Get expert tax tips, GST updates & compliance guides delivered to your inbox.
🔒 No spam. Unsubscribe anytime.
A plain-English guide to securities markets in India: equity vs debt, primary vs secondary markets, SEBI's role, and Tax Year 2026-27 rates explained with worked examples.
Most people learn about the securities markets the expensive way: they buy a stock because someone recommended it, sell it eleven months later, and then discover the tax bill is far higher than they expected. That gap between what you assume and what the law actually says is where money quietly disappears.
Two changes make 2026 a genuinely different year for Indian investors. The Income-tax Act, 2025 replaced the six-decade-old Income-tax Act, 1961 with effect from 1 April 2026, and the Union Budget 2026 raised Securities Transaction Tax on futures and options from the same date. This guide covers what securities are, how the markets work, what each investment style actually earns, and exactly what you pay in tax, with the arithmetic shown at every step.
If you read an older guide to securities markets, check the date before you trust the numbers. Three things moved.
The Income-tax Act, 2025 came into force on 1 April 2026, repealing the Income-tax Act, 1961. It reorganises roughly 819 sections into 536 across 23 chapters. Tax rates themselves were not changed by the new Act, but almost every section number was renumbered, and the familiar "Previous Year" and "Assessment Year" pair has been replaced by a single concept: the Tax Year.
Income earned from 1 April 2026 onwards falls under the 2025 Act. Income up to 31 March 2026 continues to be assessed under the 1961 Act, so for a couple of years both statutes will be quoted side by side.
The Union Budget presented on 1 February 2026 raised STT on equity derivatives from 1 April 2026. The stated aim was to cool speculative activity in the futures and options segment. Cash-market investors were left alone.
India runs on a T+1 settlement cycle as the default for equities, ETFs, REITs and InvITs. An optional T+0 same-day cycle is available on NSE and BSE for the top 500 stocks by market capitalisation, subject to session cut-off timings. That makes India one of the fastest settlement markets in the world.
A security is a tradable financial instrument that represents either an ownership stake in an entity or a claim on money owed to you. The word "tradable" is doing the heavy work in that sentence. A fixed deposit is a financial asset, but you cannot sell it to a stranger on an exchange, so it is not a security. A share of Infosys is a security because someone else can buy it from you at a market-determined price.
In Indian law, the definition sits in Section 2(h) of the Securities Contracts (Regulation) Act, 1956, and covers shares, scrips, stocks, bonds, debentures, derivatives, units of collective investment schemes and government securities.
When you buy equity, you buy a slice of a company. You get a share of the profits (through dividends) and a share of the growth (through price appreciation). You also get a share of the losses.
Example. You buy 200 shares of a listed manufacturing company at ₹450 each, investing ₹90,000. Over two years the company grows earnings, and the share reaches ₹610. It also pays a dividend of ₹8 per share each year.
What this means for you: equity return has two engines, and the dividend engine is taxed differently from the appreciation engine. We work through both in the tax section below.
A debt security is a loan you have made, packaged so it can be traded. You lend money to a company or the government, collect interest at agreed intervals, and get your principal back on the maturity date.
Example. You invest ₹5,00,000 in a corporate bond paying 8.5% annually, maturing in five years.
What this means for you: the headline coupon rate is not your take-home return. An 8.5% bond delivers closer to 5.8% after tax for someone in the highest slab, which is why the comparison against equity is rarely as one-sided as it looks.
Between the two sit instruments that borrow features from both. Convertible debentures start as debt and can convert into equity. Preference shares carry a fixed dividend but rank below debt in a liquidation. Derivatives such as futures and options derive their value from an underlying share or index and do not, by themselves, give you ownership of anything.
Derivatives deserve a warning rather than an endorsement for most readers. SEBI's own studies of retail participation in equity derivatives have repeatedly found that the large majority of individual traders lose money in the segment. The 2026 STT increase was aimed squarely at this behaviour.
Markets do two jobs. They let companies and governments raise money, and they let investors convert holdings back into cash. Everything else is machinery built to make those two things happen honestly and quickly.
The primary market is where a security is born. A company issuing new shares in an Initial Public Offering, or a company raising money through a fresh bond issue, is operating in the primary market. The money paid by investors goes to the issuer.
The secondary market is where that security changes hands afterwards. When you buy shares on NSE or BSE, you are buying from another investor, not from the company. The company receives nothing from that trade.
| Feature | Primary Market | Secondary Market |
|---|---|---|
| What happens | New securities are created and sold for the first time | Existing securities are traded between investors |
| Who receives the money | The issuing company or government | The selling investor |
| Typical route | IPO, FPO, rights issue, private placement, bond issue | Exchange trading on NSE, BSE or MSEI |
| Price setting | Fixed price or book-building within a price band | Continuous, set by supply and demand |
| Example | Applying for an IPO through ASBA or UPI mandate | Buying 100 shares at the live market price |
Example that ties them together. A company issues 1 crore shares at ₹250 in an IPO and raises ₹250 crore. That entire amount goes to the company. On listing day the share opens at ₹310. An investor who was allotted 100 shares and sells at ₹310 makes ₹6,000. The company receives none of that ₹6,000. It already got its money in the primary market.
Three statutes carry most of the weight:
Around these sit exchanges (NSE, BSE), clearing corporations, depositories, and SEBI-registered intermediaries such as brokers, research analysts and investment advisers. Before you act on anyone's advice, check that they carry a SEBI registration number. It is a legal requirement, and it is verifiable on SEBI's website in under a minute.
Executing a trade and settling it are different events. Under T+1, a trade done on Monday settles on Tuesday, meaning shares hit your demat account and funds hit the seller's bank account one working day later.
Example. You sell shares worth ₹2,00,000 on a Tuesday under T+1. Funds are credited on Wednesday. Under the optional T+0 cycle, for an eligible large-cap stock traded within the designated session, the same ₹2,00,000 could reach you by the evening of the same Tuesday. If you need the money for a payment on Wednesday morning, that one-day difference is the whole decision.
Buying securities is easy. Having a reason for buying them is the part that separates outcomes.
You look for companies trading below what the business is actually worth, usually because of temporary bad news or general neglect.
Example. A company earns ₹40 per share and trades at ₹320, a price-to-earnings ratio of 8. Comparable companies in the same industry trade at a P/E of 14. If earnings hold steady and the market eventually re-rates the stock to even a P/E of 12, the price would be ₹40 × 12 = ₹480. On a ₹320 entry, that is a gain of ₹160 per share, or 50%.
The risk to respect: the market may be pricing in a decline you have not spotted. A low P/E is sometimes a warning, not a bargain.
You accept a high price today because you expect earnings to grow fast enough to justify it.
Example. A company earns ₹15 per share and trades at ₹600, a P/E of 40. That looks expensive. If earnings grow 35% a year for three years, earnings per share reach roughly ₹37. At a more modest P/E of 25 by then, the price would be about ₹925, a 54% gain. If growth comes in at 12% instead, EPS reaches only ₹21, and at a P/E of 25 the price is ₹525, a loss of 12.5%.
What this means for you: growth investing is a bet on a growth rate, and the same stock produces a solid gain or a real loss depending on whether that rate holds.
You prioritise regular cash flow over price appreciation, through dividend-paying shares, bonds or debt funds.
Example. You hold a ₹20,00,000 portfolio yielding an average 4% in dividends. That is ₹80,000 a year before tax. Dividends are added to your total income and taxed at your slab rate. At 30% plus 4% cess, tax is ₹24,960, leaving ₹55,040. If your income falls in the 5% slab, you keep about ₹75,840 from the same portfolio.
What this means for you: the after-tax value of a dividend strategy depends heavily on which slab you sit in. Two investors holding identical portfolios can end the year ₹20,000 apart.
Prices fall for reasons that have nothing to do with the company you own. Rate decisions, global sentiment and foreign investor flows move everything together.
Example. A ₹10,00,000 portfolio in a 20% market correction becomes ₹8,00,000. To get back to ₹10,00,000 the portfolio needs to rise 25%, not 20%. Recovery arithmetic is always harder than the fall.
The borrower may not pay. This is the central risk in debt securities and it is priced into the yield. A bond offering 13% when comparable government paper offers 7% is telling you something about the probability of repayment.
Example. You invest ₹3,00,000 in a bond rated in the lower investment-grade band at 12%. Two years of interest gives you ₹72,000. In year three the issuer defaults and the recovery is 40% of principal, returning ₹1,20,000. Total received: ₹1,92,000 against ₹3,00,000 invested. The extra yield never covered the loss.
You own something, but you cannot sell it at a fair price when you want to.
Example. You hold 5,000 shares of a small-cap company with average daily volume of 8,000 shares. Selling your position is a meaningful share of a day's trading. Attempting to exit quickly could push the price down 6% to 8%, so a ₹5,00,000 position realises ₹4,60,000 to ₹4,70,000. The loss is not from the business. It is from the exit.
Most portfolios that fail badly fail because too much sat in one place. A common pattern among business owners is holding shares in their own industry while their business income depends on the same industry. When the sector turns, both sources of wealth fall together.
This is the section where most older articles are wrong. The rates below reflect the position after the Finance (No. 2) Act, 2024 and the changeover to the Income-tax Act, 2025 on 1 April 2026.
For the treatment of other asset classes such as property, gold and debt funds, see our detailed capital gains tax guide.
| Particulars | Short-Term Capital Gain | Long-Term Capital Gain |
|---|---|---|
| Holding period | 12 months or less | More than 12 months |
| Section (from 1 Apr 2026) | Section 196, Income-tax Act, 2025 | Section 198, Income-tax Act, 2025 |
| Earlier section (to 31 Mar 2026) | Section 111A, Income-tax Act, 1961 | Section 112A, Income-tax Act, 1961 |
| Tax rate | 20% | 12.5% |
| Annual exemption | None | ₹1.25 lakh of gains |
| Indexation | Not available | Not available |
| Condition | STT must have been paid | STT must have been paid |
Health and education cess of 4% applies on top, and surcharge on these gains is capped at 15%.
Worked example, long-term. You sell listed shares held for three years at a gain of ₹3,00,000.
Worked example, short-term. You sell listed shares held for nine months at a gain of ₹3,00,000.
What this means for you: the identical ₹3,00,000 gain costs ₹22,750 if you hold past twelve months and ₹62,400 if you do not. The difference of ₹39,650 is decided entirely by the sale date. Before selling a profitable position, check the purchase date first.
STT is charged on turnover, not on profit. It applies whether the trade made money or lost it.
| Segment | Rate up to 31 Mar 2026 | Rate from 1 Apr 2026 | Charged on |
|---|---|---|---|
| Equity delivery | 0.10% | 0.10% (unchanged) | Both buy and sell |
| Equity intraday | 0.025% | 0.025% (unchanged) | Sell side only |
| Equity futures | 0.02% | 0.05% | Sell side, on traded value |
| Options (premium) | 0.10% | 0.15% | Sell side, on premium |
| Options (exercised) | 0.125% | 0.15% | On intrinsic value |
Worked example, delivery investor. You buy 500 shares at ₹100 and later sell them at ₹150.
Worked example, futures trader. You sell one index futures contract with a value of ₹16,00,000.
What this means for you: the buy-and-hold investor pays ₹125 in STT across an entire holding period. The active derivatives trader pays more than that before lunch. The 2026 change was designed to make exactly that contrast visible.
Dividends are taxable in the hands of the shareholder at slab rates, added to total income for the year. The company deducts TDS at 10% where dividend paid to a resident individual crosses the prescribed threshold in a financial year, and that TDS is adjustable against your final liability.
One change worth flagging under the Income-tax Act, 2025: the earlier deduction for interest expenditure incurred to earn dividend income has been withdrawn. If you borrowed to buy shares, the interest on that borrowing is no longer deductible against the dividend.
Bond and debenture interest is likewise added to total income and taxed at slab rates.
Losses are not wasted if you report them correctly.
Example. You book a long-term gain of ₹4,00,000 and a short-term loss of ₹1,50,000 in the same year. Setting the loss off leaves ₹2,50,000. After the ₹1.25 lakh exemption, ₹1,25,000 is taxed at 12.5%, giving ₹15,625 plus cess of ₹625, a total of ₹16,250. Without the set-off, the tax would have been ₹35,750. Filing on time saved ₹19,500.
Securities markets reward preparation more reliably than they reward instinct. Understand what you own, know which market you are transacting in, size positions so that one mistake is survivable, and check the tax consequence before you sell rather than after. The 2026 changes did not make investing harder. They made the difference between a considered decision and a casual one more expensive.
If you want your investment decisions checked against the current statute before you act, speak to the TaxQue team.
This article is for general information and does not constitute investment, legal or tax advice. Rates and provisions stated reflect the Income-tax Act, 2025 read with the Finance Act, 2026, and applicable SEBI regulations as on the date of publication. Verify the position for your specific transaction against the official notification or consult a qualified professional before acting.
Last updated: 1 September 2026. Sources: SEBI, Income Tax Department, NSE India.
This article is published by TaxQue (ARB FinTech LLP) for general informational, educational, and business guidance purposes only. Tax laws, GST rules, MCA circulars, and judicial precedents are subject to frequent statutory revisions. This content does not constitute formal individualized tax, accounting, or legal counsel.
Comments are moderated. Only English and Hindi comments from verified Indian users are published.
Discover the best app for stock market news and mutual funds. Compare features, user experiences, and make informed investment decisions today!
From company registration and GST filings to annual MCA audits and tax planning, TaxQue provides complete consulting solutions for startups and enterprises.