Investing in the stock market has become a popular way for millions of Indians to build wealth, but understanding how the government taxes your stock market profits is essential before filing your Income Tax Return (ITR). For Assessment Year 2026-27, the tax framework for share market income has undergone significant changes that every investor and trader needs to be aware of.
The Union Budget 2026 introduced key updates to capital gains taxation, most notably raising the Short-Term Capital Gains (STCG) rate on equity from 15% to 20%, while keeping the Long-Term Capital Gains (LTCG) rate unchanged at 12.5% and increasing the exemption limit to ₹1.25 lakh. In addition to delivery-based investing, other market activities - such as intraday trading, Futures & Options (F&O), and dividend income - each come with their own tax rules, which can significantly impact your overall tax liability.
For listed equity shares and equity mutual funds:
- LTCG (held >12 months): 12.5% on gains above ₹1.25 lakh exemption
- STCG (held ≤12 months): 20% (increased from 15%)
| Trading Type | Income Classification | Tax Rate | ITR Form |
| Delivery-based equity (LTCG) | Capital Gains (Section 112A) | 12.5% above ₹1.25L | ITR-2 |
| Delivery-based equity (STCG) | Capital Gains (Section 111A) | 20% | ITR-2 |
| Intraday trading | Speculative Business Income | Slab rates | ITR-3 |
| F&O trading | Non-speculative Business Income | Slab rates | ITR-3/ITR-4 |
| Dividends | Income from Other Sources | Slab rates | ITR-2 |
Key Points Before Filing
LTCG Exemption
- Resident individuals receive an exemption of ₹1.25 lakh per year (increased from ₹1 lakh).
- The exemption applies only to listed equity shares and equityoriented mutual funds .
STCG Rate Change
- The STCG rate has been raised from 15% to 20% for listed equity and equity mutual funds on which Securities Transaction Tax (STT) is paid.
Holding Periods
- Short-term: Holding period of 12 months or less for equity shares and equity funds.
- Long-term: Holding period of more than 12 months for equity shares and equity funds.
ITR Form Selection
- ITR-2: For income from capital gains only (delivery-based trading).
- ITR-3: For income from F&O and intraday trading (treated as business income).
- ITR-4: For F&O income if opting for presumptive taxation (6% of turnover).
Dividend Taxation
- Dividends are taxed according to your applicable income tax slab and added under "Income from Other Sources".
- TDS of 10% is deducted if the dividend amount exceeds ₹10,000 for resident individuals.
Loss Set-off Rules
- STCG / LTCG losses: Can be set off against any capital gains. LTCG losses can be carried forward for up to 8 years .
- Intraday (speculative) losses: Can be set off only against speculative income and can be carried forward for 4 years .
- F&O (non-speculative) losses: Can be set off against any business income and can be carried forward for 8 years .
Tax Harvesting
Consider realizing gains before March 31 each year to make full use of the ₹1.25 lakh LTCG exemption annually.
New ITR-2 Changes for AY 2026-27
- Enhanced reporting requirements for LTCG.
- A capital gains statement is now required for shares and mutual funds.
Crucial Rules for Dividends and Bonus Shares
Don't overlook how corporate actions are treated when filling out your schedules:
- Dividends: Fully taxable in your hands under the head "Income from Other Sources" at your applicable income tax slab rates. If you received more than ₹10,000 in dividends from a single company, ensure you crossverify the 10% TDS deducted under Section 194.
- Bonus Shares: The receipt of bonus shares is not taxed immediately. However, their Cost of Acquisition is treated as Zero. When you sell them, the entire sale consideration becomes a capital gain, and the holding period is counted strictly from the date the bonus shares were allotted to your demat account.
Reconciliation: The Golden Pre-Filing Step
Before hitting submit, make sure that the figures you report match perfectly with the Annual Information Statement (AIS) issued by the Income Tax Department.
Important Step: Download the Capital Gains Statement from your broker (Zerodha, Groww, ICICI Direct, etc.) and reconcile the total sales value, purchase values, and ISIN codes against your AIS. Any unexplained mismatch between what your broker reports and what is shown in your ITR will trigger an automated query from the tax portal.
Additionally, remember that S ection 87A tax rebates do not apply to special-rate capital gains such as STCG (under Section 111A) and LTCG (under Section 112A) . Therefore, even if your total net taxable income falls below the tax-free threshold, you will still owe the flat tax percentages on your stock market gains.
Also Read - Long-Term Capital Gain Tax: Exemptions Available in AY 2026-27
FAQs
What is the tax rate on short-term capital gains (STCG) from shares for AY 2026-27?
STCG on listed equity shares and equity-oriented mutual funds (held ≤12 months) is taxed at 20% under Section 111A, increased from 15% in Budget 2026.
What is the tax rate on long-term capital gains (LTCG) from shares for AY 2026-27?
LTCG on listed equity shares and equity-oriented mutual funds (held >12 months) is taxed at 12.5% on gains exceeding ₹1.25 lakh exemption limit.
Is the ₹1.25 lakh LTCG exemption available for all taxpayers?
Yes, the ₹1.25 lakh exemption is available for resident individuals and HUFs. Nonresidents also get this benefit for equity assets.
How is intraday trading income taxed for AY 2026-27?
Intraday trading is treated as speculative business income and taxed at your applicable slab rate (not capital gains rate). It must be reported under "Income from Business/Profession".
Is F&O (Futures & Options) trading treated as capital gains?
No. F&O trading is classified as non-speculative business income and taxed at slab rates. It's reported under "Income from Business/Profession," not capital gains.
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