Stock Market Taxes in India — STCG, LTCG, STT Explained

Understanding taxes on stock market gains is crucial for every investor. Many beginners focus only on making profits but forget that the government takes a share of those profits. Knowing the tax rules can help you plan better and even save tax legally. This guide covers all the taxes you need to know as an Indian stock market investor in 2026.

Types of Income from Stock Market

Your stock market income falls into different categories depending on how long you held the investment and what type of asset it is. The two main categories are Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). The classification depends on the holding period — for equity shares and equity mutual funds, gains from holdings of more than 12 months are long-term, and gains from holdings of 12 months or less are short-term.

Short-Term Capital Gains Tax (STCG)

If you sell equity shares or equity mutual fund units within 12 months of purchase and make a profit, you pay STCG tax at a flat rate of 20 percent. This was increased from 15 percent in the Union Budget 2024. The tax applies to the net gain — so if you bought shares for Rs 1 lakh and sold for Rs 1.3 lakh within 12 months, your STCG is Rs 30,000 and tax is Rs 6,000 (20 percent of Rs 30,000).

For intraday trading (buying and selling on the same day), the gains are treated as business income and taxed at your applicable income tax slab rate, not the flat STCG rate. This is an important distinction that many traders overlook.

Long-Term Capital Gains Tax (LTCG)

If you hold equity shares or equity mutual fund units for more than 12 months, gains up to Rs 1.25 lakh per financial year are completely tax-free. Gains above Rs 1.25 lakh are taxed at 12.5 percent. This threshold was increased from Rs 1 lakh in Budget 2024. No indexation benefit is available for equity investments.

For example, if you sell shares after 14 months and make a profit of Rs 2 lakh, the first Rs 1.25 lakh is tax-free. The remaining Rs 75,000 is taxed at 12.5 percent, which comes to Rs 9,375. This makes long-term investing significantly more tax-efficient than short-term trading.

Securities Transaction Tax (STT)

STT is a tax paid at the time of every transaction on the stock exchange. For delivery trades (buying and holding), STT is 0.1 percent on both buy and sell sides. For intraday trades, it is 0.025 percent on the sell side only. For F and O, it is 0.0125 percent on sell side for options and 0.02 percent on sell side for futures. STT is automatically deducted by your broker — you do not need to calculate or pay it separately.

Tax on Mutual Funds

Equity mutual funds follow the same STCG and LTCG rules as stocks. Debt mutual funds are now taxed at your income tax slab rate regardless of holding period, following the 2023 budget changes. This means if you are in the 30 percent tax bracket, gains from debt mutual funds are taxed at 30 percent whether you hold for 1 month or 5 years.

Tax-Saving Tips

Hold equity investments for more than 12 months whenever possible to take advantage of the Rs 1.25 lakh LTCG exemption. Harvest your losses — if you have stocks with unrealized losses, selling them before year-end can offset your gains and reduce your tax liability. Invest through ELSS (Equity Linked Saving Scheme) mutual funds to get Section 80C deduction of up to Rs 1.5 lakh per year. And always maintain proper records of your buy prices and dates for accurate tax calculation.

Filing Your Returns

Stock market gains must be reported in your Income Tax Return. Most brokers provide a tax P and L statement that summarizes your gains and losses for the financial year. You will need to fill Schedule CG (Capital Gains) in your ITR. If you have only salary income and capital gains, you can use ITR-2. If you have business income from trading, use ITR-3.

Disclaimer: This article is for educational purposes only. It is not financial advice. Please consult a SEBI-registered advisor before making investment decisions.