Sections 196 and 198: Listed-Equity Rates
For qualifying listed equity and equity-oriented fund transfers on which the statutory conditions are met, Section 196 taxes short-term gains at 20%, while Section 198 taxes long-term gains above the aggregate ₹1,25,000 threshold at 12.5%. Holding period, STT conditions, asset definition, basic-exemption adjustment and transaction date can affect the calculation.
The ₹1.25 Lakh LTCG Exemption
The ₹1,25,000 threshold is aggregate, not per fund or stock. For ₹2,00,000 of otherwise qualifying Section 198 gain, ₹75,000 is subject to the 12.5% special rate: ₹9,375 before surcharge and 4% cess. Final tax can differ because of resident-individual basic-exemption adjustment, other income, surcharge and transaction eligibility.
Section 156 Uses Total Income and Cannot Offset Special-Rate Tax
Section 156 is available only to a resident individual. The ₹12 lakh eligibility test uses total income, including special-rate gains, and subsection (3) caps the deduction at tax payable under the default slab rates. Example: ₹10 lakh gross salary less ₹75,000 standard deduction plus ₹3 lakh of qualifying equity LTCG gives total income of ₹12.25 lakh. The full rebate is unavailable. Under the represented marginal-relief calculation, pre-cess tax is limited to the ₹25,000 excess over ₹12 lakh, with the deduction applied only against slab-rate tax; 4% cess makes the estimate ₹26,000. Other income or capital-gain facts can change the result.
Grandfathering Rule for Pre-2018 Holdings
For equity shares and equity mutual funds purchased before 31 January 2018, the cost of acquisition is "grandfathered" — it is deemed to be the higher of: 1. Actual purchase price 2. Fair Market Value (FMV) as on 31 January 2018 But this deemed cost cannot exceed the actual sale price. This protects gains accrued before 01 April 2018 from being taxed. Example: Shares bought at ₹100, FMV on 31-Jan-2018 was ₹500, sold at ₹800. Cost = ₹500 (higher of ₹100 and ₹500). LTCG = ₹800 − ₹500 = ₹300 per share.
Debt Mutual Fund Taxation (Post-2023 Change)
Debt-fund taxation cannot be determined from the label “debt fund” alone. Acquisition date, the fund's domestic-equity percentage, holding period and transfer date determine whether a gain is deemed short-term and taxed at normal rates or falls within a capital-gain provision. The post-1 April 2023 rule applies to specified mutual funds acquired on or after that date; do not automatically apply one treatment to every debt, gold, international or fund-of-funds holding.
Set-Off and Carry-Forward of Capital Losses
Subject to the Act's ordering and return-filing conditions, short-term capital loss may be set off against short- or long-term capital gain, while long-term capital loss may be set off only against long-term capital gain. Eligible unabsorbed capital loss can generally be carried forward for eight tax years when the loss return is filed by the applicable due date. Confirm the notified filing date and wash-sale, anti-avoidance, cost and transaction implications before undertaking tax-loss harvesting.
Practical Tips for Salaried Taxpayers
1. If considering gain realisation, first check the remaining aggregate ₹1.25 lakh qualifying-equity LTCG threshold already used in the tax year. A sale and repurchase changes market exposure and can incur STT, brokerage, spread and other charges; it is not automatically beneficial. 2. Track your holding period carefully: Switching from a regular to direct plan of the same fund is a redemption and fresh purchase, so the new units receive a new acquisition date. 3. SIP investors: Each instalment has its own purchase date. On redemption, the applicable identification rule—commonly FIFO for dematerialised mutual-fund units—can leave older units long-term while recent units remain short-term. 4. Report gains in the capital-gains schedule and form notified in the current Tax Year 2026-27 utility. STT or payment TDS does not replace the income-tax reporting and computation.
Official References
Source date: 2026-07-28. Confirm later notifications, rules and portal forms before filing or transacting.