Selling shares within a few months can give you a quick profit. However, short-term capital gains tax on shares can reduce the amount you actually keep.
Listed equity shares sold within 12 months generally create a short-term capital gain. If Securities Transaction Tax, or STT, applies to the sale, the gain is usually taxed at 20%.
This guide explains the short-term capital gain tax rate, calculation and loss adjustment rules you should know before filing your return.
Tax disclaimer: This article is for educational purposes. Tax treatment depends on your transactions and financial circumstances. Consult a qualified tax professional before filing your return.
What Is Short-Term Capital Gains Tax?
A short-term capital gain is the profit you make by selling a capital asset within its specified short-term holding period.
For example, suppose you purchase listed shares for ₹1,00,000 and sell them eight months later for ₹1,25,000. Your gain before eligible expenses is ₹25,000.
Because you held the listed shares for 12 months or less, this profit will generally be treated as a short-term capital gain.
The holding period is not the same for every asset. You must check the type of asset before deciding whether a gain is short-term or long-term.
When Are Shares Considered Short-Term?
Listed equity shares are generally considered short-term capital assets when you hold them for 12 months or less. They become long-term assets when you hold them for more than 12 months.
Unlisted shares have a longer holding-period requirement. They are generally short-term when held for 24 months or less.
Other assets may follow different rules. Certain specified mutual funds, market-linked debentures, unlisted bonds and unlisted debentures may also be treated as short-term regardless of how long you hold them.
The Income Tax Department provides a complete breakdown in its official holding-period guidance.
What Is the Short-Term Capital Gain Tax Rate on Shares?
Short-term capital gains from eligible listed equity shares, equity-oriented mutual funds and business trust units are generally taxed at 20%.
This rate applies when STT is paid on the sale. Health and education cess and any applicable surcharge are added to the calculated tax.
The 20% rate applies to eligible transfers made on or after 23 July 2024. The earlier rate was 15%.
For tax years beginning from 1 April 2026, these gains are covered by Section 196 of the Income-tax Act, 2025. For earlier tax years, the equivalent provision was Section 111A of the Income-tax Act, 1961.
How Is Short-Term Capital Gain Tax Calculated?
You first need to calculate your net short-term capital gain:
Short-term capital gain = Sale value − Cost of acquisition − Eligible transfer expenses
Eligible transfer expenses may include brokerage, commission and other expenses directly connected with the sale.
STT cannot be deducted while calculating your capital gain. This is confirmed in the Income Tax Department’s guidance on the taxation of share sales.
After calculating the taxable gain, apply the relevant tax rate:
STCG tax = Taxable short-term capital gain × 20%
Short-Term Capital Gain Tax Calculation Example
Suppose you:
Purchase listed shares for ₹2,00,000.
Sell them after eight months for ₹2,50,000.
Pay ₹2,000 in eligible transfer expenses.
Pay STT on the transaction.
The calculation would be:
This example assumes that you have no eligible capital losses, unused basic exemption adjustment or surcharge liability.
Unlike eligible long-term equity gains, short-term capital gains do not have a separate ₹1.25 lakh annual threshold.
Check out our guide on Long Term Capital Gains Tax
Are Exemptions and Deductions Available on STCG?
You cannot directly claim deductions such as those previously covered under Sections 80C to 80U against eligible short-term capital gains taxed at the special rate.
Under the Income-tax Act, 2025, the corresponding Chapter VIII deductions are calculated after excluding the short-term gains covered by Section 196.
A resident individual or resident Hindu Undivided Family may be able to use an unutilised basic exemption limit against eligible STCG. This may apply when income excluding the short-term gain is below the applicable basic exemption limit.
The amount available will depend on your other income and the tax rules that apply to you. It is better to confirm this calculation with a tax professional.
Investing in a tax-saving mutual fund does not directly cancel or reduce the tax payable on an existing short-term capital gain.
Can You Set Off Short-Term Capital Losses?
A short-term capital loss can generally be set off against:
Short-term capital gains.
Long-term capital gains.
If you cannot use the complete loss in the same year, you can generally carry it forward for up to eight tax years.
To carry the loss forward, you must normally file your income tax return by the applicable due date. The Income Tax Department explains these conditions in its capital-loss guidance.
Tax-loss harvesting can help you realise eligible losses to offset gains. However, you should not sell an investment only for a tax benefit. Also consider brokerage, STT, market movement and whether the sale supports your investment plan.
Does STCG Tax Apply to Intraday and F&O Trading?
Capital gains treatment generally applies when you hold shares as investments.
If you treat shares as stock-in-trade, the profit may be classified as business income instead. Your trading frequency, intent, accounting treatment and consistency can affect this classification.
Intraday equity profits are generally treated as speculative business income. Exchange-traded equity and index futures and options are generally treated as non-speculative business income.
Therefore, intraday and F&O profits are not taxed as short-term capital gains. They follow separate business-income, expense, loss and return-filing rules.
How Can You Manage Short-Term Capital Gains Tax?
You can manage your STCG tax liability by following a few practical steps:
Check the holding period: Confirm whether an investment is close to becoming long-term before selling. Do not delay a necessary exit only to receive a lower tax rate.
Use eligible capital losses: Review realised losses that can be adjusted against your capital gains.
File your return on time: Timely filing helps preserve your ability to carry eligible capital losses forward.
Keep proper records: Save contract notes, purchase prices, sale values, brokerage expenses and STT details.
Classify your income correctly: Keep investment transactions separate from intraday and F&O trading records.
Calculate post-tax returns: Compare strategies based on returns after brokerage, taxes and other charges instead of looking only at gross profit.
Conclusion
Short-term capital gains tax on shares mainly depends on the asset, holding period and STT conditions. Eligible listed equity gains are generally taxed at 20% when you sell the shares within 12 months.
Other short-term gains may be taxed at your applicable slab rate. You can also use eligible short-term capital losses against both short-term and long-term capital gains.
Before deploying a systematic trading strategy, use AlgoTest Backtesting to evaluate its historical performance and trading costs. Backtesting can help you assess a strategy, but tax classification and filing should be reviewed separately.