Taxation · Capital Gains

Tax Rates on Capital Gains and Securities Transactions (CA Intermediate Taxation)

Updated 4 October 2026 · Fact-checked

Capital gains are taxed at special rates, not slab rates. For listed equity shares and equity-oriented fund units with STT paid, short-term gains are taxed at 20% and long-term gains at 12.5% on the amount above ₹1,25,000 a year. Other long-term gains are generally taxed at 12.5%. Compute each gain, apply its rate, then add cess.

Understand Tax Rates on Capital Gains and Securities Transactions

A capital gain is taxed at a rate fixed by law for that type of asset and holding period. It is not added to your slab income for rate purposes. So the first job is to classify the gain: short-term or long-term, and whether it is a listed security on which securities transaction tax (STT) was paid.

Securities transaction tax (STT) is a tax paid on trades in listed securities on a recognised stock exchange, and on redemption of equity-oriented fund units. It is not allowed as a deduction when you compute the gain. Its link to capital gains is that the concessional rates for listed equity shares and equity-oriented funds apply only when STT has been paid on the transfer.

For the tax year 2026-27, the main rates are these. Short-term gain on listed equity shares, units of an equity-oriented fund or units of a business trust, with STT paid: 20%. Long-term gain on the same assets, with STT paid: 12.5%, but only on the total long-term gain of the year above ₹1,25,000. Other long-term gains, such as unlisted shares or land and buildings: generally 12.5% without indexation. Other short-term gains are added to your total income and taxed at normal slab rates.

A resident individual or HUF may have unused basic exemption limit. If their other income is below the exemption limit, the shortfall can be set against capital gains taxed at special rates (the 20% and 12.5% gains). A non-resident cannot do this.

Holding period decides short or long. Listed securities are long-term if held more than 12 months. Most other assets, including unlisted shares and land and buildings, need more than 24 months. Some assets, such as specified debt mutual fund units, are treated as short-term whatever the holding period, so check the Short-term and Long-term Capital Assets topic.

Key rules to remember

Short-term gain on listed equity (STT paid): Tax = 20% × short-term gain; Applies to listed equity shares, equity-oriented fund units and business trust units where STT is paid on transfer.
Long-term gain on listed equity (STT paid): Tax = 12.5% × (total long-term gain of the year − ₹1,25,000); The ₹1,25,000 is one threshold for the whole year across all such gains, not per transaction. If the gain is below it, tax is nil. No indexation.
Other long-term gains: Tax = 12.5% × long-term gain (no indexation); For example unlisted shares and land or buildings. The ₹1,25,000 threshold does not apply. Check the transitional option for land and buildings acquired before 23 July 2024 if the question gives it.
Other short-term gains: Added to total income, taxed at slab rates; For example short-term gain on shares sold without STT, or on gold.
Grandfathering for assets acquired before 1 February 2018: Cost = higher of (actual cost, lower of (fair market value on 31 January 2018, full value of consideration)); Applies to a long-term capital asset that is an equity share, a unit of an equity-oriented fund or a unit of a business trust, acquired before 1 February 2018 and covered by the concessional long-term rate. It cannot create a loss.
Basic exemption adjustment: Shortfall = basic exemption limit − other income; deduct shortfall from the special-rate gains, then apply rates; Only for a resident individual or HUF. Adjust the shortfall first against the gain taxed at the higher rate (the 20% short-term gain), then against the 12.5% gain, so the assessee gets the maximum benefit. Show each step clearly.
Total tax payable: (Tax on normal income + tax on each special-rate gain) + surcharge if any, then + 4% health and education cess; STT is never deducted from the gain.

How to solve Tax Rates on Capital Gains and Securities Transactions questions

Use this order for any question on tax rates for capital gains.

1List every transfer. For each, find the holding period and mark the gain short-term or long-term.
2Check whether it is a listed equity share, equity-oriented fund unit or business trust unit, and whether STT was paid on the transfer. Note any condition given in the question.
3Compute each gain with the right cost (apply grandfathering where relevant). Do not deduct STT.
4Set off losses as per the rules, then take the net gain under each rate bucket.
5For long-term gain on listed equity with STT, subtract ₹1,25,000 once for the year, not per transaction.
6Compute normal income and tax at slab rates. If you are a resident individual or HUF and normal income is below the exemption limit, adjust the shortfall against special-rate gains.
7Apply 20%, 12.5% or slab rates to each part. Add surcharge if due, then 4% cess.
8Show the final tax payable in a short table or list, with the rate beside each amount.

Quickest way: Rate bucket method

When to use it: For MCQs and for the written answer when time is short.

Make four buckets: 20% (short-term listed equity with STT), 12.5% with the ₹1,25,000 threshold (long-term listed equity, equity-oriented fund units and business trust units with STT), 12.5% without any threshold (other long-term gains such as unlisted shares and land or buildings), and slab rates (other short-term gains).
Put each gain in a bucket. Take ₹1,25,000 off the total of the threshold bucket only, once for the year.
MCQ trick: if an option ignores the ₹1,25,000 threshold for listed equity, applies it to unlisted shares or land, or uses indexation for shares, eliminate it.
Check whether the person is a resident individual or HUF with unused exemption. If so, reduce the gains before applying rates.
Written format: Computation of gain, Classification, Tax at each rate, Cess, Total. Step marks are given for the rate used and the threshold shown separately, so write these on separate lines.

Common mistakes in Tax Rates on Capital Gains and Securities Transactions

Deducting ₹1,25,000 from each sale.
The exemption sounds like a per-transaction relief.
Fix: Add all long-term gains on listed equity and equity-oriented funds for the year, then deduct ₹1,25,000 once.
Applying 20% or 12.5% when STT was not paid.
Students remember the rate and forget the condition.
Fix: Read the question for STT. If STT was not paid on the transfer, the gain falls outside the concessional regime for listed equity. Short-term gain is then taxed at slab rates. Long-term gain is taxed at 12.5% without the ₹1,25,000 exemption and without indexation.
Deducting STT as an expense while computing the gain.
STT feels like a transaction cost like brokerage.
Fix: STT is not deductible. Only expenditure wholly and exclusively connected with the transfer, such as brokerage, is.
Allowing basic exemption adjustment to a non-resident, or adjusting it against normal income that is already above the limit.
The rule is remembered without its conditions.
Fix: Allow it only to resident individuals and HUFs, and only for the shortfall of the exemption limit over other income.
Using the old 1961 Act wording such as assessment year.
Older notes and videos use the previous law.
Fix: Write tax year 2026-27 and keep to the Income-tax Act, 2025 terms.
Forgetting 4% cess at the end.
Students stop once the rate is applied.
Fix: Add cess on tax plus surcharge as the last line of every answer.

Worked examples

Example 1

Mr. A, a resident individual, has the tax year 2026-27 income of interest ₹1,50,000 and long-term capital gain of ₹4,25,000 on listed equity shares sold on a recognised stock exchange with STT paid. Assume he follows the new tax regime with basic exemption of ₹4,00,000 and no other income. Compute tax payable. This example tests only the basic exemption adjustment, so do not consider any rebate.

Show the solution

The gain is long-term listed equity with STT paid, so the rate is 12.5% on the amount above ₹1,25,000.
Shortfall of basic exemption = ₹4,00,000 − ₹1,50,000 = ₹2,50,000 (A is a resident individual).
Adjust the shortfall first against the long-term gain: ₹4,25,000 − ₹2,50,000 = ₹1,75,000.
Then deduct the ₹1,25,000 threshold: ₹1,75,000 − ₹1,25,000 = ₹50,000. This is the long-term gain chargeable at 12.5%.
Tax = 12.5% × ₹50,000 = ₹6,250. Tax on the interest is nil.
Cess = 4% × ₹6,250 = ₹250.

Answer: Tax payable including cess = ₹6,500.

Example 2

Ms. B, a resident individual under the new regime, has taxable salary of ₹10,00,000 in the tax year 2026-27. She also has a short-term capital gain of ₹80,000 on listed equity shares sold on a recognised stock exchange with STT paid, and a long-term capital gain of ₹2,00,000 on unlisted shares held for 30 months. Compute tax payable. Assume no rebate applies.

Show the solution

Use the new-regime slabs for tax year 2026-27: nil up to ₹4,00,000; 5% on ₹4,00,001 to ₹8,00,000; 10% on ₹8,00,001 to ₹12,00,000. Her total income is above ₹12,00,000, so no rebate applies.
Unlisted shares held for 30 months (more than 24) are long-term. The gain is taxed at 12.5% without indexation. The ₹1,25,000 threshold does not apply to it.
Total income = ₹10,00,000 + ₹80,000 + ₹2,00,000 = ₹12,80,000. Surcharge does not apply as income is below ₹50,00,000.
Her normal income of ₹10,00,000 is above the basic exemption, so there is no shortfall to adjust against the gains.
Tax on normal income of ₹10,00,000: 5% × ₹4,00,000 = ₹20,000; 10% × ₹2,00,000 = ₹20,000. Total ₹40,000.
Short-term gain on listed shares with STT: 20% × ₹80,000 = ₹16,000.
Long-term gain on unlisted shares: 12.5% × ₹2,00,000 = ₹25,000.
Tax before cess = ₹40,000 + ₹16,000 + ₹25,000 = ₹81,000.
Cess = 4% × ₹81,000 = ₹3,240.

Answer: Tax payable including cess = ₹84,240.

Exam tips

Always state the rate and the condition together in your answer, for example '12.5% as STT is paid'. Examiners give marks for both.
Show the ₹1,25,000 deduction as a separate line. A correct threshold line earns a step mark even if you slip later.
In MCQs, check the person first. Resident individual, non-resident or company changes whether basic exemption adjustment applies.
Read the holding period carefully. A share held exactly 12 months is not long-term as the test is more than 12 months.
In the comprehensive problems, compute capital gains tax on a separate sheet and add it to the tax on normal income at the end.

Practice questions from Capital Gains

Tax Rates on Capital Gains and Securities Transactions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Rates on Capital Gains and Securities Transactions: frequently asked questions

What is the long term capital gains tax rate on listed shares for CA Intermediate?

It is 12.5% on the long-term gain above ₹1,25,000 in the year, provided STT is paid as required. No indexation is allowed. Add 4% cess to the tax.

What is the short term capital gain tax rate on equity shares?

For listed equity shares sold on a recognised stock exchange with STT paid on the transfer, it is 20%. If the STT conditions are not met, the gain is treated as an ordinary gain: short-term gain is taxed at slab rates and long-term gain at 12.5% without the ₹1,25,000 exemption.

How does securities transaction tax link to capital gains?

The concessional rates apply only to transactions on which the STT conditions are met. STT itself is not deducted while computing the gain. So read the question for whether STT was paid before choosing the rate.

Can the basic exemption limit be used against capital gains?

Yes, for a resident individual or HUF. If other income is below the exemption limit, the shortfall reduces the gains taxed at special rates, first the gain taxed at the higher rate and then the 12.5% gain. A non-resident cannot claim this.