How is the gain on shares and equity funds taxed in India? (FY 2026-27)
In FY 2026-27, a gain on listed shares or equity funds held for more than 12 months is taxed at 12.5%, but only on the part above ₹1,25,000 a year. Sold within 12 months, the whole gain is taxed at 20%. Cess of 4% is added to both. So a ₹2,00,000 long-term gain costs ₹9,750 in tax.
Why this is in the news
In late October 2026, reports said the government is discussing a lower tax on long-term capital gains, mainly to bring back foreign investors, ahead of the 2027-28 Budget. The Finance Minister said it is too early to say what will change.
Nothing has changed yet. Any share or equity fund you sell today is taxed under the rules below. If a Budget changes them, this page will be updated.
The two rates, in one minute
Held for more than 12 months: the gain is long-term. The first ₹1,25,000 of long-term gains in a year is tax-free. The rest is taxed at 12.5%, with no indexation.
Held for 12 months or less: the gain is short-term. All of it is taxed at 20%. There is no tax-free amount.
Both rates are flat. They do not depend on your salary slab, and they are the same in the old and new regimes. Cess of 4% is added on top.
The ₹1,25,000 limit is per person, per year, across all your listed shares and equity funds put together. It is not per holding or per fund.
Worked example: a ₹2 lakh gain on a ₹15 lakh salary
Say your salary is ₹15,00,000 and you take the new regime. The tax on the salary alone is ₹97,500.
You sell equity fund units you have held for two years, for a gain of ₹2,00,000. The first ₹1,25,000 is tax-free, so ₹75,000 is taxed at 12.5%. That is ₹9,375, plus ₹375 of cess, which is ₹9,750.
Your total tax for the year becomes ₹1,07,250. The gain does not change the tax on your salary. It is worked out separately and added.
Had you sold within 12 months, the whole ₹2,00,000 would be taxed at 20%: ₹40,000, plus ₹1,600 of cess, which is ₹41,600.
| Gain in the year | Held over 12 months | Held 12 months or less |
|---|---|---|
| ₹1,00,000 | Nil | ₹20,800 |
| ₹1,50,000 | ₹3,250 | ₹31,200 |
| ₹2,00,000 | ₹9,750 | ₹41,600 |
| ₹3,00,000 | ₹22,750 | ₹62,400 |
| ₹5,00,000 | ₹48,750 | ₹1,04,000 |
The ₹12 lakh rebate does not cover these gains
In the new regime, salary up to ₹12,75,000 pays no tax, because of the rebate. That rebate only cancels tax on income taxed at slab rates. It cannot be used against the 12.5% or 20% tax on these gains.
So even if your salary pays no tax, a long-term gain above ₹1,25,000 or any short-term gain can still be taxed.
One small relief: if your other income is below ₹4,00,000, the unused part of that tax-free slab can reduce the taxable gain.
SIPs: every instalment has its own 12 months
Each SIP instalment buys units on its own date. Each lot becomes long-term only when it has been held for more than 12 months.
When you sell, the oldest units count as sold first. So if your SIP started 14 months ago, only the first one or two instalments are long-term today. A gain on the rest is short-term and taxed at 20%.
Before you file
Tax on a gain is not deducted at source for a resident. If the tax you still owe for the year, after TDS on salary, is more than ₹10,000, advance tax applies to it.
This page covers listed shares and equity-oriented funds sold by a resident. Debt funds, gold, property and unlisted shares follow other rules, and surcharge (income above ₹50,00,000) is not included.
Educational, not investment advice. I’m not SEBI-registered.
Questions people ask
Is LTCG on equity mutual funds tax-free up to ₹1.25 lakh?
Yes. The first ₹1,25,000 of long-term gains in a year, from listed shares and equity funds combined, is tax-free. Only the amount above it is taxed at 12.5%, plus cess.
Does the ₹12 lakh rebate apply to capital gains?
No. The new-regime rebate only cancels tax on slab-rate income. Tax on long-term gains at 12.5% and short-term gains at 20% stays payable.
Is capital gains tax different in the old and new regimes?
No. The 12.5% and 20% rates and the ₹1,25,000 tax-free limit are the same whichever regime you choose.
Has the LTCG tax been cut?
Not as of 28 October 2026. A cut is being discussed ahead of the 2027-28 Budget, but the 12.5% rate and the ₹1,25,000 limit still apply to any sale today.
How much tax is due on a ₹2 lakh long-term gain?
₹9,750. The first ₹1,25,000 is tax-free, ₹75,000 is taxed at 12.5% (₹9,375), and 4% cess adds ₹375.
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