Tax planning is what separates investors who keep their gains from investors who give a quarter of them back to the government. Indian stock market taxes have changed substantially since 2024 — the LTCG rate went up, the exemption limit changed, F&O classification became stricter, and Budget 2024 introduced several modifications. If you've been investing for a few years and still operating on pre-2024 tax knowledge, this guide will save you real money. Let me walk through everything for FY 2025-26 (AY 2026-27).
The four taxes every Indian investor pays
- Capital Gains Tax — on profit when you sell.
- Securities Transaction Tax (STT) — charged at the time of every buy/sell.
- Dividend Tax — on dividends received from stocks and mutual funds.
- Tax on F&O / intraday — treated as business income, taxed at slab rate.
Let me cover each in detail with examples.
1. Capital Gains Tax — STCG and LTCG
When you sell a stock or equity mutual fund at a profit, that profit is your capital gain. Tax rate depends on how long you held the investment.
Short Term Capital Gains (STCG) — held under 12 months
Tax rate (Budget 2024 onwards): 20% flat, regardless of your income tax slab. Previously 15%.
Example: You buy 100 shares of Reliance at ₹2,500 on January 1, 2026 and sell on October 1, 2026 (held 9 months) at ₹2,800. Gain = (2800 - 2500) × 100 = ₹30,000. STCG tax = 20% × 30,000 = ₹6,000. You keep ₹24,000.
Long Term Capital Gains (LTCG) — held over 12 months
Tax rate (Budget 2024 onwards): 12.5% on gains above ₹1.25 lakh per year. Previously 10% above ₹1 lakh. The exemption limit increased from ₹1 lakh to ₹1.25 lakh, but the rate increased from 10% to 12.5%.
Example: You buy 100 shares of TCS at ₹3,000 in 2023 and sell in 2026 at ₹3,800. Gain = (3800 - 3000) × 100 = ₹80,000. This is below ₹1.25 lakh annual exemption, so zero tax. But if your total LTCG across all sales in the year exceeds ₹1.25 lakh, only the excess is taxed at 12.5%.
2. Securities Transaction Tax (STT)
STT is automatically charged on every buy and sell of listed securities. You don't file it — your broker collects it and pays the government.
| Transaction type | STT rate | Charged on |
|---|---|---|
| Equity delivery (buy + sell) | 0.1% each side | Trade value |
| Equity intraday (sell only) | 0.025% | Sell side only |
| Equity futures (sell only) | 0.02% | Sell side |
| Equity options (sell only) | 0.10% | Premium value (raised from 0.0625% in Budget 2024) |
| Equity options exercise | 0.125% | Settlement price |
| Mutual fund redemption | 0.001% | Sell value |
STT looks small but adds up. On a ₹1 lakh delivery transaction, STT is ₹200 (buy + sell). Frequent traders pay STT thousands of times a year. It's a flat tax — no exemption, no slab benefit.
3. Dividend Tax
From April 2020 onwards, dividends are taxable at your applicable income tax slab rate, not at a fixed rate. The company also deducts TDS of 10% if dividend exceeds ₹5,000 per year per company.
Example: You receive ₹15,000 dividend from Coal India and ₹8,000 from ITC during FY 2025-26. Total dividend = ₹23,000, which adds to your total income for the year. If you're in the 20% slab, you owe 20% × 23,000 = ₹4,600. The 10% TDS already deducted (₹2,300) is adjusted against this — you owe the remaining ₹2,300 with your ITR filing.
4. F&O and intraday taxes
Critical distinction: F&O and intraday profits/losses are NOT capital gains. They are taxed differently.
- Intraday equity trading — Speculative Business Income. Taxed at your slab rate. Losses can be carried forward for 4 years and offset only against other speculative income.
- F&O trading (futures and options) — Non-Speculative Business Income. Taxed at your slab rate. Losses can be carried forward for 8 years and offset against any business income.
Since these are business income, tax audit by a Chartered Accountant becomes mandatory if turnover exceeds ₹10 crore (digital transactions) — applicable to nearly every active F&O trader. Audit costs ₹15,000-₹50,000 a year, eating into already-thin margins. This is one reason F&O is so unforgiving for retail.
See my intraday vs delivery guide and F&O basics guide for more on this.
Mutual fund taxes (2026)
| Fund type | STCG rate | LTCG rate | Holding period for LTCG |
|---|---|---|---|
| Equity funds (>65% equity) | 20% | 12.5% above ₹1.25 lakh | 12 months |
| Debt funds (post April 2023) | Slab rate | Slab rate | No LTCG benefit |
| Hybrid (>65% equity) | 20% | 12.5% above ₹1.25 lakh | 12 months |
| Hybrid (<65% equity) | Slab rate | Slab rate | No LTCG benefit |
| Gold ETFs / funds | Slab rate | Slab rate | No LTCG benefit |
| International equity funds | Slab rate | 12.5% | 24 months |
Critical change: from April 2023, debt mutual funds lost the indexation benefit and LTCG advantage. They're now taxed as regular income at slab rate, regardless of holding period. This made them less attractive compared to FDs and PPF for tax purposes.
Practical tax planning strategies
- Hold equity for over 12 months whenever possible. The difference between 20% STCG and 12.5% LTCG is huge.
- Harvest LTCG up to ₹1.25 lakh each year tax-free. Sell, immediately buy back, reset cost base higher.
- Offset short-term losses against short-term gains in the same financial year. Saves immediate tax.
- Long-term losses can offset only long-term gains. Plan exits accordingly.
- Hold dividend-paying stocks in lower-earning family member's name (spouse, parent) to use their lower slab. Use this carefully — clubbing rules apply for income transfers without consideration.
- ELSS funds give Section 80C deduction up to ₹1.5 lakh — useful if you're in 20%+ slab and haven't used 80C elsewhere.
- Keep records of every buy and sell — Zerodha Console and Groww both provide annual P&L statements that simplify ITR filing.
Filing your ITR
If you trade only equity (delivery + occasional intraday), file ITR-2. If you do F&O, file ITR-3 (business income). Forms are available on the income tax e-filing portal. Most brokers (Zerodha, Groww, Upstox) provide downloadable annual P&L and tax reports that you can import directly into the ITR form.
Capital gains are reported in Schedule CG. Dividends in Schedule OS. F&O in Schedule BP. The portal has built-in calculations, so manual computation is mostly unnecessary.
Common tax mistakes
- Forgetting to add intraday/F&O income. The income tax department gets data from your broker via AIS (Annual Information Statement). Mismatch = scrutiny notice.
- Treating F&O as capital gains. It's business income. Wrong classification can lead to penalties.
- Not paying advance tax. If your tax liability exceeds ₹10,000 for the year, you must pay quarterly advance tax — June 15, Sep 15, Dec 15, Mar 15. Otherwise you pay interest under sections 234B/234C.
- Not reporting bonus shares. Cost basis of bonus shares is zero. When you sell, the entire amount is your gain.
- Forgetting losses. Carry forward all losses by filing ITR before the due date. They can offset future gains.
Tax knowledge isn't glamorous, but it directly compounds your returns by reducing leakage. A 1% savings via smart tax planning, compounded over 20 years at 12% pre-tax, is worth roughly 20% extra final corpus. That's significant.
Track your trades regularly via your broker's tax reports. Consult a Chartered Accountant if you have F&O trading or income above ₹15 lakh — the fees pay for themselves in saved tax. And always file your ITR on time, even if everything is loss-making — you need it to carry forward those losses.