STCG and LTCG: Adjusting Capital Gains Under Old and New Tax Regimes for ITR Filing 2025 Explained

Capital gains refer to profits made from the sale of capital assets such as shares or equity mutual funds. These gains are categorised as:

• Short-Term Capital Gains (STCG): Gains on equity-oriented instruments held for less than 12 months, taxed under Section 111A.
• Long-Term Capital Gains (LTCG): Gains on similar instruments held for more than 12 months, taxed under Section 112A.

Each of these sections prescribes a distinct tax treatment and applies to residents and non-residents differently.

Basic Exemption Limit: A Recap

The basic exemption limit is the income threshold below which no income tax is payable. The threshold varies based on the tax regime and the age of the taxpayer.

Under the Old Tax Regime:

• General category: ₹2.5 lakh
• Senior citizens (60–79 years): ₹3 lakh
• Super senior citizens (80+ years): ₹5 lakh

Under the New Tax Regime (Section 115BAC):

• For AY 2025–26: ₹3 lakh
• For AY 2026–27 onwards: ₹4 lakh (as per Finance Act, 2025)

Can Capital Gains Be Adjusted Against This Limit?

Yes. As per the Income-tax Act, 1961, a resident individual whose total income falls below the basic exemption limit is eligible to adjust capital gains (STCG and LTCG) against the unutilised portion of this threshold.

This provision is valid irrespective of the tax regime chosen. The key conditions are:

• The individual must be a resident for tax purposes.
   
• The total income, excluding STCG, LTCG, and casual income, must be below the exemption limit.

Practical Example of Adjustment

Suppose a resident individual aged 45 has:

• ₹1.5 lakh in salary income
   
• ₹75,000 in short-term capital gains from equity shares (covered under Section 111A)

Under the old regime, their total income is ₹2.25 lakh, which is ₹25,000 below the basic exemption limit of ₹2.5 lakh. Hence, they can reduce their taxable STCG by ₹25,000, and only ₹50,000 would be taxed at 20% (the rate under Section 111A).

Adjustment Order: STCG vs LTCG

While the Income-tax Act does not specify an order for adjusting capital gains against the basic exemption limit, it is generally advisable to adjust STCG first, followed by LTCG. This is because:

• STCG under Section 111A is taxed at a flat rate of 20%, without any threshold exemption.
• LTCG under Section 112A enjoys an annual exemption of ₹1.25 lakh, and any gain beyond that is taxed at 12.5%.

Read More: What Is Long-Term Capital Gains Tax? Tax Rates & Benefits. 

Conclusion

By adjusting STCG first, the taxpayer may reduce immediate tax liability, as LTCG already has an in-built exemption.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.