Short-Term Capital Gain Tax
Sell an asset before you have held it long enough and the profit is a short-term capital gain. Short term capital gains tax on listed shares and equity mutual funds sold within 12 months is a flat 20%. For almost everything else it is 24 months, and the gain is added to your income and taxed at your slab rate the Income Tax Department’s rate tables carry the current slabs). That is the rate applying to your income as a whole, from 5% up to 30%.
There is a second question, and the answer to it changed this year. The Section 87A rebate, which wipes out the tax bill of people below an income threshold, used to be arguable against short-term gains. A High Court and three tribunals allowed it. Parliament then closed the question from FY 2025-26, so for the return you are filing now the rebate does not reach these gains at all.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, and a distributor of portfolio management services registered with APMI, APRN10201. This page is general information, not a computation of your position.
Short term capital gains tax rates, by asset
The short term capital gains tax rate is a flat 20% on listed shares and equity mutual funds sold within 12 months. Every other asset uses a 24-month threshold and is taxed at your slab rate. No indexation applies to short-term gains on anything, so you cannot raise your purchase price for inflation before working out the gain.
| What You Sold | Short-Term if Held | Tax Rate |
|---|---|---|
| Listed shares | 12 months or less | 20% flat |
| Equity mutual funds | 12 months or less | 20% flat |
| Units of a business trust (a REIT or InvIT) | 12 months or less | 20% flat |
| Debt mutual funds | 24 months or less | Your slab rate |
| Unlisted shares | 24 months or less | Your slab rate |
| Immovable property | 24 months or less | Your slab rate |
| Gold and jewellery | 24 months or less | Your slab rate |
| Foreign shares | 24 months or less | Your slab rate |
Every figure above is before cess — the 4% health and education surcharge added to the tax itself, not to the gain. A ₹40,000 tax bill becomes ₹41,600.
The flat 20% is available only where securities transaction tax was paid, which in practice means the shares were bought and sold on a recognised Indian exchange. An off-market transfer, meaning a sale arranged directly between two people rather than on the exchange, falls outside it and is taxed at slab rate instead.
The rate rose from 15% to 20% on 23 July 2024. Anything sold before that date is taxed at the old rate, so a return covering that year carries two rates in it.
Debt mutual funds bought on or after 1 April 2023 are a separate case again. Every gain on them is short-term at your slab rate whatever the holding period, so the 24-month line never helps. The rules for funds held longer, and for the other fund categories, are on the page for long-term gains on mutual funds.
Why 20% can cost more than your slab rate
A flat rate is not always the cheaper one. Someone whose other income keeps them in the 5% band pays 20% on an equity gain, four times what the same money would attract as salary. The flat rate helps high earners and penalises low ones.
Take two people who each make a ₹2,00,000 short-term gain on listed shares.
On ₹6,00,000 of salary, in the 5% band, the gain is taxed at 20%. Tax of ₹40,000, or ₹41,600 with cess.
On ₹30,00,000 of salary, in the 30% band, the gain is also taxed at 20%. Tax of ₹40,000. That is ₹20,000 less than the ₹60,000 the same amount would have cost as salary.
The lower earner is the one the flat rate hurts, and until this year they were also the person the rebate question turned on.
The 87A rebate no longer applies to these gains
Section 156 of the Income-tax Act 2025, which replaced Section 87A of the 1961 Act, gives a rebate that can reduce a resident individual’s tax to nil where total income is under the threshold. The threshold is ₹12,00,000 under the new regime and ₹5,00,000 under the old.
It no longer reaches short-term capital gains taxed at the flat rate. The Finance Act 2025 inserted a bar on applying the rebate to income charged at special rates, and it took effect from assessment year 2026-27, meaning the return for FY 2025-26 onwards.
What it costs
Someone with ₹9,00,000 of salary and a ₹1,00,000 short-term gain has total income of ₹10,00,000, which is under the ₹12,00,000 threshold. The rebate wipes out the ₹30,000 of slab tax on the salary. It cannot touch the ₹20,000 on the gain. Final bill: ₹20,800 with cess, on income the threshold appeared to cover.
How the question was settled
This was contested for two years before Parliament closed it, and that history still matters for older returns.
| Date | Who | What Happened |
|---|---|---|
| 5 July 2024 | Income Tax Department | The e-filing software was changed to block the claim. |
| 24 January 2025 | Bombay High Court | Declined to rule on the merits but directed that the system must allow the claim to be made: “An assessee cannot be barred from claiming the rebate in their return of income.” An assessee is the taxpayer. |
| 27 February 2025 |
Commissioner of Income Tax (Appeals), Mumbai
First level of appeal above the assessing officer |
Allowed the rebate. Held that the restriction on special-rate income sits in a different chapter of the Act from the rebate. |
| 13 August 2025 |
Income Tax Appellate Tribunal (ITAT), Ahmedabad
Tribunal hearing appeals against Commissioner (Appeals) decisions |
Allowed it for FY 2024-25, on the absence of any express exclusion. |
| 1 April 2025 | Finance Act 2025 | Inserted the bar on special-rate income, from AY 2026-27. |
| 9 September 2026 | ITAT Delhi | Allowed it again for AY 2025-26, holding that the Finance Act 2025 restriction is prospective and cannot be read into an earlier year. |
The argument that won was textual. The long-term capital gains provision had always contained an express bar on the rebate; the short-term one did not. Parliament wrote an exclusion into one and not the other, and the tribunals treated that omission as deliberate. Parliament has now written it into both.
Which year you are in
FY 2025-26 and later. The bar is in the statute. The rebate does not apply to short-term gains taxed at 20%. There is no argument left to run.
FY 2024-25 and earlier. A High Court and three tribunals have held the claim good, most recently ITAT Delhi in September 2026. None of those decisions binds the department generally, because a tribunal ruling applies only to the taxpayer who appealed. The position is persuasive rather than settled, and a claim may still be processed as though it were not made.
Where that happens there are three routes. A rectification application asks the department to correct an error in how the return was processed. An appeal goes to the Commissioner (Appeals). A writ petition goes to the High Court where the first two fail. Which one fits depends on the case, and it is a decision for you and your chartered accountant on your own figures. This page describes where the law stands, not what you should put in your return.
Setting off a short-term capital loss
A short-term capital loss is the more useful of the two kinds. Setting off means subtracting a loss from a gain before the tax is worked out. A short-term loss can be set off against short-term gains and against long-term gains. A long-term loss can only go against long-term gains. Anything left unused carries forward for eight tax years, and only if the return was filed by the due date.
Two points worth acting on.
Order matters when you have both. Because a short-term loss can absorb a long-term gain but not the reverse, using it against the gain taxed at the higher rate leaves you better off. Against a 20% short-term gain rather than a 12.5% long-term one, the same loss saves more.
A late return forfeits the carry-forward entirely. It does not reduce it. It removes it. For anyone holding a large unused loss, that is the most expensive reason there is to file by the deadline.
Short-term against long-term
The difference is the holding period and what it costs you. Hold listed shares past 12 months and the long-term rate falls from 20% to 12.5%, and the first ₹1.25 lakh of long-term gains each year becomes exempt.
| Comparison | Short-term | Long-term |
|---|---|---|
| Listed shares held | 12 months or less | More than 12 months |
| Rate on listed shares | 20% | 12.5% |
| Annual exemption | None | ₹1.25 lakh |
| Indexation | None | None |
| Loss can be set off against | Short-term and long-term gains | Long-term gains only |
| 87A rebate reaches it | No | No |
On ₹3,00,000 of gain from listed shares: ₹60,000 of tax if sold at month eleven, and ₹21,875 if sold at month thirteen, because the first ₹1.25 lakh drops out and 12.5% applies to the remaining ₹1,75,000. Whether waiting is sensible depends on what the shares do in those two months, which is a different question and not one a tax page can answer. For how the two sit inside the wider tax picture, see the [income tax](/knowledge-base/income-tax/) section.
Reporting short term capital gains in your return
Short term capital gains go in the capital gains schedule of ITR-2, listed transaction by transaction with purchase date, sale date, cost and sale value. Capital gains rule out ITR-1 for most people, so anyone who sold shares or units during the year files ITR-2.
Your broker’s capital gains statement, or a consolidated statement from CAMS or KFintech, the two registrars holding mutual fund records for most fund houses, is the practical source. Check it rather than trust it. The field most often wrong is the holding period on shares received through a bonus issue or a split. The clock starts at allotment, the date the new shares were issued to you, not at the original purchase.
Nobody deducts tax at source when a resident sells shares or redeems units, so nothing is collected for you along the way. Where the tax on your gains takes your total liability past ₹10,000 for the year, it becomes an advance tax obligation, payable in instalments during the year in the quarter you sold, rather than settled at filing.
Frequently Asked Questions
20% flat on listed shares and equity mutual funds sold within 12 months, where securities transaction tax was paid. Everything else is taxed at your income tax slab rate, using a 24-month threshold. The 20% rate replaced 15% on 23 July 2024. Cess of 4% is added on top.
Not for FY 2025-26 or later. The Finance Act 2025 inserted an express bar on applying the rebate to income charged at special rates, effective from assessment year 2026-27, and the provision carried into Section 156 of the Income-tax Act 2025. For FY 2024-25 and earlier the position is arguable. The Bombay High Court, a Commissioner (Appeals) and two ITAT benches have allowed it, but none of those decisions binds the department generally. Take it to your chartered accountant on your own figures.
Because the rebate cannot be applied to the part of your tax that comes from short-term capital gains. On ₹9,00,000 of salary and a ₹1,00,000 gain, the rebate clears the ₹30,000 of slab tax on the salary and leaves ₹20,000 on the gain, or ₹20,800 with cess.
Three routes exist. A rectification application asks the department to correct the processing of the return. An appeal goes to the Commissioner (Appeals). A writ petition goes to the High Court where those fail. Which is appropriate depends on your case. For FY 2025-26 onwards there is no claim to make.
Not necessarily. The flat 20% on equity applies whatever your income, so someone in the 5% band pays four times what the same money would attract as salary, while someone in the 30% band pays ₹20,000 less on a ₹2,00,000 gain than they would on salary. The flat rate favours higher earners.
Units bought on or after 1 April 2023 produce gains taxed at your slab rate however long you hold them, so the short-term and long-term distinction does not arise. Units bought earlier follow the 24-month rule.
Yes. A short-term loss can go against either kind of gain, which makes it more useful than a long-term loss, which can only go against long-term gains. Unused amounts carry forward eight years, provided the return was filed on time.
No. Indexation, which allowed a purchase price to be raised for inflation before working out the gain, does not apply to short-term gains on any asset, and no longer applies to long-term gains either.
Frequently Asked Questions
Reviewed by [Name], Chartered Accountant, on [date].
Rates and thresholds reflect the law for FY 2026-27 and change with each Budget. The Section 87A position for FY 2024-25 and earlier was still being litigated at the date of review; the bar for FY 2025-26 onwards is in the statute.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and SIF distributor (ARN-194216), Connaught Place, New Delhi. We are not tax advisers and nothing here is a recommendation about your return.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.