Chapter 1 of 4

Capital gains basics

7 min read

A capital gain arises when you sell an asset for more than you paid. It is taxed only when you sell, not while you hold. How it is taxed depends on how long you held the asset, which decides whether it is short term or long term.

Listed shares and equity mutual funds

• Held for 12 months or less: short-term gain, taxed at 20%.
• Held for more than 12 months: long-term gain. The first ₹1.25 lakh of long-term gains in a financial year is exempt; the rest is taxed at 12.5%.
• Securities Transaction Tax (STT) is charged on equity trades and is not a deductible expense against these gains.
• Surcharge and cess may apply on top.

Dividends

Dividends from companies are added to your income and taxed at your slab rate. Companies deduct tax at source (10%) when the dividend paid to you in a year exceeds ₹10,000.

Why holding period matters

Tax is paid only on sale, so holding for the long term both defers the tax and, for equity, brings a lower rate and the annual exemption. Selling in small parts across years can use the exemption more than once.

This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.