Capital gains taxation is an essential aspect of equity share transactions. The nature of gains—whether short-term or long-term—affects how they are taxed. The provisions under the Income Tax Act, including Sections 54F, 112A, and 111A, govern the taxation framework for these gains. This guide covers the classification of shares, computation of capital gains, applicable exemptions, and tax rates for the Assessment Year 2025–26, with practical examples for better understanding.
CAPITAL GAIN ON Sales of Equity Shares
Types of Investments in the Stock Market
1.Equity Investments:
- When shares are held for investment purposes, the profit or loss shall be taxed under capital gains.
2. Futures & Options (F&O) Trading:
- Derivatives-based trading, classified as business income under Income Tax laws.
- Taxed as per individual slab rates (no capital gain benefit).
- Expenses like brokerage, internet, and advisory fees can be deducted.
3. Intraday Trading:
- Speculative business income, taxed at individual slab rates.
- No capital gain treatment, and losses can only be set off against speculative profits.
CAPITAL GAIN ON SALE OF SHARES
Transfer of a capital assets
The tax under ‘capital gains’ arise only where the capital asset is transferred.
Capital assets are classified into:
a) Long-term capital assets
b) Short-term capital assets
The classification is based on the holding period before the transfer by the assesses.
For Listed shares:
- Long-term capital assets – Held for 12 months or more
- Short-term capital assets – Held for less than 12 months
Computation of Capital Gain
| Computation of capital gain | Amount |
| Full value of consideration | A |
| Less : Expenses on transfer (e.g Brokerage, Tax etc.) | B |
| Net consideration (A-B) | C |
| Less: (i) cost of acquisition | D |
| Gross Capital Gains (C-D) | E |
| Less : Exemption u/s. 54F if applicable | F |
| Taxable Long Term/Short Term Short-term capital gains (E-F) | G |
Cost of acquisition for shares acquired on or before 31.01.2018
1.Actual cost of acquisition or
2. Lower of the
i) Fair market value as on 31.01.2018 or sale amount of transfer of assets Whichever is higher.
(Prior to 31.01.2018 LTCG on shares were exempted)
Exemptions available in computing of Capital gains
| Sec. | Eligible Assessee | Conditions | Quantum of exemptions |
| 54F | Individual or HUF | 1. Asset transferred is a long-term capital asset, not a residential house.
2. Investment must be in one residential house in India by: a) Purchase: Within 1 year before or 2 years after transfer, or b) Construction: Within 3 years after transfer. 3. On transfer date, assessee must not own more than one other residential house (except the new one). 4. Assessee should not buy or construct another residential house (except the new one) within the specified period. |
LTCG * Amount Invested/
Net consideration (Maximum Investment is 10 Crore) |
Tax on Long term Capital Gain of Equity Shares 112A
Capital gain arising on the transfer of equity share in a company or unit of an equity-oriented fund or unit of business trust shall be computed based on section 112A.
|
(i) |
On the amount of long-term capital gains covered u/s 112A if it:a) does not exceed Rs. 125,000
|
NIL |
|
b)Exceeds Rs 1,25,000 |
10%(If transfer on or before 22.07.2024) | |
| 12.5% (if transfer on or after 23.07.2024) |
Tax on short term capital gain on Equity Shares 111A
| Transfer take place | Rate of Tax |
| On or before 22.07.2024 | 15% |
| On or after 23.07.2024 | 20% |
Note
- Maximum exemption on LTCG under Section 112A in a financial year: ₹1,25,000.
- For resident individuals and HUFs, unutilized basic exemption limit can be adjusted against LTCG/STCG
- Final tax payable is increased by surcharge and 4% health & education cess.
- No Chapter VI-A deductions are allowed against capital gains.
- 87A Rebate – Not Available for Special income
Capital Gain Loss
Long term loss – Can sett off against Long Term Gain
Short Term Loss – Set off against LTCG and STCG
Carry forward for 8 year
Note: To carry forward capital gain losses, the income tax return must be filed on or before the due date u/s 13.
TIPS FOR ITR Filing – Capital Gain on Shares
- ITR-1 or ITR-4 can now be used if LTCG is up to ₹1,25,000.
- Capital gain details can be downloaded from the AIS portal.
- Scrip-wise reporting is not required, as per CBIC directions.
Example 1
- A purchased 30 shares of MRF Ltd in the year 2000 at ₹15 per share.
- He sold all the 30 shares in the Financial Year 2024–25 for ₹1,25,000 each.
- The Fair Market Value (FMV) of MRF share as on 01.2018 was ₹90,000.
Compute the Long-Term Capital Gain (LTCG) of Mr. A for the Assessment Year 2025–26 under Section 112A.
Answer 1
Computation of Capital Gain on Listed shares of Mr A for AY 2025 – 2026
| Computation of capital gain (Shares) | Amount |
| Sale Amount (30* 125,000) | 37,50,000 |
| Less : Expenses on transfer (e.g Brokerage, Tax etc.) | 0 |
| Net consideration | 37,50,000 |
| Less: (i) cost of acquisition (Highest of Below) | 27,00,000 |
| o Actual cost (30*15 = 450)
o Market Value as on 31.01.2018 – (30* 90,000) |
|
| Long Term Capital Gain | 10,50,000 |
–
| Computation of Tax Liability Mr A (AY 25 -26) | Amount |
| Long Term Capital Gain | 10,50,000 |
| Less: Exemption for LTCG | 125,000 |
| Less: Basic Exemption Limit (assume no other income) | 300,000 |
| Remaining Amount | 625,000 |
| Tax @ 12.5% (if sold after 23.07.2024) | 78,125 |
| Cess @ 4% | 3,125 |
| Total Tax | 81,250/- |
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