Tax on Stock Market Gains in India — LTCG, STCG, Dividends and F&O (FY 2026-27)

The rulebook, minus the jargon

The tax system treats your market activity as four different people: the investor (delivery equity), the income-collector (dividends), the trader (F&O), and the speculator (intraday). Each is taxed differently, and most expensive mistakes come from not knowing which one you were being on a given trade.

One housekeeping note up front: India’s income-tax law was re-enacted as the Income-tax Act, 2025, effective from April 2026 — the old familiar section numbers changed, but the rates below carried over unchanged. We therefore quote rates, not section numbers, as applicable for FY 2026-27 (assessment year 2027-28).

The master table — listed equity and equity mutual funds

Your situation	Holding period	Tax
Long-term capital gains (LTCG)	More than 12 months	12.5% on gains above ₹1.25 lakh per year
Short-term capital gains (STCG)	12 months or less	20% flat
Dividends	—	Added to income, taxed at your slab; 10% TDS if a company pays you over ₹10,000 in the year
Intraday (no delivery)	—	Speculative business income, at slab
F&O	—	Non-speculative business income, at slab

Two design features worth noticing. First, the ₹1.25 lakh LTCG exemption is an annual gift — more on harvesting it below. Second, the 7.5-point gap between STCG (20%) and LTCG (12.5%) is the state literally paying you to hold for a year.

LTCG in practice — a worked example

You invested ₹6 lakh in 2023; today it is worth ₹11 lakh and you sell after 12+ months.

• Gain: ₹5,00,000
• Exempt slice: ₹1,25,000
• Taxable: ₹3,75,000 × 12.5% = ₹46,875 (plus cess)

Effective tax on the whole gain: ~9.4%. Long-term equity remains one of the most tax-gentle incomes in India — gentler than salary, rent, or FD interest at most slabs.

(Legacy footnote: for shares bought before 31 Jan 2018, the “grandfathering” rule lets you use that date’s price as your cost — old portfolios should compute both ways.)

The ₹1.25 lakh harvest — legal, simple, annually repeatable

Because the exemption resets every financial year, a patient investor can book up to ₹1.25 lakh of long-term gains tax-free each March and immediately repurchase the same holdings. This resets your cost upward, shrinking the taxable gain of the eventual final sale.

Example: 20 years of SIP compounding (the arithmetic is in our SIP guide) can build ₹70+ lakh of gains. Harvested annually, up to ₹25 lakh of that exits the tax net entirely — roughly ₹3 lakh of tax saved for an hour of clicking per year. The repurchase changes your holding date, so harvest only positions you are years away from selling anyway.

Losses are assets — if you file properly

• Short-term losses set off against short-term and long-term gains.
• Long-term losses set off against long-term gains only.
• Unused capital losses carry forward eight years — but only if you file your ITR by the due date for the loss year. Miss the deadline, lose the shield permanently.
• Intraday (speculative) losses set off only against speculative gains (four-year carry-forward). F&O losses, being non-speculative business losses, set off more broadly — one reason serious F&O activity belongs in professional hands with proper books (and, above turnover thresholds, audit).

The practical habit: every March, look at what is down alongside what you harvested up — selling a loser you no longer believe in shelters a winner you do.

Dividends and buybacks

Dividends land at your slab rate — which makes high-dividend strategies (a 5% yielder like Coal India) most efficient for low-slab holders and least for the 30% bracket, where growth compounding beats payout collecting after tax. The 10% TDS above ₹10,000 per company per year appears in your AIS — reconcile it, it is prepaid tax, not extra tax.

Buyback proceeds are now taxed as dividend income in your hands (the old company-level buyback tax regime ended in 2024) — at slab, with the acquisition cost becoming a capital loss you can set off. Factor that before tendering.

Filing: which form, what to reconcile

• Capital gains (investor + dividends): ITR-2.
• Any F&O or intraday activity: ITR-3 (business income).
• Before filing, download the AIS/TIS — every broker trade, dividend and TDS entry is already reported to the department; your return must reconcile with it. Brokers issue ready capital-gains statements; the days of the taxman not knowing are a decade gone.
• STT (the tiny tax charged on every trade — 0.1% on delivery each side) is what qualifies your gains for these concessional rates; it is not otherwise creditable.

Five expensive tax mistakes

1. Selling at month 11. Waiting weeks converts 20% into 12.5% + exemption. Check the calendar before the sell button.
2. Wasting the ₹1.25 lakh exemption year after year by never harvesting.
3. Filing late in a loss year — vaporises up to eight years of set-off value.
4. Treating F&O as “gains” — it is business income with different forms, books, and sometimes audit; the tax return is where casual derivative dabbling gets truly expensive.
5. Ignoring the AIS — mismatches between broker-reported data and your return are the most common notice trigger for retail investors.

FAQ

How much tax do I pay on stock market profits in India? For listed equity: 12.5% on long-term gains above ₹1.25 lakh a year (held >12 months), 20% on short-term gains. Dividends and any F&O/intraday income are taxed at your slab.

Is ₹1.25 lakh of LTCG really tax-free every year? Yes — per financial year, across all your listed equity and equity mutual funds combined. Harvesting it annually is legal and, for long-horizon investors, close to free money.

Do I pay tax if I don’t sell? No. Unrealised gains are untaxed — one more structural reward for the buy-and-hold approach every valuation and SIP principle on this site points toward.

How is F&O income taxed? As non-speculative business income at your slab, filed via ITR-3 with books of account (and audit above thresholds). Losses set off against most other income except salary.

Did the new Income-tax Act 2025 change these rates? No — the 2025 Act (effective April 2026) reorganised and renumbered the law; the capital-gains rates above carried over unchanged for FY 2026-27.

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This guide is education, not tax or investment advice. We are not SEBI-registered advisers or tax practitioners. Rates reflect the law as generally applicable to resident individuals for FY 2026-27 as of August 2026; surcharge, cess, residency and special situations change outcomes — confirm with a chartered accountant before filing.