LTCG vs STCG: what every equity investor needs to know in 2026
Every equity investor in India faces two types of capital gains tax: Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG). The difference between them can mean thousands of rupees in your tax bill, and understanding the rules is not optional if you are a serious investor.
The holding period rule
For listed equities and equity mutual funds, the holding period threshold is 12 months. If you hold a share or an equity fund unit for more than 12 months before selling, the gain is classified as LTCG. If you sell within 12 months, it is STCG. The date of purchase is critical: a stock bought on January 15 and sold on January 16 the following year qualifies as long-term. Sold on January 14? Short-term.
The tax rates
STCG on equities is taxed at 20% (revised from 15% in Budget 2024). LTCG is taxed at 12.5% (revised from 10%). There is no indexation benefit for equities, unlike debt funds or real estate. The rates apply to the gain, not the total sale value.
The Rs 1.25 lakh exemption
The single most important relief for retail investors: the first Rs 1.25 lakh of LTCG in a financial year is completely exempt from tax. This was increased from Rs 1 lakh in Budget 2024. STCG has no such exemption; every rupee of short-term gain is taxable.
Practical example: if you sold shares this year with LTCG of Rs 2 lakh, only Rs 75,000 is taxable. At 12.5%, your tax liability is Rs 9,375. But if those same gains were STCG, the full Rs 2 lakh would be taxable at 20%, giving you a Rs 40,000 tax bill.
Tax harvesting: using the exemption strategically
Tax harvesting is the practice of selling investments before March 31 to book gains within the Rs 1.25 lakh annual exemption, then repurchasing the same or similar investments. This resets your cost basis. Over several years, this can significantly reduce your eventual tax liability when you actually want to sell.
The key rule: wait at least one day before repurchasing (to avoid it being treated as a wash sale). The repurchase price becomes your new cost, so you are not eliminating gains; you are bringing them into the tax-free window each year instead of letting them accumulate.
The grandfathering clause
For equity investments made before January 31, 2018, the cost basis for LTCG is the higher of the actual purchase price or the market price on January 31, 2018. This grandfathering protects gains made before LTCG was reintroduced, but it also means the calculation for old holdings is more complex.
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Please consult a SEBI-registered advisor or chartered accountant for decisions specific to your situation.