The Indian stock market remains a goldmine of opportunities for investors—from enthusiastic first-timers to experienced traders. But to truly maximize your profits, it’s essential to understand the capital gains tax on shares in India for FY 2024-25 (AY 2025-26). With recent changes announced in Budget 2024, staying updated can save you thousands—or even lakhs—in taxes.
In this comprehensive guide, we’ll decode the new rules, tax rates, calculation methods, exemptions, and powerful strategies to legally reduce your capital gains tax liability.
What is Capital Gains Tax on Shares?
Capital gains tax is levied on the profit earned when you sell shares at a price higher than the purchase price. These gains are categorized under the Income Tax Act, 1961, and apply to equity shares, mutual funds, real estate, and other capital assets.
Types of Capital Gains on Shares
Capital gains depend on how long you’ve held the shares:
- Short-Term Capital Gains (STCG): If shares are sold within 12 months.
- Long-Term Capital Gains (LTCG): If sold after holding for more than 12 months.
Capital Gains Tax Rates on Shares (FY 2024-25)
Here are the latest rates after the Union Budget 2024 updates:
🔹 Short-Term Capital Gains (STCG)
- Holding Period: Up to 12 months
- Tax Rate: 20% flat (increased from 15%)
- STT Applicability: STT must be paid on both buying and selling
🔹 Long-Term Capital Gains (LTCG)
- Holding Period: More than 12 months
- Exemption Limit: ₹1.25 lakh/year (previously ₹1 lakh)
- Tax Rate: 12.5% on gains above ₹1.25 lakh
- Indexation Benefit: No longer available (abolished from July 23, 2024)
Quick Reference Table
| Type | Holding Period | Tax Rate (FY 2024-25) | Exemption Limit | Indexation |
| STCG | ≤ 12 months | 20% | None | No |
| LTCG | > 12 months | 12.5% | ₹1.25 lakh | No |
How to Calculate Capital Gains on Shares
✅ STCG Formula:
STCG = Sale Price − (Purchase Price + Brokerage/Charges)
→ Tax at 20% on full gain
✅ LTCG Formula:
LTCG = Sale Price − (Purchase Price + Charges)
→ Deduct ₹1.25 lakh exemption → Tax 12.5% on the remaining gain
Example:
- Bought at ₹2,00,000
- Sold after 15 months at ₹4,00,000
- LTCG = ₹2,00,000
- Taxable LTCG = ₹2,00,000 − ₹1,25,000 = ₹75,000
- Tax = 12.5% of ₹75,000 = ₹9,375
Grandfathering Provision (For Shares Bought Before Jan 31, 2018)
To protect gains earned before the introduction of LTCG tax in 2018:
- Cost of acquisition is calculated as the higher of:
- Actual purchase cost, or
- Lower of:
- Fair market value on Jan 31, 2018
- Sale price
Capital Gains Disclosure in Income Tax Return (ITR)
- ITR-2: If you have only capital gains
- ITR-3: If you also have business income (intraday/F&O)
- Must disclose scrip-wise details under Section 112A
Tax Rules for Buybacks, Bonus & Rights Shares
- Buybacks: Taxable as capital gains (post Oct 1, 2024)
- Bonus Shares: Cost = Zero; entire sale proceeds taxable
- Rights Shares: Cost = Amount paid to buy rights
6 Proven Strategies to Save Capital Gains Tax on Shares
1. Maximize Exemption Limit
Plan to sell shares such that your LTCG ≤ ₹1.25 lakh annually—completely tax-free!
2️. Set Off Capital Losses
- STCL: Set off against both STCG & LTCG
- LTCL: Only against LTCG
- Losses can be carried forward for 8 years, but only if ITR is filed on time.
3️. Reinvest in Property (Section 54F)
- Reinvest sale proceeds in a residential property within 2 years to claim LTCG exemption (conditions apply).
4️. Use Tax Harvesting
- Sell and repurchase shares to reset acquisition cost and book gains up to ₹1.25 lakh annually—tax-free!
5️. Gift Shares to Family Members
Transfer shares to family members in lower tax brackets (e.g., spouse, parents, adult children)—strategically reduce tax liability.
6️. Use Tax-Free Investment Avenues
Invest in PPF, NPS, and other exempt instruments for long-term wealth creation.
Common Mistakes Investors Must Avoid
❌ Not reporting all gains/losses
❌ Using the wrong ITR form (e.g., ITR-1 instead of ITR-2/3)
❌ Missing the return filing deadline—losses can’t be carried forward!
❌ Ignoring AIS/26AS data matching—can lead to tax scrutiny
Budget 2024 Key Changes That Affect You
- STCG rate increased from 15% to 20%
- LTCG rate increased to 12.5%
- LTCG exemption limit increased to ₹1.25 lakh
- Indexation abolished for most capital assets
- Buyback proceeds taxable from Oct 1, 2024
FAQs on Capital Gains Tax in 2025
Q. Are gifted shares taxed?
No tax on gift transfers. But the receiver pays capital gains tax when they sell.
Q. Are dividends taxed as capital gains?
No. Dividend income received from shares is generally taxed under the head “Income from Other Sources.”
Q. Can I claim the indexation benefit?
Not for shares. Indexation for shares was abolished in July 2024.
Q. What if I have both capital gains and business income?
You must file ITR-3 and disclose each income head separately.
Final Thoughts: Tax Smart, Not Just Stock Smart
The updated capital gains tax structure in India—higher rates, no indexation, and stricter rules—means it’s more important than ever to plan your investments with tax efficiency in mind.
✅ Stay informed
✅ Track your gains
✅ File the correct ITR
✅ Use legal tax-saving tools
✅ Consult a tax expert when needed
By aligning your investment decisions with tax strategy, you can safeguard your profits and stay ahead in your wealth-building journey.
Disclaimer: This post is for educational purposes only and should not be considered professional tax advice. Please consult a qualified tax consultant for personalized assistance.
