When people talk about investing in equity shares, mutual funds, or SIPs, they usually focus on returns. But here’s the truth most beginners learn late — tax decides how much money actually stays in your pocket.
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| Understand LTCG and STCG rules, tax rates, and exemptions for mutual funds and shares in India (2026 update) |
That’s where LTCG (Long-Term Capital Gains) and STCG (Short-Term Capital Gains) come in.
In this video, I'll explain the 2026 LTCG and STCG tax regulations in plain, common English, precisely as I would explain them to a friend who is serious about money but doesn't appreciate complex tax jargon.
What Is Capital Gains Tax? (Plain & Simple)
Capital gains tax is the tax you pay on profit earned after selling an asset.
If you:
Buy shares at a lower price
Sell them later at a higher price
The profit you earn is called capital gain, and the government taxes that profit.
Important point:
👉 No sale = no tax
Why LTCG and STCG Matter So Much
The same profit can be taxed very differently depending on how long you hold the investment.
That’s why understanding STCG vs LTCG is one of the most important skills for investors.
Short holding → higher tax
Long holding → lower tax + exemption
Simple logic. Big impact.
STCG vs LTCG: The Core Difference Short-Term Capital Gain (STCG)
Profit earned when you sell an asset within a short time period.
Long-Term Capital Gain (LTCG)
Profit earned when you sell an asset after holding it for a longer period.
The holding period depends on the asset type.
Holding Period Rules for 2026 (Updated)
Equity Shares & Equity Mutual Funds
STCG: 12 months or less
LTCG: More than 12 months
Property, Gold, Debt Mutual Funds, Jewellery
STCG: 24 months or less
LTCG: More than 24 months
This holding period decides how much tax you pay, not the profit amount.
If you sell listed equity shares or equity mutual funds within 12 months:
STCG tax = 20% flat
Section: 111A
Plus 4% health & education cess
STT must be paid
STCG Example
Profit: ₹1,50,000
Tax @ 20% = ₹30,000
Cess = ₹1,200
👉 Total tax = ₹31,200
No exemption. This is why short-term trading is tax-heavy.
For equity shares & equity mutual funds:
₹1.25 lakh LTCG per year is tax-free
Gains above ₹1.25 lakh taxed at 12.5%
No indexation benefit
Section: 112A
This is one of the most investor-friendly tax rules in India.
Total LTCG earned: ₹2,75,000
Calculation:
Exempt amount: ₹1,25,000
Taxable LTCG: ₹1,50,000
Tax:
12.5% of ₹1,50,000 = ₹18,750
Cess (4%) = ₹750
👉 Total tax = ₹19,500
If this was STCG, tax would be ₹55,000+.
Why the 12-Month Rule Is a Silent Wealth Builder
Selling even one day before 12 months:
You pay 20% tax
Selling after 12 months:
You pay 12.5% tax
Plus ₹1.25 lakh exemption
This single rule alone can improve your post-tax return massively.
If you invested before 31 January 2018, the Grandfathering Clause protects you.
What It Does
Gains earned till Jan 31, 2018 → tax-free
Only post-2018 gains are taxed
Cost Calculation
Your cost becomes:
Higher of actual purchase price OR
FMV on 31 Jan 2018
This rule saved crores for long-term investors.
Dividends are not tax-free anymore.
Dividend income is taxed as per income slab
30% slab investors pay 30% + cess
New TDS Rule
TDS applies only if dividend exceeds ₹10,000
Earlier limit was ₹5,000
Remember:
👉 No TDS ≠ No tax
Tax loss harvesting means:
Selling loss-making assets
Using losses to reduce tax on gains
Set-Off Rules
STCL → Can adjust against STCG & LTCG
LTCL → Can adjust only against LTCG
Example
LTCG profit: ₹3,00,000
Loss booked: ₹60,000
New LTCG = ₹2,40,000
Taxable after exemption = ₹1,15,000
👉 Tax saved legally
Debt mutual funds bought after 1 April 2023:
Lose LTCG benefit
Always taxed as short-term
Capital Gains Tax on Property (Short Overview)
For property sold after 23 July 2024:
Option 1: 12.5% tax without indexation
Option 2: 20% tax with indexation (older properties)
You can choose the option with lower tax.
Inherited & Gifted Assets
Holding period of previous owner counts
Helps assets qualify as LTCG immediately
Very helpful in family wealth planning
Patient investors will undoubtedly benefit from the 2026 capital gains tax. Although the rules are complicated, the message is straightforward:
Continue to invest for longer
Steer clear of needless short-term sales
Make thoughtful exit plans.
Investing becomes less dangerous and more regulated when you have a solid understanding of LTCG and STCG.
Please treat this article as an educational guide, not direct financial advice. Tax rules can change and every investor's situation is unique. It is always best to consult a CA or financial advisor before making big decisions.
Remember:
In investing, time builds wealth.
In taxation, time protects wealth.
STCG: 12 months or less
LTCG: More than 12 months
Property, Gold, Debt Mutual Funds, Jewellery
STCG: 24 months or less
LTCG: More than 24 months
This holding period decides how much tax you pay, not the profit amount.
STCG Tax Rate in 2026 (Equity & Mutual Funds)
If you sell listed equity shares or equity mutual funds within 12 months:
STCG tax = 20% flat
Section: 111A
Plus 4% health & education cess
STT must be paid
STCG Example
Profit: ₹1,50,000
Tax @ 20% = ₹30,000
Cess = ₹1,200
👉 Total tax = ₹31,200
No exemption. This is why short-term trading is tax-heavy.
LTCG Tax Rules in 2026 (Most Important Part)
For equity shares & equity mutual funds:
₹1.25 lakh LTCG per year is tax-free
Gains above ₹1.25 lakh taxed at 12.5%
No indexation benefit
Section: 112A
This is one of the most investor-friendly tax rules in India.
LTCG Example (Real-Life Calculation)
Total LTCG earned: ₹2,75,000
Calculation:
Exempt amount: ₹1,25,000
Taxable LTCG: ₹1,50,000
Tax:
12.5% of ₹1,50,000 = ₹18,750
Cess (4%) = ₹750
👉 Total tax = ₹19,500
If this was STCG, tax would be ₹55,000+.
That’s why long-term investing wins.
Why the 12-Month Rule Is a Silent Wealth Builder
Selling even one day before 12 months:
You pay 20% tax
Selling after 12 months:
You pay 12.5% tax
Plus ₹1.25 lakh exemption
This single rule alone can improve your post-tax return massively.
Grandfathering Clause: Relief for Old Investors
If you invested before 31 January 2018, the Grandfathering Clause protects you.
What It Does
Gains earned till Jan 31, 2018 → tax-free
Only post-2018 gains are taxed
Cost Calculation
Your cost becomes:
Higher of actual purchase price OR
FMV on 31 Jan 2018
This rule saved crores for long-term investors.
Dividend Tax Rules (FY 2025–26)
Dividends are not tax-free anymore.
Dividend income is taxed as per income slab
30% slab investors pay 30% + cess
New TDS Rule
TDS applies only if dividend exceeds ₹10,000
Earlier limit was ₹5,000
Remember:
👉 No TDS ≠ No tax
Tax Loss Harvesting: Smart Tax Planning Tool
Tax loss harvesting means:
Selling loss-making assets
Using losses to reduce tax on gains
Set-Off Rules
STCL → Can adjust against STCG & LTCG
LTCL → Can adjust only against LTCG
Example
LTCG profit: ₹3,00,000
Loss booked: ₹60,000
New LTCG = ₹2,40,000
Taxable after exemption = ₹1,15,000
👉 Tax saved legally
Debt Mutual Funds: Important Change You Must Know
Debt mutual funds bought after 1 April 2023:
Lose LTCG benefit
Always taxed as short-term
Taxed as per income slab
This makes equity mutual funds better for long-term tax efficiency.
Capital Gains Tax on Property (Short Overview)
For property sold after 23 July 2024:
Option 1: 12.5% tax without indexation
Option 2: 20% tax with indexation (older properties)
You can choose the option with lower tax.
Inherited & Gifted Assets
Holding period of previous owner counts
Helps assets qualify as LTCG immediately
Very helpful in family wealth planning
Concluding Remarks
Patient investors will undoubtedly benefit from the 2026 capital gains tax. Although the rules are complicated, the message is straightforward:
Continue to invest for longer
Steer clear of needless short-term sales
Make thoughtful exit plans.
Investing becomes less dangerous and more regulated when you have a solid understanding of LTCG and STCG.
A Small Note:
Please treat this article as an educational guide, not direct financial advice. Tax rules can change and every investor's situation is unique. It is always best to consult a CA or financial advisor before making big decisions.
Remember:
In investing, time builds wealth.
In taxation, time protects wealth.
