Chapter 14 of 15
Stock Market Taxation in India
STCG, LTCG, STT, and dividend taxation for stocks.
Arjun had made ₹4 lakh in profit selling TCS shares — his first major equity windfall. But when he sat down to file his ITR, he realised he had no idea how to calculate the tax. Short-term or long-term? What exemptions apply? Is it different from salary income? A quick call to his CA friend clarified everything — and more importantly, revealed a simple tax harvesting trick that could save him thousands every year going forward.
Two Types of Capital Gains
STCG vs LTCG — Key Differences
| Aspect | STCG on Equity | LTCG on Equity |
|---|---|---|
| Holding Period | Less than 12 months | 12 months or more |
| Tax Rate (post-Budget 2024) | 20% flat (from 23 Jul 2024) | 12.5% flat (from 23 Jul 2024) |
| Annual Exemption | No exemption | ₹1.25 lakh per financial year |
| Tax Form | ITR-2 or ITR-3 | ITR-2 or ITR-3 |
| Loss Set-Off | Can offset against STCG or LTCG | Can only offset against LTCG |
| Carry Forward of Loss | Up to 8 years | Up to 8 years |
STCG Example
Arjun bought TCS shares in August 2024 and sold them in March 2025 (8 months — less than 12 months):
- Sale Proceeds: ₹5,00,000
- Purchase Cost: ₹3,50,000
- Short-Term Capital Gain: ₹1,50,000
- STCG Tax Rate: 20%
- Tax Payable = ₹1,50,000 × 20% = ₹30,000
Note: Arjun would also have paid STT of 0.1% = ₹500 on the sale transaction, but this was automatically deducted by Zerodha. He must report this gain in Schedule CG of his ITR-2 before the July 31 deadline.
LTCG Example with ₹1.25 Lakh Exemption
Priya bought Infosys shares in January 2024 and sold them in March 2025 (14 months — qualifies as long-term):
- Sale Proceeds: ₹8,00,000
- Purchase Cost: ₹6,00,000
- Long-Term Capital Gain: ₹2,00,000
- Less: LTCG Annual Exemption: ₹1,25,000
- Taxable LTCG: ₹2,00,000 − ₹1,25,000 = ₹75,000
- LTCG Tax Rate: 12.5%
- Tax Payable = ₹75,000 × 12.5% = ₹9,375
Importantly, no indexation benefit is available on equity LTCG (indexation was removed; it applies only to certain debt instruments). Priya's effective tax on her ₹2 lakh gain is just ₹9,375 — or 4.7% effective rate — versus 20% on the full gain if she had sold before 12 months.
Dividend Taxation
Dividends received from Indian companies are taxed at the investor's applicable income tax slab rate (not a flat 10% as it was pre-2020). If you are in the 30% tax bracket and receive ₹50,000 in dividends from ITC or Coal India, you pay ₹15,000 tax (30%) on it — added to your total income and taxed accordingly.
TDS of 10% is deducted by the company if total dividends exceed ₹5,000 per year from that company. You can claim credit for this TDS when filing your ITR.
Intraday Trading — Speculative Income
If you buy and sell a stock on the same day (intraday trading), the profit is treated as "speculative business income" — NOT as capital gains. This means it's added to your total income and taxed at your applicable income slab rate (up to 30%). If you're a salaried professional in the 30% slab, a ₹1 lakh intraday profit costs ₹30,000 in tax — far more than STCG or LTCG. You must file ITR-3 (business income) instead of ITR-2 if you have intraday profits.
Tax Loss Harvesting — A Smart Strategy
Every financial year, you can book up to ₹1.25 lakh of LTCG tax-free. If you have long-term profits, book up to ₹1.25 lakh of them before March 31 each year — then repurchase the same shares. Over many years, this "grandfathering" trick significantly reduces your eventual tax bill. For example, if you have ₹3 lakh of unrealised LTCG in January 2026, sell enough to book ₹1.25 lakh, immediately rebuy at the higher price, and your cost basis resets. Do this every year.
Similarly, if you have capital losses, set them off against gains in the same year to reduce taxable capital gains. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG.
What is the STCG tax rate on listed equity shares sold after holding for 8 months, as per Budget 2024?
Key Takeaways
- STCG on equity (held <12 months) is taxed at 20% flat; LTCG (held >12 months) is taxed at 12.5% with a ₹1.25 lakh annual exemption — both as per Budget 2024.
- Dividends are taxed at your income slab rate (up to 30%), with 10% TDS deducted by the company if dividends exceed ₹5,000 annually.
- Intraday trading profits are treated as speculative business income and taxed at slab rates — not as capital gains.
- Harvest LTCG annually up to ₹1.25 lakh to use the tax-free exemption; this compounding tax saving can be significant over a decade.