Long Term Capital Gains Tax on Shares: Calculation, Exemptions & Process

When you buy shares and sell them after holding for more than a year, the profit you make is called Long-Term Capital Gain (LTCG). In India, the government taxes this profit to ensure fair contribution to public services. This article explains how LTCG tax works on shares, the exemptions available, and the process to file for LTCG in India as per the updated rules for 2025. If you're someone who invests in stocks, understanding LTCG is important because it directly impacts how much of your profit you will take home after taxes.

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Taxability of Long-Term Capital Gain on Shares

Long-Term Capital Gain (LTCG) refers to the profit made when selling an asset, like shares, mutual funds, or bonds, that have been held for more than 12 months. In India, profits from the sale of equity shares (stocks) are taxed under the LTCG tax regime if they exceed a certain amount. The profits made from the sale of shares that are held for over a year are taxable at a rate of 10% if they exceed the exemption limit of ₹1.25 lakh in a given financial year.

If your total gains from equity shares are less than ₹1.25 lakh, then you don’t have to pay any LTCG tax on the profit. However, if your profit exceeds the limit, then 10% tax will be applicable on the amount above ₹1.25 lakh.

New Short-Term Capital Gains Tax Rates

In the budget of 2025, the government introduced updates to the tax provisions, and here are the changes that are important for LTCG on shares:

• Exemption Limit: The exemption limit on LTCG has been raised to ₹1.25 lakh from ₹1 lakh, which means if your capital gain from selling shares is less than ₹1.25 lakh, you do not need to pay any tax.
• Tax Rate: The tax rate for LTCG exceeding the exemption limit is 10%. This is a flat rate on capital gains above ₹1.25 lakh from the sale of equity shares and mutual funds.

This update provides more relief for investors, as it increases the amount that is exempt from tax and helps small investors save on taxes.

Income Tax on Long-Term Capital Gain on Shares

LTCG tax applies on the profit made from selling assets like shares. Here is how it is calculated and taxed based on the latest rules:

Selling Price

Purchase Price

Capital Gain

Taxable Capital Gain

Tax Payable

₹2,00,000

₹1,50,000

₹50,000

₹50,000

₹6,250 (10%)

In this example, the capital gain is ₹50,000, and it is below the exemption limit of ₹1.25 lakh, so no tax will be payable. However, if the gain exceeds ₹1.25 lakh, the tax of 10% will be levied on the excess profit.

Long-Term Capital Gains Tax Exemption

The tax exemption on LTCG is available up to ₹1.25 lakh in a financial year for individuals and Hindu Undivided Families (HUF). To calculate the taxable LTCG, follow the formula:

Taxable LTCG = Total Capital Gain - ₹1,25,000 (Exemption)

For instance, if you earned ₹1,50,000 in LTCG during the year, you can subtract the exemption of ₹1.25 lakh:

Taxable LTCG = ₹1,50,000 - ₹1,25,000 = ₹25,000

Tax Payable = 10% of ₹25,000 = ₹2,500

Therefore, the tax payable on the excess profit will be ₹2,500.

Long-Term Capital Loss

If you sell an asset at a loss after holding it for over a year, it results in Long-Term Capital Loss (LTCL). The good news is that you can offset this loss against future LTCG gains. If you make a loss of ₹5,000 in the current year, you can use it to reduce your taxable LTCG next year. This allows you to pay lower taxes on future capital gains.

For example, if you make a profit of ₹10,000 next year and have a loss of ₹5,000 from the previous year, you can deduct that loss and only pay tax on ₹5,000.

What is Section 112A?

Section 112A deals with the taxation of Long-Term Capital Gains (LTCG) on listed equity shares, equity mutual funds, and business trusts. According to this section, if you sell your shares after holding them for more than a year, the capital gain is taxed at 10% if the profit exceeds ₹1.25 lakh.

This section was introduced to standardize the tax treatment of LTCG on equity investments and provides clarity on tax rates for small investors.

Scope of Section 112A

Section 112A is applicable to:

1. Equity Shares: Shares that are listed on recognized stock exchanges.
2. Equity-Oriented Mutual Funds: Mutual funds that invest mostly in stocks.
3. Units of Business Trusts: Units of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts).

The section applies only if the asset is sold after being held for over one year.

Applicability of Section 112A

Section 112A applies to individual investors, Hindu Undivided Families (HUF), and foreign institutional investors (FIIs) who make a profit on the sale of listed equity shares or equity mutual funds. The section applies only if the profit exceeds ₹1.25 lakh in a financial year.

Grandfathering Provisions Under Section 112A

The grandfathering provisions allow tax-free treatment for capital gains on assets bought before 1st February 2018. For example, if you purchased shares before 1st February 2018, and sold them later for a profit, the capital gain on the amount before 1st February 2018 is not taxed. The tax will apply only to the gains after this date.

This provision is meant to provide fair treatment for investors who made investments before the introduction of the new LTCG tax rule in 2018.

Tax Filing Process Changes After Finance Bill 2025

The Finance Bill 2025 introduces changes in the process for filing taxes on LTCG:

1. Updated Forms: New tax return forms to include more detailed information on LTCG from shares and mutual funds.
2. Mandatory Disclosure: Taxpayers will need to report their LTCG from equity shares and mutual funds separately in the tax filing.
3. Transparency: Enhanced scrutiny of LTCG transactions to ensure correct tax calculation and compliance.

These changes aim to streamline the tax-filing process and make it easier to report capital gains accurately.

Provisions Regarding Disclosure of LTCG in ITR Filing

In your Income Tax Return (ITR), you must disclose your LTCG in the appropriate section. It is important to include the purchase price, sale price, and the Securities Transaction Tax (STT) that was paid during the transactions. Additionally, ensure to claim the exemption of ₹1.25 lakh for LTCG.

Accurate reporting ensures that you are taxed properly and helps you take advantage of any available exemptions.

Understanding Long-Term Capital Gains Tax (LTCG) is essential for investors. By knowing how LTCG is taxed, the exemption limits, and how to file for taxes correctly, you can manage your investments better. The recent changes in tax provisions, including the grandfathering clause and the increased exemption limit, provide relief to investors and encourage long-term investment. Stay informed about the rules and make the most of your investments!