Stock Market Basics · Lesson 11 of 14 · Updated October 2026 · 7 min read
Profits from shares are taxed, and the rate depends on how long you held them. Knowing the rules helps you avoid surprises and plan sales sensibly.
In short: Sell listed shares within 12 months and the gain is taxed at 20%. Hold them longer and gains above ₹1.25 lakh a year are taxed at 12.5%. Dividends are taxed at your slab rate. Cess is added on top. Budget 2026 did not change these rates.
Short-term vs long-term
| Short-term (STCG) | Long-term (LTCG) | |
|---|---|---|
| Holding period | 12 months or less | More than 12 months |
| Tax rate | 20% | 12.5% on gains above ₹1.25 lakh in a financial year |
| Plus | 4% cess (and surcharge if applicable) | 4% cess (and surcharge if applicable) |
These rates apply to listed equity shares and equity mutual funds on which STT has been paid.
Worked examples
Short-term: you buy shares for ₹1,00,000 and sell them after 6 months for ₹1,30,000. Gain = ₹30,000. Tax at 20% = ₹6,000, plus 4% cess = ₹6,240.
Long-term: you sell shares held for 3 years with a total gain of ₹2,00,000 in the year. The first ₹1,25,000 is exempt. Tax at 12.5% on ₹75,000 = ₹9,375, plus 4% cess = ₹9,750.
Dividends
Dividends are added to your income and taxed at your slab rate. The company deducts 10% TDS when dividends from it cross ₹10,000 in a financial year; you claim that credit in your return.
Losses
- A short-term capital loss can be set off against both short-term and long-term gains.
- A long-term capital loss can only be set off against long-term gains.
- Unused losses can be carried forward for 8 years, but only if you file your income tax return on time.
Trading income is different
Intraday trading and futures and options are not treated as capital gains. They are business income, taxed at your slab rate, with separate rules for accounts and audits. Speak to a chartered accountant if you trade.
STT
Securities transaction tax (STT) is charged automatically on each trade: 0.1% on both buying and selling shares for delivery, and 0.025% on the sell side for intraday. It is not deductible when you calculate capital gains.
Common questions
Do I pay tax if I don’t sell?
No. Capital gains tax applies only when you sell. Dividends are taxed when received.
Can I use the ₹1.25 lakh exemption every year?
Yes. It applies to long-term gains in each financial year. Some investors sell and rebuy to use it; check the costs before you do.
This is general information, not tax advice. Rules can change; check the latest with a tax professional.
Next lesson: Share Trading Charges in India: What Each Trade Really Costs → · See all 14 stock market lessons
Education, not investment advice. Figures and rules as of October 2026; check the latest before you act.