One date, two regimes
For a listed equity share sold on a recognised exchange with securities transaction tax paid — which is every ordinary trade you have met in this book — the gain falls into one of two categories, decided by how long you held it.
Twelve months or less: a short-term capital gain. More than twelve months: a long-term capital gain. That is the entire test. Not the size of the profit, not whether you traded actively, not your income. The holding period.
The two are taxed at different rates, and the long-term category also carries an annual exemption — a slice of long-term gains across all your equity in a financial year that is not taxed at all.
There is one thing equity notably does not get: indexation. For some other assets you may adjust the purchase price for inflation before computing the gain. For listed equity under this regime you may not, so a share that merely kept pace with inflation still shows a taxable gain.
The rates, and the date you must check them on
On the date this lesson was checked, the rates on listed equity with STT paid were 20% on short-term gains and 12.5% on long-term gains above an annual exemption of ₹1.25 lakh, with surcharge and cess applied on top of both.
Write those numbers down as the rates in September 2026, not as facts about the world. They were changed materially in July 2024, and a budget can change them again in any year. Every rate in this chapter comes with the same instruction: verify before you rely on it.
What does not change from year to year is the shape — a holding period that sorts gains into two buckets, a lower rate on the longer bucket, an exemption attached to it, and no inflation adjustment. Learn the shape; look up the numbers.
- Sold at 11 months · short-term
- 20% of ₹3,00,000
- Tax on the short-term gain
- ₹60,000
- Sold at 13 months · long-term
- first ₹1,25,000 exempt
- Taxable long-term gain
- ₹1,75,000
- Tax at 12.5%
- ₹21,875
A date on a contract note is worth more than most of the analysis that chose the share.
Losses are worth something, but only if you file
Losses are not merely an absence of gain. They are an asset in the tax computation, and most small investors throw them away by not knowing this.
A short-term capital loss can be set off against short-term or long-term capital gains. A long-term capital loss can only be set off against long-term gains. Whatever cannot be used this year may be carried forward for eight assessment years and used later.
The condition is the part people miss. Carrying a loss forward requires the return to be filed by the due date for that year. Miss the deadline and the loss is simply gone, however carefully you recorded it.
So a losing year is worth filing properly even when there is no tax to pay, which is not an obvious sentence to anyone who has never had a losing year.
Dividends are a different tax again
01.07.01 gave Bharat Foods a dividend of ₹4 a share, so your ten shares receive ₹40 in a year. That ₹40 is not a capital gain and is not taxed under either regime above.
Since 2020 dividends are taxed in the hands of the investor at their own slab rate, and the company deducts tax at source above a threshold before paying. For someone in a high slab, the dividend is taxed more heavily than a long-term capital gain on the same money — which is a genuine consideration, and also one people wildly overweight on ₹40.
The point worth carrying is narrower: the return from a share arrives in two forms and they are taxed under different rules. Part 15 needs that when it separates what a business pays out from what it retains.
What this must not be allowed to do
There is an obvious trap in a rule with a cliff in it, and it is worth naming before you meet it.
Holding a share you have decided to sell, purely to cross the twelve-month line, is a decision to accept market risk in exchange for a tax saving. Sometimes the arithmetic favours it. Often the share moves more in the waiting weeks than the tax difference was ever worth, and the saving is paid for several times over.
The tax tail is not supposed to wag the investment dog — and the version of this that costs most is subtler: holding a loser because selling would make the loss real. That is not tax planning. Part 17 has a name for it, and it is not a flattering one.