STCG vs LTCG on Stocks in India (2026)

Understanding STCG and LTCG on Indian Equities

India taxes profits from equity trading under two distinct regimes based on holding period. Getting the classification right is the single most important factor in estimating your tax liability, because the rate difference between 15% and 10% compounds significantly over hundreds of trades per year.

The 12-Month Dividing Line

The holding period is calculated from the date of purchase to the date of sale. If you buy shares on 1 April 2025 and sell on 31 March 2026, the holding period is exactly 12 months, which still qualifies as short-term. You need to hold for more than 12 months for LTCG treatment.

For delivery-based equity trades where STT is paid, the classification is straightforward:

Holding Period	Tax Category	Rate	Section
Up to 12 months	STCG	15%	111A
More than 12 months	LTCG	10% (above Rs 1L)	112A

STT Requirement

Both the preferential STCG rate of 15% under Section 111A and the LTCG rate of 10% under Section 112A apply only when STT has been paid on the transaction. For shares purchased through off-market transfers or where STT was not paid, the tax treatment differs and gains may be taxed at your slab rate.

The Rs 1 Lakh LTCG Exemption

The exemption under Section 112A allows the first Rs 1 lakh of long-term capital gains from equity in each financial year to be completely tax-free. This is an aggregate limit, not per-stock.

Tax Planning Around the Exemption

Smart investors harvest this exemption annually. If you hold stocks with unrealized long-term gains, consider selling Rs 1 lakh worth of gains each year and immediately repurchasing. This resets your cost base and uses the exemption that would otherwise expire unused.

However, note that this strategy involves transaction costs (brokerage, STT, exchange charges) and a brief period of market exposure risk during the repurchase window.

Grandfathering for Pre-2018 Holdings

When LTCG tax on equity was reintroduced in Budget 2018, the government included a grandfathering provision to protect gains accumulated before 31 January 2018.

How the Deemed Cost Works

The cost of acquisition for shares bought before 31 January 2018 is determined as follows:

1. Take the actual purchase price
2. Take the fair market value (highest traded price) on 31 January 2018
3. The deemed cost is the higher of the two
4. But the deemed cost cannot exceed the actual sale price

This calculation ensures that pre-2018 gains are not taxed, while post-2018 gains are captured.

STCG vs LTCG: Which Is Better for Traders?

Active traders rarely benefit from LTCG treatment because their holding periods are short. However, understanding the distinction matters for portfolio-level tax planning.

Strategies for Tax Efficiency

Separate your trading and investing accounts. Keep short-term trades in one demat account and long-term investments in another. This prevents confusion during tax filing and avoids accidental FIFO-based reclassification.

Time your exits. If you hold a profitable position approaching 12 months, consider whether waiting a few more days for LTCG treatment saves enough tax to justify the market risk.

Harvest losses strategically. Short-term losses are more valuable than long-term losses because they can offset both STCG and LTCG. If you have a losing position and a choice of when to exit, exiting before 12 months creates a more flexible loss for offsetting purposes.

Loss Set-Off Rules

Understanding the hierarchy of loss set-off is critical for tax planning:

1. STCL can offset STCG and LTCG in the same year
2. LTCL can only offset LTCG in the same year
3. Unabsorbed losses carry forward for 8 assessment years
4. Must file ITR on time to claim carryforward benefit

Practical Implications

If you have Rs 2 lakh STCG and Rs 1.5 lakh STCL in a year, your net STCG is Rs 50,000 taxed at 15%. If instead you had Rs 1.5 lakh LTCL, you could not offset it against STCG at all, and would carry it forward to offset future LTCG only.

Record Keeping Requirements

For accurate STCG and LTCG computation, maintain records of:

• Purchase date and price for every lot (including bonus shares and rights issues at deemed cost)
• Sale date and price with contract notes
• STT paid to confirm eligibility for Section 111A and 112A rates
• Fair market value as of 31 January 2018 for grandfathered holdings
• Corporate actions (splits, bonuses) that alter cost basis

A trading journal that tracks holding periods and automatically classifies gains eliminates the risk of manual errors across hundreds of transactions per financial year.

Impact of Budget Changes

The STCG and LTCG rates have been stable since 2018, but the government reviews them periodically. Key changes traders should watch for include adjustments to the Rs 1 lakh exemption threshold, potential introduction of indexation for listed equity, and changes to the holding period definition.

Maintaining a detailed journal ensures that regardless of future rule changes, you have the raw data needed to recompute your liability under any new framework.