Long Term Capital Gain on Shares As Per Income Tax Act 2025

If you sold shares after 1 April 2026, one thing has changed for you: the section number. The tax rate has not. The familiar Section 112A of the Income-tax Act, 1961 now lives on as Section 198 of the Income-tax Act, 2025.

This guide explains how long term capital gain (LTCG) on shares is taxed today, with worked examples, so you can compute it correctly and report it with confidence.

Key Takeaways 

What Has Changed under the Income-tax Act, 2025?

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. Three changes matter to a share investor:

• New vocabulary. "Previous year" and "assessment year" are replaced by a single term, "tax year". Income earned from 1 April 2026 to 31 March 2027 belongs to Tax Year 2026-27 (this would have been AY 2027-28 under the old Act).
• New section numbers. The capital gains provisions have been renumbered:

Rates and the exemption limit are unchanged. The 12.5% LTCG rate and the ₹1.25 lakh exemption introduced in July 2024 continue.

The old section numbers still apply to shares sold up to 31 March 2026 (FY 2025-26 / AY 2026-27).

When Is a Gain on Shares "Long Term"?

A gain is long term when the asset is held for a minimum period before transfer. Under the 2025 Act, most capital assets need to be held for more than 24 months, but securities listed on a recognised stock exchange in India (including listed equity shares) need only more than 12 months.

• Held 12 months or less → short-term capital gain (20% under Section 196 if STT is paid).
• Held more than 12 months → long term capital gain (12.5% under Section 198).

Practical Tip: count from the date of purchase (or allotment) to the date of sale. Selling just a few days before completing 12 months can change the rate from 12.5% to 20% and also forfeits the ₹1.25 lakh exemption.

Which Shares Are Covered by Section 198?

Section 198 applies to LTCG on:

• Listed equity shares of a company
• Units of an equity-oriented mutual fund
• Units of a business trust

The key condition is Securities Transaction Tax (STT):

• STT must have been paid on transfer of the asset.
• For equity shares, STT must generally also have been paid on acquisition, subject to exceptions notified by the Government (for example, certain acquisitions such as IPO/FPO allotments and some off-market modes). Check the notified list for your case.

Not covered by Section 198: unlisted shares, listed shares sold off-market without STT, and most other assets. LTCG on these is generally taxed under Section 197 at 12.5% without the ₹1.25 lakh exemption (unlisted shares need more than 24 months of holding to be long term).

How to Compute LTCG on Shares?

LTCG = Full value of consideration – Cost of acquisition (as adjusted by grandfathering) – Expenses wholly and exclusively on transfer

• Transfer expenses include brokerage and similar costs of the sale. STT itself is not deductible.
• No indexation is available on equity LTCG.
• Tax = 12.5% × (LTCG – ₹1,25,000), where LTCG is the net figure for the year after set-off.

Grandfathering for Shares Bought Before 1 February 2018

LTCG on equity was exempt until 31 March 2018. When it became taxable, the law protected gains that had already built up till 31 January 2018. For shares bought on or before that date, the cost of acquisition is:

Higher of (a) actual cost, and (b) the lower of (i) fair market value on 31 January 2018 and (ii) the sale price.

Setting Off and Carrying Forward Losses

• Long-term capital loss (LTCL) can be set off only against long-term capital gains.
• Short-term capital loss (STCL) can be set off against both short-term and long-term capital gains.
• Unabsorbed capital losses can be carried forward for 8 subsequent tax years, but only to be set off against capital gains, and only if the return is filed on or before the due date.

Commonly Overlooked Investment Considerations

1. The ₹1.25 lakh limit is per tax year, per taxpayer, and covers all your Section 198 gains together (shares, equity mutual funds and business trust units combined). It is not available per scrip.
2. It is an exemption threshold, not a deduction from income. Only the gain above ₹1.25 lakh is taxed.
3. No Chapter VI-A deductions (such as 80C-type deductions) can be claimed against Section 198 LTCG.
4. Rebate is not available. The rebate for resident individuals with lower income (Section 87A earlier; Section 156 under the 2025 Act) does not apply to tax on Section 198 LTCG, even if total income is low.
5. Basic exemption limit adjustment. For a resident individual or HUF, if other income is below the basic exemption limit, the unused portion can be adjusted against LTCG before computing tax. Check the position under your chosen tax regime.
6. Surcharge on LTCG is capped at 15%, however high the total income, and 4% cess applies on tax plus surcharge.
7. Advance tax applies. Capital gains must be factored into advance tax instalments; interest can arise on shortfall. Gains arising after an instalment date are generally covered in the remaining instalments.
8. Tax-loss harvesting. Booking gains up to ₹1.25 lakh each year and re-buying can reset your cost of acquisition without tax, since the exemption is annual and cannot be carried forward. Make sure the transactions are genuine and not sham.

How to Report LTCG on Shares in Your Return?

• LTCG on listed equity is reported scrip-wise in the capital gains schedule of the ITR, with ISIN, number of units, sale value, cost of acquisition and, where applicable, FMV as on 31 January 2018.
• Use your broker's capital gains statement, but reconcile it with the Annual Information Statement (AIS) and your own records, especially for bonus shares, splits, demerger or corporate-action cost adjustments and pre-2018 holdings.
• Keep contract notes and demat statements, since cost details drive the entire computation.

FAQs

What is the new section number for 112A? 

Section 112A of the Income-tax Act, 1961 corresponds to Section 198 of the Income-tax Act, 2025. Section 111A corresponds to Section 196 and Section 112 to Section 197.

What is the LTCG tax rate on shares for FY 2026-27? 

12.5% on long-term gains exceeding ₹1.25 lakh in the tax year, without indexation, plus applicable surcharge and cess.

After how many months does a listed share become long term? 

After more than 12 months of holding.

Is LTCG up to ₹1.25 lakh completely tax-free? 

Yes, to the extent your total Section 198 LTCG for the tax year does not exceed ₹1.25 lakh, there is no tax on it. If it exceeds that, only the excess is taxed.

Can I carry forward a long-term capital loss on shares? 

Yes, for 8 subsequent tax years, against long-term capital gains only, provided the loss is reported in a return filed on time.

Do I pay LTCG tax on mutual funds under the same section? 

Equity-oriented mutual fund units on which STT is paid fall under the same Section 198 framework. Debt and other funds are taxed differently.

Is indexation available on shares? 

No. Equity LTCG is taxed at 12.5% on the gain without indexation.