Sold shares or redeemed mutual fund units during FY 2026–27? Before calculating your tax, check what you sold, how long you held it and whether the transaction qualifies for the special equity capital-gains rate. A listed share sold after eight months is usually taxed differently from a debt mutual fund redeemed after three years. The fact that both are investments does not make their tax treatment identical.
Quick answer: For qualifying short-term gains from STT-paid listed equity shares and equity-oriented mutual funds, the base tax rate is 20%, plus applicable surcharge and 4% health and education cess. Gains from certain debt-oriented mutual funds are generally taxed at the investor's applicable slab rates instead. The relevant statute for Tax Year 2026–27 (1 April 2026 to 31 March 2027) is the Income-tax Act, 2025.
FY 2026–27 is not the same as AY 2026–27. Income earned during FY 2026–27 falls under Tax Year 2026–27 of the Income-tax Act, 2025. AY 2026–27 relates to income earned during FY 2025–26 and continues under the Income-tax Act, 1961. Check which year you are calculating before relying on a tax article or ITR example. Income Tax Department explanation Official ↗.
Short-term capital gains tax rates in India for Tax Year 2026–27
| Investment or transaction | When is the gain short-term? | Broad tax treatment | Check before applying |
|---|---|---|---|
Listed Indian equity shares sold with applicable STT | Held for 12 months or less | 20% special rate | Must meet conditions for Section 196 of the 2025 Act (earlier Section 111A) |
Equity-oriented mutual funds with applicable STT | Units held for 12 months or less | 20% special rate | Scheme must qualify as equity-oriented under the tax law |
Units of business trusts satisfying special-rate conditions | Generally 12 months or less when listed | 20%, if eligible | Transaction and STT conditions matter |
Specified debt-oriented mutual fund units acquired on/after 1 April 2023 | Deemed short-term, even when held longer | Applicable tax slab/rate | Section 76 definition and acquisition date |
Other mutual funds, including some hybrid and gold-oriented schemes | Depends on fund type, listing and law | Special equity rate does not automatically apply | Check scheme classification and dates |
Unlisted equity shares | Generally held for 24 months or less | Applicable slab/rate for individuals | Special listed-equity 20% rule normally does not apply |
Physical gold or immovable property | Generally held for 24 months or less | Applicable slab/rate for individuals | Different cost and reporting rules may apply |
Remember: 20% is the base income-tax rate, not necessarily the final amount deducted from your investment proceeds. Surcharge, where applicable, and 4% cess can increase the actual tax. A resident individual or HUF with unused basic exemption may qualify for the statutory adjustment explained below.
Source: Income-tax Act, 2025, amended by Finance Act, 2026 Official ↗, particularly Sections 196, 198 and 76; Income Tax Department capital-gains guidance Official ↗.
Three figures to remember
Special equity STCG rate
20%
When the statutory and STT conditions are satisfied
Eligible equity holding period
12 months
A sale after this period may be long-term
Health and education cess
4%
Applied to income tax and applicable surcharge
What counts as a short-term capital gain?
A capital gain is broadly the profit on transferring a capital asset. Whether it is short-term or long-term depends on the asset and its period of holding. The critical dates are normally acquisition and transfer, rather than the date you withdraw the money from your trading account.
For eligible listed shares, selling within twelve months generally produces STCG. For eligible equity-oriented mutual funds, redemption within twelve months ordinarily produces STCG. The holding period is assessed lot by lot, not by looking only at the age of the entire demat account or SIP portfolio.
A common SIP mistake
Suppose you invest ₹5,000 each month in an equity mutual fund for two years and redeem part of the holding today. Some units may have been owned for more than twelve months; later instalments may have been held for twelve months or less. As a result, the same redemption can contain both long-term and short-term gains. Obtain the fund house's lot-wise capital-gains statement rather than applying 20% to the whole profit.
Why demat FIFO matters
For dematerialised securities, first-in, first-out (FIFO) principles are used to identify the units disposed of and their cost/holding period. This means the earliest relevant purchases are generally matched first when you sell. Your broker's capital-gains report can help, but reconcile corporate actions, transferred holdings and different demat accounts. Income Tax Department: sale of shares Official ↗.
How to calculate short-term capital gains tax: worked examples
The basic computation starts with your actual gain, not the entire sale proceeds.
Capital gain = Sale consideration − eligible transfer expenses − cost of acquisition − eligible cost of improvement (where relevant).
Acquisition cost can include eligible purchase-related expenses; sale brokerage and other expenses incurred wholly and exclusively for transfer may qualify as transfer expenses. Securities Transaction Tax (STT) is not deductible when computing capital gains. The exact treatment of individual charges should be checked against transaction statements and the tax rules.
Example 1: selling listed shares after eight months
Assume a resident investor purchases shares for ₹2,00,000 and sells them eight months later for ₹3,00,000. For simplicity, eligible charges are assumed to be nil, and the investor has sufficient other income so no basic-exemption adjustment applies.
| Calculation | Amount |
|---|---|
| Sale proceeds | ₹3,00,000 |
| Purchase cost | ₹2,00,000 |
| Short-term gain | ₹1,00,000 |
| Income tax at 20% | ₹20,000 |
| Cess at 4% (no surcharge assumed) | ₹800 |
| Illustrative tax on the gain | ₹20,800 |
This ₹20,800 is not a universal bill for every person with a ₹1 lakh gain. Other income, residential status, losses, exemption adjustments and applicable surcharge can change the result.
Example 2: a loss reduces the gain
Imagine you earned ₹1,00,000 STCG on one listed shareholding and realised a qualifying ₹40,000 short-term capital loss on another capital asset in the same year.
- Short-term gains: ₹1,00,000
- Eligible short-term loss set off: ₹40,000
- Net short-term gains, ignoring other transactions: ₹60,000
- 20% tax, assuming the entire balance qualifies for the special rate: ₹12,000
- 4% cess with no surcharge: ₹480
- Illustrative total: ₹12,480
Check the loss category and the statutory set-off sequence before using this method. Losses from speculative intraday trading and derivatives are not interchangeable with capital losses.
Example 3: equity mutual fund SIP redemption
You redeem ₹1,50,000 from an equity-oriented mutual fund. Its detailed tax statement divides the redeemed lots into a ₹30,000 qualifying short-term gain and a ₹20,000 qualifying long-term gain. They are reported separately. The short-term part is assessed under the special STCG rule, while the long-term part is considered under the relevant long-term rule and the annual Section 198 threshold, alongside any other eligible long-term equity gains.
The ₹1.25 lakh annual threshold applies to qualifying long-term equity gains under the relevant law. It is not an exemption for short-term equity gains. Income-tax Act, 2025 Official ↗.
How debt mutual funds are taxed in 2026–27
This is where a general “all mutual funds pay 20% STCG” article can seriously mislead readers.
Under Section 76 of the Income-tax Act, 2025 (corresponding broadly to the earlier Section 50AA), a specified mutual fund acquired on or after 1 April 2023 is treated as generating short-term capital gains, even if the units were held for more than the normal long-term holding period. Those gains are generally taxed at applicable rates, not the special 20% listed-equity rate.
For this purpose, the updated definition focuses on funds investing more than 65% in debt and money-market instruments, or qualifying funds investing at least 65% in units of such funds, subject to the statutory calculation method. Some hybrid, international or gold-oriented funds may fall outside this definition; their treatment should be analysed separately rather than lumped together as “debt mutual funds”.
Example: You invested ₹4,00,000 in a qualifying specified debt fund in June 2023 and redeemed it for ₹4,60,000 in September 2026. The ₹60,000 gain is deemed short-term under this rule, even though you held the units for over three years. The actual tax depends on the investor's applicable tax rates and circumstances.
Older investments require care. If you acquired units before 1 April 2023, you should not automatically apply this deemed-STCG rule without checking their acquisition date, the scheme classification and the applicable transitional provisions.
Source: Section 76, Income-tax Act, 2025 Official ↗; Income Tax Department guidance on capital gains Official ↗.
Can you use the basic exemption limit or Section 87A rebate against STCG?
These are different provisions, and they should never be treated as interchangeable.
Unused basic exemption limit
For a resident individual or HUF, the special equity-STCG provision allows qualifying gains to be reduced by the unused part of the basic exemption limit when the other taxable income is below that limit. This adjustment is not the same as a rebate. It depends on the taxpayer's status, tax regime and income composition.
Section 87A rebate is not a blanket waiver of 20% STCG
The enhanced new-regime rebate for eligible resident individuals is subject to restrictions concerning special-rate income. A person's total income being within ₹12 lakh does not mean that the 20% tax on qualifying equity STCG automatically disappears. Work out normal-rate income and special-rate income separately before applying the rebate provision.
Illustration: A taxpayer has ₹8 lakh of normal taxable income and ₹1 lakh of qualifying STCG. Even if the tax on normal-rate income may be covered by the applicable new-regime rebate, special-rate tax on the equity gain still requires separate calculation. Do not assume the entire ₹9 lakh is tax-free.
Sources: Income Tax Department tax-rate guidance Official ↗; Income-tax Act, 2025, Sections 156 and 196 Official ↗.
Capital losses: what you can set off and carry forward
A realised capital loss can sometimes reduce your taxable capital gains, but different losses have different restrictions.
| Loss type | Generally can be set off against | Can it reduce salary? |
|---|---|---|
Short-term capital loss (STCL) | Eligible short-term and long-term capital gains | No |
Long-term capital loss (LTCL) | Eligible long-term capital gains only | No |
Speculative intraday trading loss | Eligible speculative business income, subject to separate rules | No |
F&O business loss | Subject to business-loss provisions; not treated as STCL | Not by simply calling it a capital loss |
Unabsorbed eligible capital losses are generally available for carry-forward for up to eight tax years, subject to statutory conditions. Timely and correct return filing is important for preserving that benefit. A portfolio statement showing an unrealised paper loss is not the same as a realised capital loss from a transfer.
Do not sell securities purely because you saw a tax-saving video. Before attempting tax-loss harvesting, consider transaction expenses, market risk, genuine economic purpose and the rules on classification and loss set-off. Recheck the tax position if you buy the same security again.
Are intraday stock trades and F&O taxed as capital gains?
Not ordinarily. A delivery-based investment sale and a trading-business transaction can have different heads of income.
- Intraday equity trading is generally treated as speculative business activity for income-tax purposes.
- Recognised-exchange futures and options (F&O) are generally treated as non-speculative business transactions, subject to statutory conditions.
- Delivery-based share investments may be capital assets, but facts and consistent treatment matter where a taxpayer actively carries on share trading as a business.
Do not put intraday or F&O profit automatically into the 20% equity-STCG row. Their treatment can affect your tax rate, business-expense claims, audit considerations and the form needed for return filing.
Which ITR form and records will you need?
For AY 2026–27, the existing ITR framework generally uses ITR-2 for individuals/HUFs with capital gains but no business or professional income, and ITR-3 where business or professional income is present, subject to full eligibility conditions. Official ITR-2 FAQ Official ↗.
For Tax Year 2026–27, the filing obligation arises after 31 March 2027 under the new Act. Use the forms and instructions notified for that Tax Year, rather than assuming that an older year's ITR-2 or ITR-3 utility is automatically the correct current-year form. Income Tax Department transition FAQ Official ↗.
Documents checklist
- ○ Broker capital-gains statements and contract notes
- ○ Mutual fund lot-wise capital-gains statement and SIP transaction records
- ○ Consolidated account statement and relevant demat account records
- ○ AIS/TIS and any available tax-credit statements, reconciled with transactions
- ○ Details of corporate actions, bonuses, splits and transferred shares
- ○ Earlier tax-year loss schedules and filed returns, if carrying forward losses
- ○ Tax-payment challans and advance-tax computation, where applicable
Cross-check sale value, purchase cost, holding period, fund classification and earlier losses rather than blindly copying an aggregate amount from a broker dashboard. TaxQue's guide to capital gains tax and documents for filing an ITR can help you organise the information.
Advance tax: what happens if you earn a large gain mid-year?
Capital-gains income is relevant to advance tax where the total estimated tax payable meets the statutory threshold. Because gains can arise unexpectedly, the law provides special treatment when calculating instalment shortfall interest for capital gains arising after earlier instalment dates, subject to payment of tax in the remaining instalment(s) or by the end of the tax year as applicable.
Example: You unexpectedly realise a sizeable gain in December. Recalculate estimated full-year liability promptly and check the next advance-tax instalment rather than assuming you can wait until filing your return without any interest consequences. Income Tax Department's tax calculator and guidance Official ↗.
Seven common mistakes when reporting short-term capital gains
- Applying 20% to every mutual fund. Fund classification and acquisition date can change the result.
- Confusing AY 2026–27 with Tax Year 2026–27. The governing Acts differ.
- Treating all SIP units as the same age. Each purchase lot needs a holding-period check.
- Deducting STT from capital gains. STT is not an allowable deduction for this purpose.
- Claiming Section 87A rebate against the 20% special tax without checking the exclusion.
- Mixing trading business losses with investment capital losses. The set-off provisions differ.
- Filing without matching broker and fund statements to reported transactions. Mismatches can create avoidable queries.
Which next step is right for you?
If you sold just one listed investment, begin by downloading its purchase and sale records and applying the correct holding period. If you have multiple brokers, SIP redemptions, corporate actions, loss carry-forwards or both F&O and investments, prepare a detailed reconciliation before filing.
TaxQue provides assistance with income-tax return filing and related compliance. Explore TaxQue's ITR-2 filing service or advance-tax payment guide. The right filing form and treatment must be selected from your actual income sources, not only from the fact that you bought or sold shares.
Official sources and verification notes
- Income-tax Act, 2025, as amended by Finance Act, 2026 Official ↗ — Sections 76, 156, 196 and 198.
- Income Tax Department: Income-tax Act transition FAQ Official ↗ — Tax Year versus Assessment Year and transitional operation.
- Section 76 — specified mutual funds Official ↗ — Deemed short-term treatment and revised debt-based definition.
- Income Tax Department capital-gains guidance Official ↗ — Capital-gains classification and tax treatment.
- Income Tax Department: sale of shares Official ↗ — FIFO and transaction-expense guidance.
- Income Tax Department ITR-2 FAQ Official ↗ — Earlier-year ITR form eligibility.
Editorial review: 17 October 2026. Illustrations are hypothetical and exclude surcharge unless specifically stated. This article provides general information and does not replace an analysis of your return and transactions.
