ₹5 lakh. However, the grandfathering mechanism uses the prescribed valuation rules to determine the amount that falls within the protected pre-2018 gain and the portion that is subject to the newer LTCG rules.

How Does Securities Transaction Tax Affect LTCG?

Securities Transaction Tax (STT) does not itself increase or decrease the LTCG rate. Instead, STT is one of the conditions relevant to determining whether certain listed equity gains qualify under the special Section 112A framework.

When the applicable STT conditions are satisfied, eligible listed-equity gains can fall under the special LTCG provisions. The applicable rate is 12.5% on gains above the ₹1.25 lakh annual threshold.

For transactions that do not meet the Section 112A conditions, the gain may fall under a different capital-gains provision. The applicable rate and tax treatment can then be different.

This is why STT should not be viewed simply as a tax paid to obtain an LTCG benefit. It is part of the tax treatment of eligible securities transactions.

Which Shares Do Not Get the ₹1.25 Lakh Exemption?

The ₹1.25 lakh annual threshold is linked to the applicable conditions for Section 112A. Not every share or asset automatically qualifies.

Unlisted shares

Shares of private companies and other unlisted securities are generally governed by different LTCG provisions. They do not automatically receive the Section 112A ₹1.25 lakh annual threshold.

Shares where the applicable STT conditions are not met

Listed shares do not automatically qualify for Section 112A in every transaction. Where the required STT conditions are not satisfied, the gain may fall outside Section 112A.

Shares held for the short term

If eligible listed shares are sold before the required 12-month holding period, the gain is generally treated as STCG rather than LTCG. The applicable STCG rate is 20%, subject to the relevant conditions.

Shares held as stock-in-trade

If you regularly trade securities as part of a business, the shares may be treated as stock-in-trade rather than capital assets. In that case, the income can be taxed as business income instead of capital gains.

Foreign Institutional Investors

Foreign Institutional Investors (FIIs) and other specified non-resident investors can be subject to special provisions. Their capital gains may be governed by provisions such as Section 115AD under the earlier framework.

Securities listed on IFSC exchanges

Securities traded through International Financial Services Centre (IFSC) exchanges can have a different tax treatment. The applicable rules depend on the security, transaction, and specific provisions.

In simple terms, the ₹1.25 lakh threshold is not a universal exemption for every type of share. It is linked to the conditions applicable to eligible long-term gains under the relevant provisions.

How Does the ₹1.25 Lakh Exemption Work?

The ₹1.25 lakh annual threshold under the Section 112A framework means that eligible long-term capital gains on specified listed equity can receive the threshold before the 12.5% tax is applied.

Suppose you make ₹3 lakh of eligible LTCG in FY 2025–26.

Total LTCG: ₹3,00,000
Less: ₹1,25,000 annual threshold
Remaining taxable LTCG: ₹1,75,000
LTCG tax at 12.5%: ₹21,875

The tax is therefore calculated on ₹1.75 lakh rather than the entire ₹3 lakh.

Can You Use Your Basic Exemption Limit Against These Gains?

Yes, but the rules depend on your circumstances and the type of capital gain.

If your other income is below your applicable basic exemption limit, the unused portion of that limit can potentially be adjusted against certain capital gains, subject to the applicable provisions.

For example, suppose your applicable basic exemption limit is ₹4 lakh and your salary and other eligible income total ₹3 lakh.

Unused basic exemption:

₹4 lakh − ₹3 lakh = ₹1 lakh

If you also have ₹2 lakh of eligible STCG, the unused ₹1 lakh may reduce the amount of STCG subject to tax, subject to the applicable rules.

The treatment of LTCG under the special-rate provisions is different. So, the type of gain matters when applying the basic exemption limit.

Do Surcharge, Cess and the Rebate Apply?

Surcharge and cess can affect the final tax payable. The Section 87A rebate is treated differently from ordinary slab-rate income and does not generally reduce tax on LTCG taxed under the special-rate provisions.

Surcharge

Surcharge is an additional tax that can apply when total income crosses the applicable threshold.

For example, if your total income, including capital gains, crosses the relevant surcharge threshold, surcharge may become applicable. For LTCG covered by Section 112A, the surcharge on the tax attributable to such gains is subject to the applicable maximum rate.

Cess

Health and Education Cess is an additional 4% of the income tax plus applicable surcharge.

Let’s use ₹3 lakh of eligible LTCG as an example.

Without Surcharge

LTCG tax at 12.5%: ₹21,875
Surcharge: ₹0
Tax plus surcharge: ₹21,875
Cess at 4%: ₹875
Total tax payable: ₹22,750

With 10% Surcharge

LTCG tax at 12.5%: ₹21,875
Surcharge: ₹2,188
Tax plus surcharge: ₹24,063
Cess at 4%: ₹963
Total tax payable: ₹25,026

The actual surcharge depends on your total income and the applicable rules. So, these figures should be treated as an illustration rather than a universal tax calculation.

The Section 87A rebate is intended for tax calculated under the applicable rebate provisions. LTCG taxed at a special rate has separate treatment, so the rebate cannot simply be applied to reduce every type of capital-gains tax.

What If You Bought Your Shares Before February 2018?

If you bought shares before February 2018 and continued holding them, the grandfathering rules may apply.

The key date is 31 January 2018. The rules were introduced when LTCG tax on specified listed equity was brought back from 1 February 2018.

The purpose was to protect gains that had already accrued before the new tax regime began. The taxable amount is therefore determined using the prescribed grandfathering calculation rather than simply using the original purchase price.

What Is the Grandfathering Clause for LTCG Budget 2018?

A grandfathering clause is a rule designed to protect certain gains that investors had already accumulated before a new tax rule came into effect.

For listed equity, the relevant grandfathering date is 31 January 2018. The calculation uses the prescribed value on that date to determine how much of the earlier gain is protected and how much later appreciation falls under the newer LTCG rules.

What Is FMV Calculation for Older Stock Holdings?

FMV means Fair Market Value. In simple terms, it is the value assigned to an asset for a particular date under the applicable valuation rules.

For older holdings, 31 January 2018 is an important date because the grandfathering calculation uses the prescribed fair market value framework.

There are different cases for determining the relevant value.

If the stock was actively traded on 31 January 2018, the prescribed market value for the relevant calculation is determined using the applicable quoted-market rules.

If the stock was not traded on that date, the applicable rules determine how the value is established using the relevant preceding trading information.

For mutual funds, the relevant NAV, or Net Asset Value, is used according to the applicable grandfathering provisions.

The exact calculation can depend on the security and the circumstances. So, older holdings need more care than a simple original-cost calculation.

What Happens to Your Cost Base After a Bonus, Split, Rights or Buyback?

Stock Split

A stock split changes the number of shares you hold without changing the total amount originally invested. Your cost per share is therefore adjusted across the new number of shares.

For example, if you held 100 shares with a total cost of ₹1 lakh and a 1:1 split doubles your shares to 200, the total original cost remains ₹1 lakh. The effective cost per share becomes ₹500.

Bonus Shares

Bonus shares are generally allotted without a separate purchase price. Their cost of acquisition is generally taken as nil under the applicable tax rules.

So, when you sell bonus shares, the tax calculation can treat the entire sale value as the capital gain, subject to the applicable rules.

Rights Shares

For rights shares, the amount you actually pay to acquire the shares generally forms the cost of acquisition.

For example, if you buy 10 rights shares at ₹80 each:

10 × ₹80 = ₹800

Your cost of acquisition is ₹800, subject to the applicable tax treatment.

Buyback Shares

A buyback can have a different tax treatment depending on the date and the applicable law.

If you do not participate in a buyback, your existing holding generally remains unchanged. If you participate, the tax treatment of the amount received needs to be determined under the rules applicable to that buyback.

Corporate actions can also affect the holding-period calculation. The exact holding-period rule depends on the type of corporate action and the applicable provisions.

How Are ESOPs and RSUs Taxed?

ESOPs and RSUs can involve taxation at two different stages.

The first stage occurs when you acquire the shares through the relevant employee-benefit mechanism. The second stage occurs when you eventually sell the shares.

First Tax: Acquisition of Shares

When shares are acquired through an ESOP or an RSU arrangement, the taxable benefit can generally be treated as a salary-related perquisite under the applicable rules.

Suppose a company gives you 100 shares with a fair value of ₹1,000 per share.

100 × ₹1,000 = ₹1,00,000

The relevant taxable perquisite can be ₹1,00,000, subject to the applicable ESOP or RSU rules and valuation requirements.

Second Tax: Sale of Shares

When you later sell the shares, the difference between the applicable sale value and the tax-recognized cost can become a capital gain.

The holding period for employee shares generally depends on the date on which the shares are allotted or transferred, rather than simply the date on which the option was granted.

The eventual capital gain can be short-term or long-term depending on the holding period and the type of security. The applicable rate is determined by the relevant tax provisions.

How Do You Set Off and Carry Forward LTCG Losses?

Capital losses can reduce taxable capital gains when the applicable set-off rules are satisfied.

There are two main types of capital loss.

STCL

Short-Term Capital Loss is a loss from selling an asset within the applicable short-term holding period.

STCL can generally be set off against both STCG and LTCG, subject to the applicable rules.

LTCL

Long-Term Capital Loss is a loss from selling an asset after the applicable long-term holding period.

LTCL can generally be set off only against LTCG.

This means a short-term capital loss has wider set-off eligibility than a long-term capital loss.

Sometimes your capital loss is larger than your capital gain. In that situation, you can either realize only the loss required for the current year's set-off or carry forward the eligible balance under the applicable rules.

Suppose your LTCG is ₹3 lakh but your LTCL is ₹5 lakh.

LTCG: ₹3 lakh
LTCL: ₹5 lakh
Loss remaining after set-off: ₹2 lakh

The unused ₹2 lakh can potentially be carried forward and used against eligible capital gains in future years, subject to the applicable filing and carry-forward conditions.

Capital losses can generally be carried forward for up to eight assessment years when the relevant conditions are met.

A tax loss can reduce your tax bill, but that doesn't mean you should sell a good investment simply to create a tax loss. The investment decision should come first.

There is also an important difference for Virtual Digital Assets (VDAs). Losses from VDAs are subject to much stricter set-off and carry-forward rules and cannot be treated like ordinary equity capital losses.

How to Offset Capital Losses Against Long-Term Capital Gains

You can use eligible capital losses to reduce your taxable LTCG.

Both STCL and LTCL can potentially be used against LTCG, subject to the applicable set-off rules.

Offsetting a Long-Term Capital Gain With Long-Term Capital Loss

Long-term capital gain from Stock A: ₹4,00,000
Less: Long-term capital loss from Stock B: ₹1,00,000
Net LTCG: ₹3,00,000
Less: Section 112A annual threshold: ₹1,25,000
Taxable LTCG: ₹1,75,000
LTCG tax at 12.5%: ₹21,875
Health and Education Cess at 4%: ₹875
Total tax: ₹22,750

Offsetting a Long-Term Capital Gain With Short-Term Capital Loss

Long-term capital gain from Stock A: ₹4,00,000
Less: Short-term capital loss from Stock B: ₹1,00,000
Net LTCG: ₹3,00,000
Less: Section 112A annual threshold: ₹1,25,000
Taxable LTCG: ₹1,75,000
LTCG tax at 12.5%: ₹21,875
Health and Education Cess at 4%: ₹875
Total tax: ₹22,750

What Is Tax-Loss Harvesting and How Does It Reduce LTCG Liability?

Tax-loss harvesting is a strategy where you realize an eligible investment loss to offset capital gains.

Suppose you have ₹4 lakh of LTCG during the financial year. Instead of calculating the taxable gain on the full ₹4 lakh, you also realize a ₹1 lakh eligible long-term capital loss.

Without Tax-Loss Harvesting

LTCG from Stock A: ₹4,00,000
Less: LTCL from Stock B: —
Net LTCG: ₹4,00,000
Less: Section 112A threshold: ₹1,25,000
Taxable LTCG: ₹2,75,000
LTCG tax at 12.5%: ₹34,375
Cess at 4%: ₹1,375
Total tax payable: ₹35,750

With Tax-Loss Harvesting

LTCG from Stock A: ₹4,00,000
Less: LTCL from Stock B: ₹1,00,000
Net LTCG: ₹3,00,000
Less: Section 112A threshold: ₹1,25,000
Taxable LTCG: ₹1,75,000
LTCG tax at 12.5%: ₹21,875
Cess at 4%: ₹875
Total tax payable: ₹22,750

The example shows how a ₹1 lakh eligible capital loss can reduce the taxable gain by ₹1 lakh. The actual tax outcome still depends on your other gains, losses, income, and the applicable provisions.

How Do You Harvest Gains to Reset Your Cost Base?

You can potentially reset your cost base by realizing eligible gains up to the ₹1.25 lakh annual threshold and then reinvesting the proceeds.

Suppose you bought a stock for ₹1,00,000. It is now worth ₹2,25,000.

Sale value: ₹2,25,000
Original cost: ₹1,00,000
Gain: ₹1,25,000
Tax under the assumed Section 112A threshold: ₹0

If you buy the stock again at ₹2,25,000, the new purchase price becomes the new cost base for the new holding, subject to the applicable rules.

Later, suppose the stock rises to ₹3,00,000.

Without harvesting:

₹3,00,000 − ₹1,00,000 = ₹2,00,000 gain

With the earlier reset:

₹3,00,000 − ₹2,25,000 = ₹75,000 gain

The second gain is below the ₹1.25 lakh annual threshold in this simplified example.

The trade-off is that every sale and repurchase creates transaction costs and market risk. The price can move while you are out of the position. So, tax harvesting is not automatically beneficial in every situation.

When Do You Pay LTCG Tax, and Where Does It Go in Your Return?

LTCG becomes relevant when you actually sell the investment. An increase in the market value of shares that you continue to hold is generally an unrealized gain.

Suppose you sell your shares on 15 March 2026.

That sale falls in FY 2025–26. The corresponding income is reported in the income-tax return for AY 2026–27.

There are two common ways in which tax may be paid.

Advance Tax

If your estimated tax liability after considering applicable TDS exceeds ₹10,000, you may need to pay advance tax during the financial year.

Advance tax is paid during the year rather than waiting until the return-filing stage. The applicable installment schedule depends on the taxpayer and type of income.

Self-Assessment Tax

Self-assessment tax is the remaining tax you pay after calculating your final liability while preparing your income-tax return.

This is why a large capital gain should not be ignored until the return-filing deadline. If the gain creates an advance-tax obligation, the tax may need to be paid during the same financial year.

The exact liability depends on your total income, TDS, capital gains, losses, surcharge, cess, and other applicable provisions. For a large or complicated transaction, checking the calculation against the current tax rules before filing is important.