Capital gains tax on shares comes down to a short list of numbers: 20% on short-term gains, 12.5% on long-term gains above ₹1.25 lakh, and a 12-month line between the two. None of those rates changed for FY 2026-27.
What did change is the vocabulary. The Income-tax Act 2025 now governs, FY 2026-27 is called a tax year, and the section numbers you will see on statements and returns are new. Budget 2026 also moved buyback proceeds back to capital gains treatment for shareholders. This guide covers the rates, the new numbers, and where F&O income fits in.
Capital gains tax on shares and equity funds: The rates
For FY 2026-27, short-term gains on listed shares and equity mutual funds are taxed at 20%. Long-term gains are taxed at 12.5% on the amount above ₹1.25 lakh in a financial year. Long-term means held for more than 12 months, and both rates apply only where STT was paid.
| Asset | Long-term after | Short-term rate | Long-term rate |
|---|---|---|---|
| Listed shares and equity mutual funds (STT paid) | 12 months | 20% | 12.5% above ₹1.25 lakh |
| Unlisted shares | 24 months | Slab rate | 12.5%, no exemption |
| Debt mutual funds bought on or after 1 April 2023 | Never | Slab rate | Not applicable |
| Debt mutual funds bought before 1 April 2023 | 24 months | Slab rate | 12.5%, no indexation |
The STCG tax rate of 20% is a flat rate, so it does not change with your income slab. Equity mutual funds follow the same rules as listed shares. Debt funds bought after 31 March 2023 are taxed at your slab rate, whatever the holding period. Hybrid, international and gold funds follow other rules and are not covered here.
LTCG on shares: How the ₹1.25 lakh exemption works
The first ₹1.25 lakh of long-term gains on listed shares and equity mutual funds in a financial year is exempt. Only the amount above it is taxed at 12.5%. The exemption is a single annual limit across all your equity holdings, not a limit per stock or per fund.
Here is a worked example. An investor books ₹3,00,000 of long-term gains on equity mutual funds and ₹80,000 of short-term gains on shares.
| Gain | Amount | Taxable amount | Rate | Tax |
| Long-term (equity funds) | ₹3,00,000 | ₹1,75,000 | 12.5% | ₹21,875 |
| Short-term (shares) | ₹80,000 | ₹80,000 | 20% | ₹16,000 |
| Total | ₹37,875 |
The total excludes surcharge and the 4% cess. Now add a ₹50,000 short-term capital loss from another sale. The short-term gain drops to ₹30,000, its tax falls to ₹6,000, and the total becomes ₹27,875, a saving of ₹10,000.
Capital losses can be carried forward for eight years, but only against capital gains, and only if you file your return on time. A short-term loss can offset both short-term and long-term gains. A long-term loss can offset only long-term gains.
Income-tax Act 2025: What changed for FY 2026-27
The Income-tax Act 2025 applies from 1 April 2026, so FY 2026-27 is a tax year, not a previous year. The capital gains rates are unchanged, but the sections are renumbered: 111A becomes 196, 112 becomes 197, and 112A becomes 198.
| Old section (1961 Act) | New section (2025 Act) | What it covers |
| 111A | 196 | Short-term gains on listed equity |
| 112 | 197 | Long-term gains on other assets |
| 112A | 198 | Long-term gains on listed equity above ₹1.25 lakh |
| 74 | 111 | Carry-forward of capital losses |
| 72 | 112 | Carry-forward of non-speculative business losses |
Returns for tax year 2026-27 are filed in 2027 under the new numbers.The number 112 now means something different. Under the new Act, Section 112 covers business loss carry-forward, not long-term gains. Returns for FY 2025-26, filed in 2026, still use the old numbers, so check which year a document refers to before matching sections.
Tax on F&O income: A different head
Tax on F&O income is not capital gains tax. Profits and losses from futures and options on recognized exchanges are non-speculative business income, taxed at your slab rate and reported in ITR-3. A loss can be set off against income other than salary and carried forward for eight tax years if you file on time.
Intraday equity trading is speculative business income, with its own rules. A speculative loss can offset only speculative profit and can be carried forward for four years.
For tax audit purposes, F&O turnover is the sum of the absolute profit and loss on each trade, not the contract value. A tax audit applies above ₹10 crore of turnover when cash receipts and payments are under 5%. It can also apply at much lower turnover when you report a loss or a profit below the presumptive rate, so check your position with a chartered accountant.
The STT increase effective from 1 April 2026 raises the cost of every F&O trade. Use the STT on F&O break-even guide to understand how the higher transaction costs affect the point at which a trade covers its costs. This is a separate question from how the resulting income is taxed.
What these figures leave out
The examples exclude surcharge, the 4% cess, and any unused basic exemption limit, so your final bill can differ. Frequent traders in shares may find that the tax department treats their activity as business income instead of capital gains, a question for a chartered accountant. Section numbers and thresholds in a new Act can be amended, so confirm them against the current text.
Pull your broker’s capital gains statement and split it into three buckets: short-term equity, long-term equity, and F&O. Use the Axis Direct tax and profit and loss reports to review your trading figures, run each bucket through the matching rate above, then share the totals with your accountant before the filing window opens.
Basic FAQs
What is the capital gains tax on shares in FY 2026-27?
Short-term gains on listed shares held for 12 months or less are taxed at 20%. Long-term gains are taxed at 12.5% on the amount above ₹1.25 lakh in the financial year. Both rates apply where STT was paid.
How is F&O income taxed?
F&O income is non-speculative business income, taxed at slab rates and reported in ITR-3. Losses can be set off against income other than salary and carried forward for eight tax years if the return is filed on time.
Which section covers LTCG on shares under the Income-tax Act 2025?
Section 198 of the Income-tax Act 2025 covers long-term capital gains on listed equity, replacing Section 112A. Section 196 replaces Section 111A for short-term gains, and Section 197 replaces Section 112 for other long-term gains.
