Computation of capital gains tax for stock market securities

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With the availability of multiple investment avenues, rapidly growing technology, and increase in investor awareness, more and more people are encouraged to invest in the securities market. Whether you are a new or an active investor, you must know that any income from trading in these securities is taxable under the Income Tax Act, 1961.

What is capital gains from securities?

Any profit arising from the sale of any of the financial securities like equities, debt, mutual funds, and derivatives is known as a capital gain. This profit is considered as your income and thus you will have to pay tax on this amount in the same year you sell the securities. This is known as capital gains tax.

The investment horizon or the duration for which an investor holds his securities decides the rate of tax levied on this gain. However, this tenure differs for every asset. Below is the duration chart that will help you categorize the marketable securities as long-term or short-term at the time of selling the securities.

Type of Asset Short-term Duration Capital Gain Long-term Duration Capital Gain
Shares Less than 1 year Short-term Capital Gain (STCG) More than 1 year Long-term Capital Gain (LTCG)
Equity-oriented Mutual Funds Less than 1 year STCG More than 1 year LTCG
Debt Securities Less than 3 years STCG More than 3 years LTCG
Debt-oriented Mutual Funds Less than 3 years STCG More than 3 years LTCG

Applicable tax rates

Following are the tax rates applicable on capital gains for each of the marketable securities for the FY 2021-2022.

Security Investment Horizon Tax Applicability Illustrations
Shares / Equity Oriented Mutual Funds Long-term
  1. Not taxable up to ₹1 lakh
  2. 10% tax on the capital gain of more than ₹1 lakh (without indexation* benefit)
  1. Net Buy Price – 1,80,000

Holding Period – 24 months

Net Sell Price – 2,75,000

LTCG – ₹95,000 (2,75,000-1,80,000)

Capital Gain Tax – NA

  1. Net Buy Price – 1,80,000

Holding Period – 22 months

Net Sell Price – 3,00,000

LTCG – ₹1,20,000 (3,00,000-1,80,000)

Capital Gain Tax – 2,000 {10% of 20,000 (1,20,000 – 1,00,000)}

Shares / Equity Oriented Mutual Funds Short-term 15% tax on capital gains Net Buy Price – 2,00,000

Holding Period – 11 months

Net Sell Price – 2,90,000

STCG – ₹90,000 (2,90,000-2,00,000)

Capital Gain Tax – 15% of 90,000

Debentures / Debt Securities / Non-equity / Debt Mutual Funds / Debt ETFs / Gold ETFs Short-term Capital gain is taxed as per the income tax slab rate applicable for an individual Income Tax Bracket – ₹7,50,000 – ₹10,00,000

Income Tax Rate – 20%

Capital Gain – ₹4,00,000

Capital Gain Tax – ₹80,000

Debentures Long-term 20% tax without indexation Buy Amount – ₹1,50,000

Sell Amount – ₹2,50,000

Capital Gain – ₹1,00,000

Tax – 20,000 (20% of ₹1,00,000)

Non-equity / Debt Mutual Funds / Debt ETFs / Gold ETFs Long-term 20% tax with indexation benefit Invested Amount (2018-19) – ₹1,00,000 (Mutual Funds Units @₹20)

Holding Period – 3 years

Redeem Amount (2021-22) – ₹2,00,000

(Mutual Funds Units @ ₹40)

Capital Gain (without indexation) – ₹1,00,000

ICoA* = 1,00,000*(317/280)

ICoA = 1,13,214

Capital Gain (with indexation) = ₹86,786

Capital Gain Tax – ₹17357 (20% of 86786)

Tax rates mentioned above exclude health and education cess.

*Indexation – A process in which the acquisition cost of security is arrived at after considering the effect of inflation over a period of time. Indexed Cost of Acquisition (ICoA) will be arrived at by using the following formula.

ICoA = Original cost of acquisition * (Cost Inflation Index (CII) of the year of sale/CII of year of purchase)


The profit or loss you earn / bear through the sale of your marketable securities is known as Capital Gain / Loss. It is treated as an income under the Income Tax Act,1961, and is thus taxed accordingly. So, the next time you sell your securities check the above table to know the tax rate applicable. You can use this table to compute your capital gain and tax liability beforehand.