Many retail investors in India have a single question: if my only income for the year is from selling shares or equity mutual funds, do I still need to pay tax and file an ITR? The answer depends on the amount of gains, the type of capital gain, and your total income. This guide clarifies every scenario.
How Share Sale Income Is Classified
Income from selling listed equity shares and equity-oriented mutual funds is taxed as capital gains - not as salary or business income. The rate depends on the holding period:
Type | Holding Period | Tax Rate |
|---|---|---|
Short-Term Capital Gains (STCG) | Less than 12 months | 20% (revised from 15% in Budget 2024) |
Long-Term Capital Gains (LTCG) | 12 months or more | 12.5% above INR 1.25 lakh (revised in Budget 2024) |
Budget 2024 revised STCG from 15% to 20% and LTCG from 10% to 12.5%, while raising the LTCG exemption limit from INR 1 lakh to INR 1.25 lakh. These rates apply to STT-paid transactions on recognised stock exchanges.
Do You Need to File an ITR?
Yes - if your capital gains from share sales exceed the basic exemption limit, or if you want to carry forward capital losses, you must file an ITR. Specifically:
If total income including LTCG exceeds the basic exemption limit (INR 3 lakh under new regime), filing is mandatory
If TDS has been deducted on any income, filing is required to claim a refund
If you have capital losses that you want to carry forward to offset future gains, filing on time is mandatory
Even if income is below the exemption limit, filing a nil return is advisable for record-keeping and financial documentation purposes
Do You Need to Pay Tax?
Scenario 1: Only LTCG, Below INR 1.25 Lakh
If your total long-term capital gains from equity for the year are INR 1.25 lakh or less, and you have no other income, no tax is payable. The LTCG exemption of INR 1.25 lakh per financial year covers this entirely.
Scenario 2: LTCG Above INR 1.25 Lakh
Gains above INR 1.25 lakh are taxed at 12.5% without the benefit of indexation. For example, if your LTCG is INR 2.25 lakh, only INR 1 lakh is taxable, resulting in tax of INR 12,500 plus surcharge and cess.
Scenario 3: Only STCG
Short-term capital gains from equity are taxed at 20% flat, regardless of your income slab. If your STCG is INR 50,000 and you have no other income, you pay INR 10,000 as tax. However, if your total income including STCG is below the basic exemption limit, you can offset the exemption benefit against STCG.
Scenario 4: Mix of STCG and LTCG
Both are reported separately in ITR-2. LTCG above INR 1.25 lakh is taxed at 12.5%; STCG is taxed at 20%. Losses from one category can offset gains from the same category in the same year.
Which ITR Form to Use?
Capital gains from shares and mutual funds must be reported in ITR-2. You cannot use ITR-1 (Sahaj). If you also have any business income including F&O trading, you must use ITR-3.
Loss Carry-Forward Rules
Short-term capital losses can be set off against both STCG and LTCG in the same year
Long-term capital losses can only be set off against LTCG
Unabsorbed capital losses can be carried forward for 8 assessment years
Carry-forward requires filing ITR on or before the due date (31 July for non-audit cases)
How PGA & Co. Can Help
At PGA & Co. Chartered Accountants, we file ITR-2 and ITR-3 for investors and traders - computing capital gains accurately from broker statements, claiming all eligible exemptions, and ensuring loss carry-forward is correctly reported.
Contact: +91 86998-87200 | info@pgaca.in | pgaca.in/contact
Need expert guidance on this topic?
PGA & Co. Chartered Accountants can help. Speak with our team today.