Capital Gains on Shares and Mutual Funds: STCG, LTCG, STT Conditions and Special Rules (Tax Year 2026-27)
CA Meet Dhrangadhariya 
June 29, 2026
CA Meet Dhrangadhariya June 29, 2026
Table of Contents
7 min readTable of Contents
Last updated: 21 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
For most investors, shares and mutual funds are the biggest source of capital gains. The tax rate depends on three things: the holding period, whether securities transaction tax (STT) was paid, and what the fund invests in. This post explains each for tax year 2026-27 under the Income-tax Act, 2025.
| Asset | Short-term if held for |
|---|---|
| Listed shares, UTI units, units of an equity-oriented fund, zero coupon bonds | 12 months or less |
| Unlisted shares, foreign shares, units of debt funds and other assets | 24 months or less |
Short-term (section 196): if the asset is an equity share, a unit of an equity-oriented fund or a unit of a business trust, and the sale is chargeable to STT, the short-term gain is taxed at 20%.
Long-term (section 198): if the gain is on an equity share, a unit of an equity-oriented fund or a unit of a business trust, and STT has been paid:
the tax is 12.5% on the long-term gain above ₹1,25,000 in the tax year. The Central Government may notify types of acquisition for which the STT-on-acquisition condition does not apply (section 198(5)).
For a resident individual or HUF, any shortfall in the basic exemption limit is first set against the gain (sections 196(2) and 198(3)). Deductions under section 123 and other Chapter VIII deductions are allowed only from income other than these gains. Surcharge on this tax is capped at 15%.
A fund set up under a mutual fund scheme (or an insurance unit-linked scheme that does not enjoy the exemption in Schedule II, serial 2) that invests a minimum of 65% of its total proceeds in equity shares of domestic companies listed on a recognised stock exchange (the percentage is averaged over the year); or, for a fund of funds investing in another listed fund, at least 90% of proceeds in that fund, which itself invests at least 90% in listed domestic equity.
If the conditions for section 196 or 198 are not met (for example an off-market sale of shares, or an unlisted share), the long-term gain is taxed at 12.5% without the ₹1,25,000 exemption (section 197) and the short-term gain at slab rates.
The gain on transfer, redemption or maturity of the following is always a short-term capital gain, whatever the holding period, taxed at slab rates:
STT is not deducted in computing these gains. Debt fund units bought before 1 April 2023 are ordinary capital assets: short-term if held for 24 months or less, and long-term gains taxed at 12.5% without indexation.
Buyback (section 69): when a company buys back its own shares, the consideration you receive is taxed in your hands as capital gains: the difference between the cost and the amount received. Before the Finance Act, 2026 the buyback consideration was treated as a dividend and was taken as nil for capital gains; from 1 April 2026 it is capital gains. If the shareholder is a promoter, an additional tax applies: 2% (short-term gain) or 9.5% (long-term gain) for a domestic company promoter, and 10% or 17.5% for other promoters (section 69(2)).
Dividend stripping (section 175(8)): if you buy securities within three months before a record date and sell them within three months after it (for units, within nine months), and the dividend or income is exempt, the loss on that purchase and sale is ignored to the extent of the dividend or income. Under section 175(9), a loss on securities bought within three months before the record date and sold within nine months after, while you continue to hold bonus securities allotted on that holding, is ignored and added to the cost of the bonus securities.
Intraday and F&O: a sale without delivery is a speculative transaction (section 66(31)), and a derivative transaction in the exchange is a business transaction. Both give business income and not capital gains. Delivery-based trades by an investor are capital gains.
Dividends: dividend is taxed at slab rates as income from other sources (section 92(2)(a)).
A resident individual during tax year 2026-27, all on a stock exchange with STT paid:
Short-term gain (held for 12 months or less) on a sale on a stock exchange with STT paid: 20%. Long-term gain (more than 12 months): 12.5% on the gain above ₹1,25,000 in the tax year (sections 196 and 198).
When the long-term gain is on an equity share or a unit of an equity-oriented fund or a business trust, and STT was paid on the transfer (and, for an equity share, also on acquisition, unless the Central Government has notified the type of acquisition). Otherwise long-term gains are at 12.5% without the exemption (section 197).
If the fund invests more than 65% in debt and money market instruments (a specified mutual fund) and the units were bought on or after 1 April 2023, the gain is a short-term gain taxed at slab rates, however long you hold them (section 76).
By first-in-first-out for securities held in demat form: the earliest bought shares are treated as sold first, for both cost and holding period (section 67(7)(c)).
No. A transaction settled without delivery is a speculative transaction (section 66(31)) and the profit is business income, not a capital gain, unless it is an exempt derivative transaction.
Buying shares or units shortly before a dividend record date and selling soon after, to book a loss against exempt dividend. The loss is ignored up to the dividend received if you buy within three months before the record date and sell within three months after (nine months for units) (section 175).
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
CA Meet Dhrangadhariya January 29, 2026
CA Meet Dhrangadhariya April 21, 2025
CA Meet Dhrangadhariya July 6, 2026
CA Meet Dhrangadhariya May 6, 2026