Capital Gains Tax on Stocks in India: LTCG vs STCG Explained

Every profit you book on a listed stock in India gets taxed differently depending on exactly one thing: how long you held it before selling. Cross the 12-month line and your gain moves from short-term to long-term treatment, which changes both the tax rate and how much of the gain is even taxable in the first place. Getting this wrong doesn't just mean paying more tax than necessary — it can also mean misjudging what a trade is actually worth after tax before you make it.

For listed equity shares and equity-oriented mutual funds, the line between short-term and long-term is exactly 12 months from the purchase date.

• Held for **12 months or less** at the time of sale → **Short-Term Capital Gains (STCG)**.
• Held for **more than 12 months** → **Long-Term Capital Gains (LTCG)**.

This 12-month threshold applies specifically to listed equity — other assets (debt mutual funds, real estate, unlisted shares) use different holding-period rules, so don't assume the same line applies elsewhere in your portfolio.

Short-term gains on listed equity shares and equity mutual funds, where Securities Transaction Tax (STT) has been paid on the sale, are taxed at a flat **20%** under Section 111A. This rate applies to transfers made on or after 23 July 2024, and there is no separate exemption threshold for STCG — the entire gain is taxable at this rate (added to your applicable surcharge and cess).

Long-term gains on listed equity shares and equity mutual funds are taxed at **12.5%** under Section 112A, but only on the portion of gains that exceeds **₹1.25 lakh in a financial year** — the first ₹1.25 lakh of long-term equity gains in any given year is completely tax-free. This exemption applies per financial year, not per stock or per transaction, so it's the total of all your long-term equity gains for the year that gets measured against the ₹1.25 lakh threshold.

An investor sells two positions in the same financial year:

• **Position A**: bought 8 months earlier, sold for a ₹2,00,000 gain → held under 12 months, so this is STCG. Tax = 20% × ₹2,00,000 = **₹40,000**.
• **Position B**: bought 3 years earlier, sold for a ₹3,50,000 gain → held over 12 months, so this is LTCG. Combined with any other LTCG booked that year, assume this is the investor's only long-term gain: first ₹1,25,000 is exempt, leaving ₹2,25,000 taxable. Tax = 12.5% × ₹2,25,000 = **₹28,125**.

Same total gain size in the same rough range, but the short-term position pays nearly 30% more tax in absolute terms — purely because of the holding period, with no change to anything about the investment itself.

The 20% vs 12.5% gap, plus the LTCG exemption, means the last few weeks of a holding period can matter more than they seem to. A position sitting at 11 months with a solid gain is one holding-period milestone away from a materially better tax outcome — worth factoring into a sell decision when the underlying investment thesis doesn't specifically demand selling right now. This isn't a reason to hold a deteriorating position purely for tax purposes, but it is a reason to at least check the holding period before triggering a sale you were on the fence about anyway.

• The line between STCG and LTCG on listed equity is exactly 12 months of holding.
• STCG is taxed at a flat 20%, with no exemption threshold.
• LTCG is taxed at 12.5%, but only above a ₹1.25 lakh exemption per financial year.
• The ₹1.25 lakh LTCG exemption applies to your total long-term equity gains for the year, not per stock.
• These rates are specific to listed equity shares and equity mutual funds with STT paid — other asset classes follow different rules.