Current LTCG Tax Rates and Thresholds
| Parameter | Before Budget 2024 | After Budget 2024 (Current) |
|---|---|---|
| LTCG Tax Rate | 10% | 12.5% |
| Annual Exemption | Rs 1,00,000 | Rs 1,25,000 |
| Holding Period for LTCG | 12 months | 12 months (unchanged) |
| Applicable Section | Section 112A | Section 112A (unchanged) |
| STT Requirement | Yes, STT must be paid on sale | Yes, STT must be paid on sale |
| Effective Rate with Cess | 10.4% | 13% |
Who Pays LTCG Tax? Applicability Rules
LTCG tax under Section 112A applies to gains from the sale of listed equity shares on recognized stock exchanges (BSE, NSE) where Securities Transaction Tax (STT) has been paid at the time of sale. It also applies to equity-oriented mutual funds and units of business trusts. The STT condition is critical: if STT is not paid on the transaction, the gain may not qualify for the concessional 12.5% rate and could be taxed under the general provisions of Section 112 at 20%.
Every individual, Hindu Undivided Family (HUF), partnership firm, and company that sells listed equity shares or equity mutual fund units is subject to this tax. There is no minimum income threshold beyond which LTCG tax kicks in. Even if your total income is below the basic exemption limit of Rs 3,00,000 under the new tax regime, LTCG above Rs 1,25,000 is still taxable at 12.5%.
However, there is an important benefit for lower-income taxpayers. If your total income including LTCG falls below the basic exemption limit under the old tax regime (Rs 2,50,000), you can adjust the unexhausted basic exemption against LTCG. For example, if your non-capital-gains income is Rs 1,50,000 and your LTCG is Rs 2,00,000, the unused basic exemption of Rs 1,00,000 (Rs 2,50,000 minus Rs 1,50,000) can further reduce your taxable LTCG. This benefit is available under the old tax regime but is less commonly applicable under the new regime where rebates work differently.
Non-resident Indians (NRIs) are also subject to LTCG tax on Indian equity investments at the same 12.5% rate, with TDS obligations applying to the gains.
How LTCG Is Calculated: A Step-by-Step Example
Let us walk through a complete LTCG calculation for a typical investor.
Rajesh bought 500 shares of Reliance Industries on March 15, 2024, at Rs 2,400 per share. His total purchase cost was Rs 12,00,000 (500 x Rs 2,400). He sells all 500 shares on April 10, 2025, at Rs 2,800 per share, receiving Rs 14,00,000 (500 x Rs 2,800). The holding period is over 12 months, so this qualifies as LTCG.
Step 1: Calculate the gain. Sale price: Rs 14,00,000 Cost of acquisition: Rs 12,00,000 LTCG: Rs 2,00,000
Step 2: Apply the annual exemption. LTCG: Rs 2,00,000 Exemption under Section 112A: Rs 1,25,000 Taxable LTCG: Rs 75,000
Step 3: Calculate the tax. Tax at 12.5%: Rs 75,000 x 12.5% = Rs 9,375 Health and education cess at 4%: Rs 9,375 x 4% = Rs 375 Total LTCG tax: Rs 9,750
Rajesh made a profit of Rs 2,00,000 on his Reliance shares and pays Rs 9,750 in tax. His effective tax rate on the total LTCG is 4.875% (Rs 9,750 / Rs 2,00,000), which is well below the headline rate of 12.5% thanks to the exemption. If Rajesh had additional LTCG from other stocks, the exemption would not apply again since it is a per-person, per-year limit across all qualifying assets.
LTCG Tax and the FIFO Method
When you hold multiple lots of the same stock purchased at different times and prices, the Income Tax Act requires you to use the First-In-First-Out (FIFO) method to determine which shares are being sold. FIFO means the shares you purchased first are deemed to be sold first, regardless of which specific shares you intended to sell.
This has a direct impact on your LTCG calculation because the cost basis and holding period depend on which lot is being sold. Consider this scenario: you bought 100 shares of TCS in January 2023 at Rs 3,200 per share, and another 100 shares in August 2024 at Rs 3,800 per share. In March 2026, you sell 100 shares at Rs 4,200 per share.
Under FIFO, the shares sold are the ones purchased in January 2023 (the oldest lot). The cost of acquisition is Rs 3,200, and the holding period is over 12 months, so the gain is long-term. Your LTCG is Rs 1,00,000 (Rs 4,200 minus Rs 3,200, times 100 shares).
If you could choose to sell the August 2024 lot instead, the gain would be only Rs 40,000 (Rs 4,200 minus Rs 3,800, times 100 shares), and it would be short-term since the holding period is under 12 months. But FIFO does not allow you to choose. The oldest shares go first.
This mandatory FIFO rule makes it essential to track your purchase lots carefully. Tools like TaxHarvestLab automatically apply FIFO to your holdings from Zerodha, Groww, or any broker, showing you the exact cost basis and holding period for each lot. This is especially valuable when you have dozens of purchase lots across multiple stocks and need to plan your tax harvesting strategy accurately.
STT and Other Costs That Affect Your LTCG
Securities Transaction Tax (STT) is a prerequisite for the concessional 12.5% LTCG rate under Section 112A. STT is levied at 0.1% on the sale value of equity shares delivered through a recognized stock exchange. For equity mutual fund redemptions, STT is charged at 0.001% on the sale value.
While STT enables the lower tax rate, it cannot be claimed as a deduction from the sale price when calculating LTCG. This is a common point of confusion. The cost of acquisition for LTCG purposes includes your purchase price plus brokerage and other charges, but STT paid on the purchase is not added to the cost. Similarly, STT paid on the sale is not deducted from the sale price.
Other costs to account for include brokerage charges, SEBI turnover fees, stamp duty, and GST on brokerage. While these amounts are relatively small compared to the gains, they do affect your net profit. Brokerage is typically Rs 20 per order for discount brokers like Zerodha, which is negligible on large transactions. Stamp duty varies by state but is capped at 0.015% for delivery-based equity trades.
For investors doing gain harvesting where the objective is to sell and immediately rebuy to reset cost basis, these transaction costs represent the primary friction. On a Rs 5,00,000 transaction, total round-trip costs (sell and rebuy) might be around Rs 500 to Rs 750 including all charges. If the tax saving from gain harvesting is Rs 5,000 or more, the transaction costs are easily justified. TaxHarvestLab factors in these costs when calculating your net tax benefit.
Common Mistakes to Avoid with LTCG Tax
Several costly mistakes can increase your LTCG tax liability unnecessarily.
Mistake 1: Not using the annual exemption. The Rs 1,25,000 LTCG exemption expires on March 31 every year. If you do not book at least Rs 1,25,000 in LTCG during the financial year, you permanently lose that year's exemption. This is the foundation of gain harvesting, which we cover in detail in the next article.
Mistake 2: Ignoring FIFO. Many investors incorrectly calculate LTCG by picking a convenient cost basis instead of applying FIFO. When you file your ITR, the tax department can cross-verify your calculations against your broker's records. Using the wrong cost basis can trigger a notice.
Mistake 3: Forgetting the grandfathering clause. For shares held before February 1, 2018, the cost of acquisition is the higher of the actual purchase price or the fair market value as of January 31, 2018. Forgetting to apply this clause means you overpay tax on pre-2018 holdings.
Mistake 4: Not accounting for all equity transactions. LTCG is aggregated across all sources: direct equity, equity mutual funds, and ETFs. Investors who track stocks but forget about mutual fund LTCG may underestimate their total gains and face a tax shortfall.
Mistake 5: Missing advance tax deadlines. If your total tax liability including LTCG exceeds Rs 10,000 in a financial year, you are required to pay advance tax. Failing to do so attracts interest under Sections 234B and 234C.
How TaxHarvestLab Helps You Manage LTCG
Calculating LTCG across a portfolio with dozens of stocks and multiple purchase lots is tedious and error-prone when done manually. TaxHarvestLab automates the entire process by importing your trade data directly from your broker.
Once you upload your holdings, TaxHarvestLab applies FIFO automatically to every stock and mutual fund in your portfolio. It separates short-term and long-term holdings, calculates the exact cost basis for each lot, and computes your current unrealized LTCG. For pre-2018 holdings, it applies the grandfathering clause to ensure your cost basis is correctly adjusted.
The tool then shows you exactly how much of your Rs 1,25,000 LTCG exemption you have used, how much remains, and which specific holdings you should consider selling to utilize the remaining exemption before March 31. This gain harvesting recommendation is personalized to your portfolio and accounts for the FIFO order of your lots.
TaxHarvestLab also calculates the transaction costs of executing a gain harvest (brokerage, STT, stamp duty) and subtracts them from the tax benefit to show you the net saving. If the transaction costs exceed the tax benefit for a particular stock, the tool will not recommend that trade.
For investors who want to stay on top of their LTCG tax liability throughout the year, TaxHarvestLab provides a dashboard showing your running LTCG total, distance from the exemption limit, and projected year-end tax. This makes it easy to make informed decisions about when to sell and when to hold.
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Analyze My Portfolio FreeFrequently Asked Questions
What is the LTCG tax rate on shares in India for FY 2025-26?
The LTCG tax rate on listed equity shares and equity mutual funds is 12.5% on gains exceeding Rs 1,25,000 per financial year, under Section 112A. With 4% health and education cess, the effective rate is approximately 13%. This rate applies to shares held for more than 12 months where STT has been paid.
Is the Rs 1.25 lakh LTCG exemption per stock or per person?
The Rs 1,25,000 LTCG exemption under Section 112A is per person per financial year, not per stock. Your total LTCG from all listed equity shares and equity mutual fund sales in the financial year is aggregated, and only the amount exceeding Rs 1,25,000 is taxed at 12.5%.
Do I need to pay LTCG tax if my total income is below the basic exemption limit?
Under the old tax regime, if your total income including LTCG is below the basic exemption limit of Rs 2,50,000, you can adjust the unused exemption against LTCG to reduce the taxable amount. Under the new tax regime, LTCG above Rs 1,25,000 is taxed at 12.5% regardless of your income slab, though rebates may apply in certain situations.
Does LTCG tax apply to intraday trading or F&O?
No. LTCG tax under Section 112A applies only to delivery-based equity transactions held for more than 12 months. Intraday trading gains are treated as speculative business income. F&O gains are treated as non-speculative business income. Both are taxed at your income tax slab rate, not at the flat 12.5% LTCG rate.