Introduction
Capital gains tax is a crucial aspect of investing in the stock market. Whether you’re a seasoned trader or a long-term investor, understanding how capital gains taxes work can help you legally reduce your tax burden and increase your net returns. This comprehensive 2024 guide explains everything about short-term and long-term capital gains on stocks, mutual funds, SIPs, and more with data tables, examples, and practical strategies.
1. What is the Capital Gains Tax on Stocks?
Capital gains tax is levied on the profits made from the sale of shares or equity-related instruments.
Types of Capital Gains:
- Short-Term Capital Gains (STCG): Assets held for less than 12 months.
- Long-Term Capital Gains (LTCG): Assets held for 12 months or more.
Capital Gains Formula:
| Type | Formula | Tax Rate |
|---|---|---|
| STCG | (Sell Price – Buy Price – Brokerage) x 15% | 15% + 4% cess |
| LTCG | (Sell Price – Buy Price – 1L exemption) x 10% | 10% + 4% cess |
2. STCG vs LTCG: Key Differences
| Factor | STCG | LTCG |
| Holding Period | < 12 months | >= 12 months |
| Tax Rate | 15.6% | 10.4% |
| Exemption | None | ₹1 lakh/year |
| Indexation | No | Yes (for unlisted shares) |
3. 2024 Tax Rates on Equity & Mutual Funds
A. Equity Shares (Listed)
| Type | Tax Rate | Exemption |
| STCG | 15.6% | None |
| LTCG | 10.4% | ₹1 lakh/year |
B. Mutual Funds
| Fund Type | STCG | LTCG | Holding Period |
| Equity | 15.6% | 10.4% after ₹1L | 12 months |
| Debt | As per slab | 20.8% with indexation | 36 months |
4. How to Save Tax on Capital Gains
Top Strategies:
- ✅ Hold for over 12 months to benefit from LTCG exemption
- ✅ Tax-Loss Harvesting – Sell loss-making assets to offset gains
- ✅ Switch to ELSS Funds for Section 80C benefits
- ✅ Avoid Frequent Trading to reduce STCG liability
Example: Tax Saving Through Holding Period
| Stock | Buy Date | Sell Date | Gain | Tax Type | Tax |
| A | Jan 2023 | Dec 2023 | ₹1.2L | STCG | ₹18,720 |
| B | Jan 2023 | Jan 2024 | ₹1.2L | LTCG | ₹2,080 |
📌 Savings: ₹16,640 by delaying the sale by 1 month.
5. SIPs and Capital Gains Tax
Each SIP installment is treated separately for tax purposes.
| SIP Date | Sell Date | Gain | Tax Type |
| Jan 2023 | Feb 2024 | ₹10K | LTCG |
| Jun 2023 | Feb 2024 | ₹10K | STCG |
🧠 Always check the holding period for each SIP when redeeming.
6. Filing Capital Gains in ITR
Steps to Follow:
- Download Tax P&L and contract notes from your broker
- Reconcile with Form 26AS and AIS/TIS
- Use ITR-2 form
- Declare LTCG in Schedule 112A
- Mention exempt income correctly
Required Documents:
- Broker Contract Notes
- DEMAT Holdings
- Form 26AS
- AIS & TIS Reports
- Dividend Reinvestment Proofs
7. Mistakes to Avoid
- ❌ Misreporting holding periods
- ❌ Ignoring split/bonus adjustments
- ❌ Declaring in the wrong ITR form
- ❌ Missing out on ₹1L LTCG exemption
Conclusion: Mastering Capital Gains Taxation
Plan Smart, Save Big
Mastering capital gains tax rules is essential for every investor. With proper planning, you can:
- ✅ Use exemptions efficiently
- ✅ Reduce STCG with strategic holding
- ✅ Offset gains using losses
- ✅ File ITR correctly with minimal risk
Use tools like a capital gains tax calculator and maintain clean records for each trade.
🔗 Cleartax Capital Gains Calculator
FAQs on Capital Gains Tax (2025)
Q1. Is the LTCG tax applicable if I gift shares to a family member?
A: No tax during the gift, but the recipient inherits the cost and holding.
Q2. Is intraday profit taxable as capital gain?
A: No, it is business income and taxed at the slab rate.
Q3. Can I carry forward capital losses?
A: Yes, for 8 assessment years. LTCG can offset LTCG only.
Q4. Is a tax audit required for share traders?
A: Only if turnover exceeds ₹2 crore or presumptive rules apply.
Q5. Do NRIs pay capital gains tax on stocks?
A: Yes. LTCG is at 10%, and STCG is at 15%, without slab exemptions.