Capital Gains Tax on Stocks in India: STCG vs LTCG

A reader wrote to me last results season, half proud and half puzzled. He'd bought shares of a well-known consumer company in May, sold them in February when they'd run up nicely, booked about ₹5 lakh of gain — and then his chartered accountant handed him a tax bill of ₹1 lakh. "I held it nine months," he said. "If I'd just waited three more, would it really have changed anything?" Yes. By more than fifty thousand rupees. That gap is the whole subject of this piece.

Think of your gains as a harvest. The government is entitled to a slice of every crop you bring in — but the size of the slice depends on how long you let the crop ripen. Pull it green, and they take a big handful. Let it sit on the vine past a year, and the same field hands you a smaller bill. The plant is identical. Only your patience changed.

This is not tax advice and I'm not your CA — for your own return, talk to a SEBI-registered adviser or a qualified tax professional. But every long-term investor should understand the rule, because it quietly rewards exactly the behaviour good investing already requires.

The one line that decides everything: the holding period

For listed shares on the NSE or BSE, the tax law splits your gain by a single fact — how long you held the share before selling.

• Hold it for 12 months or less, and your profit is a short-term capital gain (STCG) — that's the green crop.
• Hold it for more than 12 months, and it becomes a long-term capital gain (LTCG) — the ripened one.

A capital gain is simply your selling price minus what you paid (your "cost of acquisition"). Sell for more than you bought, you have a gain; the only question the taxman asks next is how long you waited. The 12-month line is set out for listed equity in the Income Tax Act and confirmed in the post-Budget guidance (ClearTax summary of Section 112A).

One day matters here. Eleven months and twenty-nine days is short-term; twelve months and one day is long-term. The market doesn't ring a bell, so you have to watch the calendar yourself.

The two rates, after Budget 2024

The July 2024 Union Budget changed both numbers, so older articles will mislead you. Here is where it stands now, for transfers made on or after 23 July 2024:

The STCG rate on listed equity rose from 15% to 20%, and the LTCG rate rose from 10% to 12.5%, both effective 23 July 2024 (ClearTax, Section 112A; Section 111A overview, ClearTax). The official changes flow from the Finance (No. 2) Act, 2024.

There's a second gift for the patient holder: an annual exemption of ₹1.25 lakh on long-term gains. The first ₹1.25 lakh of LTCG you book in a financial year is tax-free; only the amount above it is taxed at 12.5% (the exemption was raised from ₹1 lakh in the same Budget). Short-term gains get no such cushion — the 20% applies from the first rupee.

Two things the Budget also did, worth knowing: it removed indexation for listed equity (you no longer adjust your purchase cost for inflation), and the beneficial rates assume Securities Transaction Tax (STT) was paid on the trade — which, for normal exchange trades, it is.

What it cost my reader — and what patience would have saved

Let's run his ₹5 lakh gain through both columns. (These are illustrative figures to show the mechanics, not a calculation of anyone's actual liability.)

Sold at 9 months (short-term): the whole ₹5 lakh is taxed at 20%. Bill: ₹1,00,000. No exemption applies.

Sold at 12 months and a day (long-term): subtract the ₹1.25 lakh exemption first, leaving ₹3.75 lakh taxable at 12.5%. Bill: ₹46,875.

Same shares. Same ₹5 lakh of profit. The difference — ₹53,125 — is what three extra months on the calendar were worth. Put differently, selling early handed the government more than half again as much of his harvest as he needed to give. The crop didn't change; he just picked it green.

That is the homely fact under all the section numbers: in Indian equity, impatience is taxed at 20% and patience at 12.5%, and patience gets the first ₹1.25 lakh free.

Why this should change how you think, not just what you file

Here's the part most tax explainers miss. The holding-period rule isn't only an accounting detail you sort out in July; it's a gentle thumb on the scale toward the kind of investing that actually builds wealth.

Consider Infosys, the Bengaluru IT-services giant. In the last twelve months it earned about ₹29,474 crore of net profit on roughly ₹1,78,650 crore of sales (Inve data, 2026) — a business that has compounded for decades. The Narayana Murthy family's stake in it was worth about ₹28,018 crore in January 2026 (Business Today), built not by trading in and out but by holding through years of noise. Every year they didn't sell, they also didn't pay tax on the gain — the compounding ran on the full, un-taxed amount. Sell-and-rebuy, and you'd lop off a slice each round and compound a smaller base.

I'm not telling you to buy Infosys — at a price-to-earnings ratio of about 16 (mcap ₹4,71,182 crore ÷ trailing profit; Inve data, 2026), the market is putting its own price on that history, and price is always its own risk (that's the margin of safety). The point is narrower and timeless: the tax code and the compounding machine push in the same direction. Both reward you for owning a good business long enough to let it ripen.

And "good business" is doing real work in that sentence. The reason to hold past 12 months is that the company keeps earning — not that the clock is ticking toward a lower rate. Letting a deteriorating business ripen just to save tax is the tail wagging the dog. So the genuine question isn't "have I crossed a year?" It's "is this still a business worth owning?" — which means watching whether management does what it said it would, quarter after quarter. That's the slow, unglamorous tracking that a tool like Inve's Promise Tracker exists to do across a whole portfolio, so the holding decision is driven by the business, not the calendar.

Where this gets more complicated than one article can cover

Be honest about the edges. Several things sit outside this simple picture and need a professional:

• Set-off of losses. Capital losses can be set against capital gains under specific rules — short-term losses against either type, long-term losses only against long-term — and unused losses can be carried forward. The mechanics matter and are easy to get wrong.
• Buybacks, bonus and rights shares, ESOPs, gifts and inheritance each have their own cost and holding-period treatment.
• Grandfathering. Gains on shares bought before 31 January 2018 use a special "fair market value" cost rule for the period up to that date.
• Your slab and surcharge can change the all-in number, and rules can change in any future Budget.

None of that is captured in the two-line table above. Treat this article as the map of the main road, and a qualified adviser as your guide for the side streets.

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