Tag: LTCG

Sovereign Gold Bonds: Capital Gains Tax on Redemption and Sale from 1 April 2026

Posted on by CA Meet Dhrangadhariya

Last updated: 20 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • From 1 April 2026, redemption of a Sovereign Gold Bond is not a taxable transfer only if the bond is held by an individual from the date of original issue until maturity (section 70(1)(x) of the Income-tax Act, 2025, as amended by the Finance Act, 2026).
  • A bond bought in the secondary market is taxed on redemption: the gain is a capital gain, long-term at 12.5% if held for more than 12 months, short-term at slab rates otherwise.
  • A bond sold on the stock exchange before maturity is taxed in the same way, for every holder.
  • The 2.5% annual interest is taxable as income from other sources at slab rates.

Sovereign Gold Bonds (SGBs) were popular because the gain on redemption was tax free. The Finance Act, 2026 narrowed that relief from 1 April 2026. This post explains who still gets it, who pays tax and how much.

What the Act now says

Section 70(1) lists transactions that are not a transfer, so no capital gains tax arises on them. Clause (x), as amended by the Finance Act, 2026 with effect from 1 April 2026, covers:

redemption of a Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any subsequent Sovereign Gold Bond Scheme, if held by an individual from the date of original issue till maturity.

Before the amendment, the clause covered redemption of a bond under the 2015 scheme by an individual, whether he had subscribed to it or bought it later. The amendment adds two conditions: the original issue and till maturity, and it extends to later schemes.

Who pays tax

Holder On redemption at maturity On sale on the exchange before maturity
Individual who subscribed at issue and holds till maturity No tax Not applicable
Individual who subscribed at issue but sells before maturity Not applicable Capital gain taxed
Anyone who bought the bond in the secondary market Capital gain taxed on redemption Capital gain taxed
HUF, company or trust Capital gain taxed (the clause covers individuals only) Capital gain taxed

How the gain is taxed

Where the exemption does not apply, the gain is the redemption or sale price less your cost of acquisition (the price you paid, with the expenses of the transfer).

  • SGBs are listed securities, so the holding period is 12 months: more than 12 months is long-term, 12 months or less is short-term (section 2(101)).
  • Long-term gain: 12.5% without indexation (section 197). The ₹1,25,000 exemption in section 198 does not apply, because it is only for equity shares and equity-oriented fund units.
  • Short-term gain: added to your income and taxed at slab rates.
  • The surcharge on this long-term gain is capped at 15%, and cess is 4%.

Example. You bought an SGB from the stock exchange for ₹7,000 a unit and held it for two years. It is redeemed at maturity at ₹12,000 a unit (a figure for illustration). The gain per unit is ₹5,000, long-term. Tax at 12.5% is ₹625 a unit, plus 4% cess = ₹650. For an original subscriber who held to maturity, the tax is nil.

Interest

SGBs pay interest of 2.5% a year (as set by the scheme). It is income from other sources (section 92) at your slab rate, in the year it is received or due, whichever your method of accounting is.

What to do if you hold SGBs

  1. Check how you acquired each bond: original issue (the allotment letter or demat statement shows the date) or secondary market.
  2. If you are an original holder, hold to maturity if you want the exemption. An early sale or a premature redemption may be taxed.
  3. For secondary market bonds, plan for tax on redemption and keep the purchase contract note, which fixes your cost and holding period.
  4. Report the interest every year and the capital gain in the capital gains schedule of the return. See our post on capital gains tax for the rates and the way to set off losses.

Frequently asked questions

Is SGB redemption tax free?

Yes, but only if you are an individual who has held the bond from the date of its original issue until maturity. The redemption is then not treated as a transfer (section 70(1)(x)).

What if I bought the SGB from the stock exchange?

The exemption on redemption does not apply to you. The redemption is a transfer, and the gain over your purchase cost is a capital gain.

What is the tax rate on SGB gains?

Long-term (held for more than 12 months, since SGBs are listed securities): 12.5% without indexation. Short-term: your slab rate (sections 2(101) and 197).

Is the interest on SGB taxable?

Yes. The 2.5% a year interest is income from other sources at your slab rate (section 92).

What about premature redemption after five years?

The exemption in section 70(1)(x) speaks of redemption of a bond held from original issue until maturity. A premature redemption is not clearly covered, so take advice before treating it as tax free.

Does the new rule apply to bonds already bought?

It applies from 1 April 2026, to redemptions and transfers from that date, whenever the bond was bought. A bond held by an original subscriber to maturity remains exempt.

Official sources

Disclaimer

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.

Capital Gains on Shares and Mutual Funds: STCG, LTCG, STT Conditions and Special Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 21 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Listed equity shares and equity-oriented mutual fund units sold on an exchange with STT paid: short-term gain at 20% (section 196), long-term gain (over 12 months) at 12.5% on the amount above ₹1,25,000 a year (section 198).
  • Debt mutual fund units bought on or after 1 April 2023 and market linked debentures always give short-term gains taxed at slab rates (section 76).
  • Gains on demat shares use first-in-first-out for cost and holding period (section 67(7)); shares bought before 1 February 2018 get a grandfathered cost (section 90(7)).
  • A loss on shares bought just before a dividend record date and sold soon after can be ignored (section 175), and buyback proceeds are now taxed as capital gains in the shareholder’s hands (section 69).

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.

Holding period (section 2(101))

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

Listed equity shares and equity-oriented funds

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:

  • on acquisition and on transfer, for an equity share; and
  • on transfer, for a fund or business trust unit,

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%.

What is an equity-oriented fund (section 198(8))

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.

When STT is not paid

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.

Debt mutual funds, bonds and market linked debentures (section 76)

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:

  • a unit of a Specified Mutual Fund acquired on or after 1 April 2023, being a mutual fund that invests more than 65% of its proceeds in debt and money market instruments (or a fund that invests 65% or more in units of such a fund);
  • a market linked debenture; and
  • an unlisted bond or debenture transferred, redeemed or maturing on or after 23 July 2024.

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.

How cost and holding period are fixed

  • First-in-first-out (section 67(7)(c)): for securities held in demat form, if you buy the same security at different times and sell part of the holding, the earliest purchases are treated as sold first, for both the cost of acquisition and the period of holding.
  • Grandfathering (section 90(7)): for long-term equity shares and units covered by section 198 that you bought before 1 February 2018, the cost is the higher of the actual cost and the lower of the value on 31 January 2018 and the sale price.
  • Bonus shares have a nil cost and their holding period runs from the allotment; rights shares cost what you paid (section 90(5) and (6)).
  • STT paid is not deductible (section 72(3)). Brokerage and other expenses incurred wholly and exclusively on the transfer are deducted (section 72(1)(a)).

Special rules

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)).

Example

A resident individual during tax year 2026-27, all on a stock exchange with STT paid:

  • Sold shares bought two years ago: long-term gain ₹1,90,000.
  • Sold units of an equity fund bought four months ago: short-term gain ₹60,000.
  • Sold shares bought in November 2016 for ₹1,00,000, worth ₹2,50,000 on 31 January 2018, sold for ₹4,00,000: cost = higher of 1,00,000 and the lower of 2,50,000 and 4,00,000 = ₹2,50,000; long-term gain ₹1,50,000.
  • Long-term gains total ₹3,40,000. Less ₹1,25,000 = ₹2,15,000 at 12.5% = ₹26,875.
  • Short-term gain ₹60,000 at 20% = ₹12,000.
  • Total ₹38,875, plus 4% cess = ₹40,430.

Before you file

  1. Download the capital gains statement from your broker or mutual fund registrar and check it against your own contract notes.
  2. Report each sale with the correct buy date and cost, in the capital gains schedule of ITR-2 or ITR-3. ITR-1 can be used only if the long-term gains under section 198 are no more than ₹1,25,000 and there is no other capital gain (see our post on which ITR form to file).
  3. Pay advance tax on gains as they arise.
  4. Set off losses as explained in our post on capital loss.

Frequently asked questions

What are the tax rates on shares and equity mutual funds?

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 does the 12.5% rate with the ₹1.25 lakh exemption apply?

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).

How are debt mutual funds taxed?

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).

How is the cost worked out when I buy the same share at different times?

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)).

Is intraday trading a capital gain?

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.

What is dividend stripping?

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).

Official sources

Related reading

Disclaimer

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.