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Those rates do not apply automatically to every investment called “equity.” The asset must fall within the relevant section, the transaction must satisfy the securities transaction tax (STT) conditions, and the transfer date matters. Surcharge and health-and-education cess can increase the final amount, and your return form depends on your complete tax profile.
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STCG and LTCG at a glance
The comparison below applies to the covered assets and transactions described in sections 111A and 112A. It is not a universal rate card for every share, fund or taxpayer.
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| Point of comparison | Qualifying STCG (section 111A) | Qualifying LTCG (section 112A) |
|---|---|---|
| Long-term test for listed equity | Holding period of 12 months or less | Holding period beyond 12 months |
| Covered assets | Equity shares, units of equity-oriented funds and units of business trusts, where the statutory STT condition is met | Listed equity shares, units of equity-oriented funds and units of business trusts, where the statutory STT condition is met |
| Rate for transfers on or after 23 July 2024 | 20% | 12.5% on aggregate qualifying LTCG above ₹1,25,000 in the year |
| Rate for earlier transfers | 15% | 10% above the earlier ₹1,00,000 limit |
| Annual threshold | No section 111A threshold equivalent to the section 112A limit | ₹1,25,000 aggregate threshold under the current regime |
| Important reporting split | Transfer date determines which rate applies | Transfer date matters; the AY 2026–27 form also separates assets acquired on or before 31 January 2018 |
The quoted percentages are special capital-gains rates. They are not necessarily your final all-in tax because surcharge and cess may apply. Normal income-tax rules, residential status, losses and the treatment of your activity can also affect the return.
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How the 12-month holding-period rule works
Listed shares and specified listed investments
The Income Tax Department’s current ITR-2 Online FAQs use a 12-month holding period for listed equity shares and equity-oriented mutual-fund units to determine long-term status. In ordinary terms, selling on or before the 12-month boundary leaves the gain short term; selling after the holding period has exceeded 12 months makes it long term, assuming the asset otherwise qualifies.
Use the purchase and transfer records for each lot rather than relying on an account-level average. Corporate actions, multiple purchases and partial sales can give different lots different holding periods. Your broker’s capital-gains statement is useful evidence, but you remain responsible for checking dates and classifications.
Unlisted company shares are different
Do not apply the listed-share rule to unlisted equity. The same Income Tax Department FAQ states: “In case of unlisted shares in a company, the period of holding to be considered is 24 months instead of 36 months.” For the question addressed here, the practical consequence is that unlisted shares need a separate 24-month test and should not be placed into the listed-equity comparison without checking the applicable provisions.
Why the exact transfer date matters
The Finance Act 2024 rate changes apply to relevant transfers from 23 July 2024. A financial year can therefore contain transactions governed by different rates. Keep the contract note or transaction statement showing the transfer date for every sale; the date is not an administrative detail that can be replaced by the date on which money reached your bank account.
Qualifying STCG under section 111A
Which gains can use the concessional STCG rate?
Section 111A covers short-term gains on equity shares, units of equity-oriented funds and units of business trusts when the transfer is chargeable to STT. For equity shares, STT at acquisition is also generally required, subject to exceptions notified by the government. Both the asset category and the statutory transaction conditions must be satisfied.
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For a transfer on or after 23 July 2024, the special rate is 20%. A transfer before that date uses the earlier 15% guidance. The rate is applied to the qualifying gain, not to the sale proceeds. Work out the capital gain under the applicable rules using your purchase cost and eligible transfer expenses shown in your records.
What does not automatically qualify?
A share is not covered merely because it is described as equity. Foreign shares, unlisted shares, debt-oriented funds and assets whose activity is treated as business income require a separate analysis. The section 111A rate should not be promised when the STT or asset conditions are missing.
Illustrative calculation
Suppose a qualifying listed-share sale completed on 10 September 2025 produces a short-term gain of ₹2,00,000 after the relevant cost calculation. Applying the current section 111A rate gives a base special-rate tax of ₹40,000 before any surcharge or cess. This example demonstrates the rate mechanism only; it does not determine the taxpayer’s final liability.
Qualifying LTCG under section 112A
The ₹1,25,000 figure is an annual aggregate threshold
For transfers on or after 23 July 2024, section 112A taxes aggregate qualifying LTCG above ₹1,25,000 for the year at 12.5%. The threshold covers the qualifying section 112A gains taken together for the year; it is not a separate ₹1,25,000 allowance for each stock, sale, broker account or demat account.
If your aggregate qualifying section 112A gain is ₹1,25,000 or less, there is no section 112A base tax on that amount. That does not make every capital gain tax-free: gains from non-qualifying assets, other income, surcharge, cess and other provisions can still affect what you owe.
Earlier transfers use the earlier limit and rate
For a transfer before 23 July 2024, the official guidance identifies the earlier 10% rate above the then-applicable ₹1,00,000 limit. Do not combine a pre-change transaction with a post-change transaction and apply one rate to the entire total. Separate the gains by transfer date first, then follow the reporting schedule for the relevant year.
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Assume qualifying section 112A sales after 23 July 2024 leave aggregate LTCG of ₹2,00,000 for the year. The amount above the current threshold is ₹75,000. At 12.5%, the base section 112A tax on that excess is ₹9,375, before surcharge or cess. The calculation must still be checked against your acquisition records, losses and the return schedule.
How STT affects the result
STT is a condition, not a substitute for income tax
STT is a separate transaction levy. Paying it does not itself make a gain long term or guarantee a particular rate. For section 111A and section 112A treatment, confirm that the asset and transfer meet the statutory STT requirement. For equity shares, acquisition-side STT is generally required as well, except where a government-notified exception applies.
Records to keep
- Contract notes or exchange statements showing purchase and sale dates.
- Evidence of the security or fund type and whether it is listed or unlisted.
- Broker or fund statements showing STT and transaction details.
- Lot-level purchase prices, quantities and corporate-action records.
- The annual capital-gains statement used to prepare the return.
If a statement labels a transaction “equity,” treat that as a starting point for verification rather than proof that section 111A or 112A applies.
A practical workflow for calculating and reporting the gains
- Identify the taxpayer activity. Decide whether the securities were held as investments or whether the facts point to business-income treatment. The STCG/LTCG comparison applies to capital gains, not automatically to trading income.
- Classify every asset. Mark each item as a listed equity share, equity-oriented fund unit, business-trust unit, unlisted share or another asset. Do not put unlisted or foreign holdings into the listed-equity bucket without checking the applicable rule.
- Record the transfer date. Separate transfers before 23 July 2024 from transfers on or after that date because the special rates changed on that date.
- Test the holding period. Use the 12-month listed-equity test. Apply the separate 24-month test for unlisted company shares identified in the ITR-2 FAQ.
- Verify STT eligibility. Check transfer-side STT and, for equity shares, acquisition-side STT unless a notified exception applies. Retain evidence instead of assuming that every exchange transaction qualifies.
- Compute each gain. Use the purchase and sale records for each lot and the applicable capital-gains computation. Keep short-term and long-term amounts separate.
- Aggregate qualifying section 112A gains. For the current regime, combine the qualifying LTCG covered by section 112A for the year before applying the ₹1,25,000 threshold. Do not treat the threshold as a per-sale exemption.
- Apply the date-specific rate. Use the current 20% section 111A rate and 12.5% section 112A rate for qualifying transfers on or after 23 July 2024; use the earlier rates for earlier transfers.
- Check losses. A carried-forward short-term capital loss may be set off against either STCG or LTCG. A carried-forward long-term capital loss may be set off only against LTCG. Procedural conditions and filing deadlines still matter.
- Complete the relevant schedules. The notified AY 2026–27 return form separately records whether section 112A assets were acquired on or before 31 January 2018 and whether they were transferred before, on or after 23 July 2024. Use the categories that match your records rather than forcing all lots into one line.
- Review the tax total. Add any applicable surcharge and cess and check whether other income, residency or special provisions change the result.
Which income-tax return should you file?
The Income Tax Department’s AY 2026–27 applicability guidance says ITR-1 and ITR-4 are not available where the taxpayer has STCG. It also excludes taxpayers with section 112A gains above ₹1.25 lakh, along with other eligibility conditions. These are simplified-form restrictions, not a complete return-selection checklist.
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Before choosing a form, review whether you have business income, foreign or unlisted holdings, carried-forward losses, more than one residential-status issue or unusual acquisition history. A taxpayer with capital gains commonly needs a return form that supports the capital-gains schedules, but the correct form must be confirmed against the current year’s official applicability rules and the taxpayer’s entire income profile.
When filing, reconcile the return with the annual information statement, broker statements and tax-deducted-at-source records. A mismatch in sale value, purchase date or security classification can change both the rate and the schedule in which the transaction belongs.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Common mistakes and how to avoid them
“LTCG up to ₹1.25 lakh is tax-free for every investment”
Incorrect. The threshold is for aggregate qualifying section 112A LTCG. It does not cover unlisted shares, foreign shares, debt funds, business income or every asset that an investor informally calls equity.
“All equity gains are taxed at 20% or 12.5%”
Incorrect. The asset, holding period, STT conditions and transfer date all matter. The listed-equity rules should not be transferred to unlisted or non-Indian assets without checking the applicable provision.
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“The rate is determined by the financial year in which I file”
Incorrect. The relevant transfer date determines whether the pre-23 July 2024 or post-change rate applies. Filing later does not convert an earlier transaction into a current-rate transaction.
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“STT paid means the gain automatically qualifies”
Incorrect. STT is one condition within a statutory test. Confirm the asset category and any acquisition-side requirement for equity shares, including whether an exception has been notified.
“A broker’s total is enough”
Not always. A total can conceal different lots, acquisition dates, holding periods and transfer-date regimes. Preserve the underlying contract notes and check the classification used by the statement.
“I can use ITR-1 because my gains are small”
The current applicability guidance excludes taxpayers with STCG from ITR-1 and ITR-4, and it has additional restrictions for section 112A gains above ₹1.25 lakh. Check the current form conditions instead of relying on the size of one gain.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallDecision checklist before submitting the return
- Is the asset listed equity, an equity-oriented fund unit or a business-trust unit covered by the relevant section?
- Is the holding period tested with the correct 12-month listed or 24-month unlisted rule?
- Is each sale separated by the 23 July 2024 rate-change date?
- Have you verified transfer-side STT and the generally required acquisition-side STT for equity shares?
- Have you combined qualifying section 112A LTCG across all accounts for the annual threshold?
- Have you checked carried-forward STCL and LTCL restrictions?
- Does the AY 2026–27 schedule’s 31 January 2018 acquisition-date field apply to any lot?
- Is the selected ITR permitted for your STCG, section 112A gains, business income and other facts?
- Have you allowed for surcharge and cess rather than treating the special rate as the final bill?
When professional advice is sensible
Get tailored advice when you hold unlisted or foreign shares, trade frequently enough that investment-versus-business classification is uncertain, changed residence during the year, inherited or received securities through a complex corporate action, or need to reconstruct records from before 31 January 2018. The law and return forms can change through legislation or notifications, so use the guidance applicable to the assessment year in which you are filing.
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