Capital Gains Tax on Shares & Mutual Funds AY 2026-27

The two things that decide your tax: asset type and holding period

Capital gains tax in India turns on two questions: what did you sell, and how long did you hold it. Get those two right and everything else follows. Equity shares and equity-oriented mutual funds are taxed under one concessional regime; debt funds, gold, and property under others. Within each, a holding-period test splits your gain into short-term or long-term, each with its own rate.

This guide focuses on listed equity shares and mutual funds, the assets most individual investors hold, for AY 2026-27 (financial year 2025-26). For reporting, these gains go into ITR-2 (or ITR-3 if you also have business income).

Listed equity shares and equity mutual funds

For listed shares and equity-oriented funds, the holding-period test is 12 months.

• Held over 12 months → long-term. Long-term capital gains (LTCG) are taxed at 12.5% under Section 112A on gains above the ₹1.25 lakh annual exemption.
• Held 12 months or less → short-term. Short-term capital gains (STCG) are taxed at 20% under Section 111A.
• The ₹1.25 lakh exemption applies to your total 112A LTCG for the year, across all shares and equity funds combined, not per transaction.
• Securities Transaction Tax (STT) must have been paid for these concessional rates to apply, which is automatic for normal exchange trades.

A worked example on equity

Priya sold equity mutual fund units in March 2026 that she had held for three years, booking a long-term gain of ₹3,00,000. Her tax: the first ₹1,25,000 is exempt, leaving ₹1,75,000 taxable at 12.5% = ₹21,875 (plus cess). Separately, she sold shares held for four months at a ₹50,000 short-term gain, taxed at 20% = ₹10,000.

Notice how the exemption works only once across the year, and how holding just past 12 months would have moved her short-term shares into the far cheaper long-term bracket. Timing a sale even a few days differently can materially change the tax, one reason a quick check before you redeem is worthwhile.

Debt funds and other mutual funds

Non-equity funds follow a different, harsher track.

• Debt mutual funds bought after 1 April 2023 are taxed at your slab rate regardless of holding period, no indexation, no special LTCG rate.
• Hybrid funds depend on equity allocation: broadly, 65%+ equity funds get equity treatment; low-equity hybrids get slab treatment.
• Gold funds and international funds largely follow the non-equity track for recent purchases.
• Older investments can carry transitional rules, so a legacy holding is worth a CA review before you redeem a large amount.

Reporting in your return, and reducing the bill

Equity gains are reported in Schedule CG of your ITR, with Section 112A gains requiring a scrip-wise (or consolidated) breakup. Your broker's capital-gains statement and the AIS will show most of this, but reconcile them, the AIS is where the department gets its figures.

Legitimate ways to reduce the bill include tax-loss harvesting (booking losses to set off against gains), using the ₹1.25 lakh exemption every year rather than letting gains bunch up, and holding equity past 12 months to convert 20% STCG into 12.5% LTCG. Capital losses can be set off and carried forward for eight years, but only if you file on time, which is where a belated return hurts.

Our income tax & ITR filing service handles capital-gains returns, reconciles broker statements against the AIS, and applies loss set-offs correctly. book a free consultation before you file a year with significant gains.

Reporting checklist and official resources

Before you file a year with capital gains, assemble and reconcile the following:

• Broker and AMC capital-gains statements for every account, covering both realised equity and debt transactions.
• The AIS and Form 26AS from the income tax e-filing portal, which now capture securities transactions, reconcile these against your broker statements before filing.
• Your Section 112A scrip-wise or consolidated schedule, and the quarter-wise breakup that drives 234C interest.
• Records of any carried-forward losses from earlier years you intend to set off.

File using ITR-2 (or ITR-3 with business income). If your gains are large or span multiple asset classes, small classification errors, equity vs debt, short vs long, the wrong section, change the tax materially. Reconciling to the AIS first is the single most effective way to avoid a mismatch notice, and it is exactly the step DIY filers most often skip.

Common capital-gains mistakes to avoid

A handful of errors account for most capital-gains trouble, and each is avoidable:

• Ignoring the AIS. The income tax e-filing portal now receives your securities transactions directly from depositories and registrars. Reporting less than the AIS shows is the fastest way to a mismatch notice.
• Mixing up equity and debt treatment. Equity funds enjoy the 12.5% long-term rate and the ₹1.25 lakh exemption; debt funds bought after 1 April 2023 are taxed at slab rates. Applying the wrong track under- or over-pays tax.
• Forgetting the quarter-wise breakup, which drives your 234C advance-tax interest and is a required part of the schedule.
• Letting gains bunch up. The ₹1.25 lakh exemption is annual and use-it-or-lose-it, harvesting gains across years can save real tax.
• Filing late and losing the right to carry forward capital losses for eight years.

Grandfathering also still matters for very old equity holdings: gains up to 31 January 2018 are generally protected, and your cost is stepped up accordingly. If you hold pre-2018 shares or funds, that calculation is worth getting right, because it can significantly reduce the taxable gain. When in doubt on a large or legacy holding, a quick review before you redeem beats an amended return afterwards.