NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Taxation (NISM XXI-A)

Capital Gains Taxation on Securities for NISM XXI-A

Updated 11 October 2026 · Fact-checked

Capital gains tax applies to profit on selling securities. The holding period decides short-term or long-term. For listed shares, more than 12 months is long-term. Listed equity with STT paid: short-term gain 20%, long-term gain 12.5% above ₹1,25,000 a year. Losses are set off against gains using fixed rules.

Understand Capital Gains Taxation on Securities

A capital gain is the profit you make when you sell a capital asset such as shares, bonds or mutual fund units. It is the sale price less the cost of acquisition and transfer expenses. The gain is taxed in the year of sale, not while you hold the asset.

The holding period splits gains into two types. A short-term capital gain (STCG) comes from an asset held for a short period. A long-term capital gain (LTCG) comes from an asset held longer. For listed shares, listed bonds and equity mutual fund units, the cut-off is 12 months: held for more than 12 months is long-term. For unlisted shares and most other assets, the cut-off is 24 months.

The rates depend on the type of gain and the asset. On listed equity shares and equity-oriented mutual fund units sold on a recognised exchange or redeemed, with securities transaction tax (STT) paid, STCG is taxed at 20% and LTCG at 12.5% on gains above ₹1,25,000 in a financial year. For other long-term assets, including listed bonds, LTCG is taxed at 12.5% with no indexation benefit. Short-term gains on assets without a special rate are taxed at the investor's slab rate. Surcharge and cess are added on top. These rules apply to transfers on or after 23 July 2024.

Indexation adjusted the purchase cost for inflation. It is no longer available for securities. Some debt-oriented mutual fund units bought on or after 1 April 2023 are treated as short-term whatever the holding period and taxed at the slab rate. Market linked debentures are also deemed short-term. Always check the instrument before applying the 12-month rule.

Losses follow strict rules. A short-term capital loss can be set off against both short-term and long-term gains. A long-term capital loss can be set off only against long-term gains. Unabsorbed capital losses can be carried forward for 8 assessment years, and only against capital gains, if the return is filed by the due date. STT is a tax paid on certain transactions on a recognised exchange. It is not allowed as a deduction when you compute the gain.

Key formulas to remember

Capital gain: Capital gain = Sale value − (Cost of acquisition + Transfer expenses); Brokerage and similar costs of sale reduce the gain. STT is not deductible.
Holding period for listed securities: Long-term if held for more than 12 months; otherwise short-term; Applies to listed shares, equity MF units, listed bonds. Unlisted shares and most other assets need more than 24 months.
Listed equity with STT paid: STCG tax = 20%; LTCG tax = 12.5% × (LTCG − ₹1,25,000); The ₹1,25,000 exemption is for the whole financial year, not per share. Surcharge and cess extra.
Other long-term gains: LTCG tax = 12.5% without indexation; Applies to listed bonds and similar assets. Indexation is not available on securities.
Deemed short-term debt funds: Gain taxed at slab rate regardless of holding period; For specified debt mutual fund units bought on or after 1 April 2023, and market linked debentures.
Set-off of losses: STCL → STCG or LTCG; LTCL → LTCG only; Capital losses cannot be set off against other income such as salary.
Carry forward of losses: Carry forward up to 8 assessment years, against capital gains only; The return must be filed by the due date.
STT on equity delivery: 0.1% on buy value and 0.1% on sell value; Intraday sell side is 0.025%. STT is not deductible when computing gains.

How to solve Capital Gains Taxation on Securities questions

Use the same order for every capital gains question. It stops you mixing up rates and loss rules.

1Identify the security: listed share, equity MF unit, debt fund, listed bond, unlisted share or market linked debenture.
2Count the holding period from the date of purchase to the date of sale. Compare it with 12 months for listed securities or 24 months for unlisted ones.
3Check for special cases: debt funds bought on or after 1 April 2023 and market linked debentures are deemed short-term.
4Compute each gain: sale value less cost less transfer expenses. Do not deduct STT.
5Group gains and losses into STCG, LTCG, STCL and LTCL for equity and for other assets.
6Set off losses: STCL first against STCG, then the rest against LTCG. LTCL only against LTCG.
7Apply the ₹1,25,000 exemption to net equity LTCG, then apply 20% or 12.5% as the question requires.
8Add surcharge and cess only if the question asks. Otherwise state the tax before them.
9

Quickest way: Three-check shortcut

When to use it: Use it for one-line MCQs on classification, rates or loss set-off.

Check one: is it listed? If yes, use 12 months. If not, use 24 months.
Check two: is it a special case such as a debt fund bought on or after 1 April 2023? If yes, slab rate.
Check three: for losses, remember that a long-term loss only meets long-term gains.
Then recall the rates: 20% short-term and 12.5% long-term above ₹1,25,000 for listed equity with STT.

Common mistakes in Capital Gains Taxation on Securities

Using 36 months or indexation for listed securities.
Older rules gave indexation and longer limits for debt assets.
Fix: For securities transferred on or after 23 July 2024, use 12 months for listed ones and no indexation.
Applying the ₹1,25,000 exemption to each share or each trade.
Students read it as a per-transaction relief.
Fix: It is one limit for total equity LTCG in the financial year.
Setting off a long-term loss against short-term gains.
Students assume any loss can meet any gain.
Fix: Only a short-term loss can meet both. Long-term loss meets long-term gain only.
Deducting STT while calculating the gain.
STT feels like a transaction cost.
Fix: STT is never deducted. Only brokerage-type transfer expenses reduce the gain.
Treating all mutual fund units like equity shares.
Both are units or securities bought through the market.
Fix: Check whether the fund is equity-oriented. Specified debt fund units bought on or after 1 April 2023 are taxed at slab rate.
Assuming losses can be carried forward without filing a return.
Students focus on the 8-year limit only.
Fix: Carry forward needs the return to be filed by the due date.

Worked examples

Example 1

Rahul bought listed equity shares on 10 January 2023 and sold them on 15 March 2025 on the exchange with STT paid. His gain is ₹3,00,000. He has no other gains. Find the tax before surcharge and cess.

Show the solution

Holding period is more than 12 months, so the gain is long-term.
The shares are listed and STT was paid, so LTCG is taxed at 12.5% above ₹1,25,000.
Taxable LTCG = ₹3,00,000 − ₹1,25,000 = ₹1,75,000.
Tax = 12.5% × ₹1,75,000 = ₹21,875.

Answer: ₹21,875, before surcharge and cess.

Example 2

In a financial year an investor has equity STCG ₹40,000, equity LTCG ₹2,00,000, short-term capital loss ₹70,000 and long-term capital loss ₹50,000. Find the tax on long-term gains.

Show the solution

Set off STCL ₹70,000 against STCG ₹40,000. STCG becomes nil and ₹30,000 of STCL remains.
Set off the remaining STCL ₹30,000 against LTCG. LTCG becomes ₹2,00,000 − ₹30,000 = ₹1,70,000.
Set off LTCL ₹50,000 against LTCG. LTCG becomes ₹1,70,000 − ₹50,000 = ₹1,20,000.
Net LTCG ₹1,20,000 is below the ₹1,25,000 exemption, so taxable LTCG is nil.

Answer: No tax is payable on long-term gains. Net LTCG is ₹1,20,000, within the exemption.

Exam tips

Memorise the 12-month and 24-month holding periods and the 20% and 12.5% rates. Many questions test only these.
Read the date of transfer. Rates changed for transfers on or after 23 July 2024.
In loss questions, always set off short-term loss first, and keep long-term loss for long-term gains.
Watch for words such as listed, unlisted, equity-oriented and debt-oriented. They change the rule.
With negative marking of 10%, answer only when you can place the security and rule clearly.

Practice questions from Taxation (NISM XXI-A)

Capital Gains Taxation on Securities in other exams

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

Capital Gains Taxation on Securities: frequently asked questions

What is the holding period for long-term capital gains on shares in India?

For listed shares, more than 12 months makes the gain long-term. For unlisted shares, the holding must be more than 24 months. Holding periods are counted from the purchase date to the sale date.

Can I set off capital losses against other income?

No. Capital losses can be set off only against capital gains. A short-term loss can meet short-term or long-term gains. A long-term loss can meet only long-term gains.

How long can capital losses be carried forward?

Unabsorbed capital losses can be carried forward for 8 assessment years. You can use them only against capital gains. You must file your return by the due date to claim the carry forward.

What is STT and is it deductible?

Securities transaction tax is a tax on specified transactions on a recognised exchange. It is not deductible while computing capital gains. The 20% and 12.5% special rates on listed equity apply where STT has been paid.

Is indexation available on securities now?

No. For securities transferred on or after 23 July 2024, the purchase cost is not indexed. Long-term gains on other assets such as listed bonds are taxed at 12.5% without indexation.