Understand what capital gains on shares are, how they’re taxed, the difference between short-term and long-term gains, and how to calculate them with examples.
Capital gains on shares represent the profit earned when you sell your equity investments for more than their purchase price. This gain arises due to appreciation in the share’s market value over time. Capital gains are an essential aspect of equity investing and are subject to taxation under specific rules depending on the holding period and type of shares.
Capital gains on shares refer to the monetary profit made when investors sell their shares at a higher price than they paid for them.
This difference between the sale price and purchase price forms the taxable capital gain.
Capital gains can apply to:
Listed shares, traded on recognised stock exchanges.
Unlisted shares, held in private companies.
Foreign shares, owned in overseas companies.
In India, the tax treatment of capital gains depends on the holding period and whether the shares are listed or unlisted.
Capital gains are classified based on the duration for which the shares are held before being sold.
| Type | Holding Period | Applicable Tax Rate | Notes |
|---|---|---|---|
| Short-Term Capital Gain (STCG) |
Shares held for less than 12 months |
20% (listed equity with STT); slab rates (unlisted) |
Applies to quick trades or short-term investments. |
| Long-Term Capital Gain (LTCG) |
Shares held for more than 12 months |
12.5% (listed, above ₹1.25 lakh); 12.5% (unlisted, no exemption) without indexation |
Applies to long-term holdings and equity investments. |
For unlisted shares, the classification differs slightly as a holding period of 24 months separates short-term from long-term gains.
Understanding this distinction is important as it determines how your profits are taxed.
Calculating capital gains involves determining the difference between the sale price and purchase price, adjusted for any related expenses such as brokerage fees or transfer charges.
Here’s the basic approach:
Capital Gain = Sale Value – (Purchase Value + Transfer Expenses)
Let’s see how this applies through the formula below.
| Particulars | Formula / Description |
|---|---|
| Short-Term Capital Gain (STCG) |
STCG = Sale Price – (Purchase Price + Brokerage + Other Charges) |
| Long-Term Capital Gain (LTCG) |
LTCG = Sale Price – (Purchase Price + Brokerage + Other Charges) |
Example:
If you bought shares for ₹1,00,000 and sold them for ₹1,50,000, paying ₹1,000 as brokerage —
Capital Gain = ₹1,50,000 – (₹1,00,000 + ₹1,000) = ₹49,000.
If held for over a year, this ₹49,000 becomes a long-term capital gain.
Investors often misinterpret how capital gains on shares work. Here are some frequent misconceptions:
Ignoring the holding period: The duration of investment directly affects tax liability.
Overlooking STT (Securities Transaction Tax): STT payment is essential to claim concessional tax rates.
Confusing capital gains with dividends: Dividends are income, while capital gains are profits from sale.
Misreporting foreign share gains: Overseas gains must be disclosed under global income if applicable.
Not factoring in expenses: Ignoring brokerage or transaction costs can overstate gains.
Avoiding these errors ensures accurate computation and compliance with tax laws.
Capital gains on shares form an integral part of equity investing, offering opportunities for wealth growth but also tax obligations.
By understanding how short-term and long-term gains differ and applying accurate calculation methods, investors can optimise post-tax returns. Always keep records of purchase and sale transactions for smoother tax filing.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Short-term capital gains (STCG) on listed equity shares (with STT paid) remain at 20%. Long-term capital gains (LTCG) exceeding ₹1.25 lakh are at 12.5%, without indexation.
For unlisted shares, short-term gains are taxed at the individual’s applicable income tax slab rate, while long-term gains (holding period over 24 months) are taxed at 12.5% without indexation
Capital gain is calculated as the sale value minus the cost of purchase and related transaction expenses such as brokerage or service charges.
Short-term capital gain arises when shares are sold within 12 months of purchase, while long-term capital gain applies when they are sold after 12 months of holding.
Recent changes in India's capital gains tax on shares include raising short-term gains (STCG) on listed equities to 20% from 15%, and long-term gains (LTCG) exceeding ₹1.25 lakh to 12.5% from 10%, without indexation for most assets.