Summary:
India taxes eligible listed-equity long-term capital gains at 12.5% above the annual ₹1.25 lakh exemption, while short-term gains attract 20%. Higher derivatives STT has intensified debate ahead of Budget 2027, but no tax relief has been confirmed.
The Indian equity taxation system is once again in the spotlight, with discussions on Long Term Capital Gains (LTCG) tax and Securities Transaction Tax (STT) gaining traction ahead of the Union Budget 2027. Currently, investors pay 12.5% tax on eligible annual long-term equity gains above ₹1.25 lakh, and short-term gains are taxed at 20%. The rise in transaction costs has rekindled interest in the taxation of equity investments.
Capital Gains Tax on Equity: Evolution Over the Years
India’s equity tax regime has seen a number of changes since the 1980s. Capital gains were taxed under the general income tax regime initially, before the distinction between short-term and long-term capital gains became more firmly entrenched.
STT’s introduction in 2004 was a significant change. Eligible listed equities were exempt from long-term gains, and short-term gains were taxed at a lower rate.
The LTCG tax at 10% on gains over ₹1 lakh in a year was reintroduced by the Union Budget 2018. The LTCG tax was hiked to 12.5% in Budget 2024 while raising the annual exemption to ₹1.25 lakh. STCG tax on qualifying listed shares was raised from 15% to 20%.
These changes led to higher taxes on some equity investments and therefore made holding periods and realised profits relevant.
LTCG & STCG Tax Rates in India: New Rules
How the tax is treated depends on how long investors hold the shares. Long-term investments are generally equity shares held for more than 12 months. Those held for 12 months or less are treated as short-term gains.
| Tax Category | Current Tax Rate |
| STCG on Eligible Listed Equity | 20% |
| LTCG on Eligible Listed Equity | 12.5% |
| Annual LTCG Exemption | ₹1.25 lakh |
| STT on Equity Delivery | 0.10% on Purchase & Sale |
| STT on Intraday Sale of Equity | 0.025% |
Rates are exclusive of applicable surcharge and cess.
An investor has made an eligible LTCG of ₹2,00,000 in a financial year. After applying the ₹1.25 lakh exemption, the taxable amount will be ₹75,000. The basic tax liability would be ₹9,375 at 12.5%, excluding applicable cess and surcharge.
Securities Transaction Tax: Why Is the Cost of Trading More?
Apart from capital gains tax, investors and traders are liable to pay STT on eligible stock market transactions. Unlike capital gains tax, STT is paid on transaction values even if the trades are at losses.
The Union Budget 2026–27 has raised the STT on the sale of futures from 0.02% to 0.05%, effective from April 1, 2026. The STT on options premium has been increased from 0.10% to 0.15% and on exercised options from 0.125% to 0.15%.
These changes have been accompanied by an increase in tax revenues. As of October 14, 2026, the STT revenue was ₹46,840 crore, up 51.6% YoY.
Equity Taxation Outlook: What Might Change?
India’s equity tax structure raises questions on transaction costs, long-term investment incentives and tax stability.
Possible changes under discussion include tweaking of LTCG rates, STT relief and exemptions related to longer holding periods. But there are no official announcements on changes in current LTCG or STT rates in Budget 2027.
Reducing these taxes could boost after-tax returns, but it would also lower government revenues.
The key issue for investors is the total tax paid on equity investments. India currently has a mix of transaction taxes and taxes on realised gains. Future government decisions and fiscal priorities will determine whether this structure changes.
