Tax on Shares and Equity Funds

1.1 — Arjun sells, and the number he expected isn't the number he gets

Arjun finally sells some of his Sunrise Foods shares. The statement says he made ₹4 lakh. He's already mentally spent it. Then his accountant asks one question that quietly changes everything: when exactly did you buy these?

On Indian shares and equity funds, tax cares about one thing above everything else — how long you held. Not how much you earned, not what you make elsewhere. Just how long.

On Arjun's ₹4 lakh gain, that's the difference between roughly ₹34,000 and ₹80,000 in tax. Same shares. Same profit. Same person. Nearly double the bill depending on a date.

1.2 — The single day that decides which rate you pay

The statute says MORE than twelve months, and that one word does more work than it looks like it should.

Buy on 1 April 2025. Sell on 1 April 2026 and you've held for exactly twelve months — not more than twelve, so the gain is short-term at 20%. Sell on 2 April 2026 instead, and it's long-term at 12.5%, exemption included.

This is exactly why our own calculators compare actual dates instead of counting months — whole-month arithmetic would call both of those sales "twelve months" and get one of them completely wrong. Worth remembering before you place a sell order in the last week of a holding's first year.

1.3 — The exemption is per year, not per sale — and that costs people real money

Long-term gains carry a shelter: the first ₹1.25 lakh of long-term equity gains in a financial year isn't taxed. Above that, 12.5% kicks in.

Here's the part that catches almost everyone, and it's the most expensive misunderstanding in this whole chapter.

A second sale in the same year draws on whatever the first one left behind. Selling in stages doesn't multiply the shelter — it just divides one shelter into smaller pieces. Our calculators model it exactly that way, because treating every sale as a fresh ₹1.25 lakh is the mistake that makes a staged-selling plan look free when it very much isn't.

What DOES genuinely reset is the financial year itself. A gain realised on 31 March and one realised on 1 April fall in different years and draw on different buckets — a real and legitimate thing to think about if a sale is optional and already sitting near a year-end.

1.4 — Two traps that look similar and aren't

Debt funds are taxed completely differently

Gains on debt mutual funds get added straight to your income and taxed at your slab rate. No 12.5%, no ₹1.25 lakh shelter. For someone in the 30% bracket, that's a very different outcome from equity — on what might feel like a similar kind of product.

Deposit interest is taxed as income, AND withheld upfront

Interest on a fixed deposit is taxed at your slab too. On top of that, the bank withholds tax at source — 10% once interest crosses ₹50,000 a year, or ₹1,00,000 for senior citizens.

You can see exactly what this does to a real number in the deposit calculators, which apply your actual income rather than asking you to name a slab.

1.5 — What this chapter deliberately won't tell you

Three honest limits, because tax is exactly where confident half-knowledge does the most damage.

1. 1.**Losses are real, and out of scope here.** Capital losses can be set off against gains and carried forward under specific conditions this chapter doesn't cover — and our calculators don't model that either, showing no negative tax rather than implying a refund.
2. 2.**Rules change, sometimes mid-year.** The equity rates themselves shifted on 23 July 2024 — long-term from 10% to 12.5%, the exemption from ₹1 lakh to ₹1.25 lakh, short-term from 15% to 20%. A sale early in that year was taxed differently from one late in it.
3. 3.**Nothing here is tax advice.** This describes how the rates actually work. Your own situation might involve set-offs, exemptions or residency questions that change the answer — that's a conversation for a qualified adviser, not a course.

One more, specific to this site: our calculators know the rules through FY2026-27 and apply those same rules to every year after, because nobody actually knows what the future rules will be. Any projection past that point is an illustration built on today's law, not a prediction — and it says so.

Arjun, it turns out, bought his shares in tranches across three years. Some are long-term, some aren't, and his accountant now wants to know exactly which ones he sold. Arjun assumed that was his call. It isn't — and that's chapter 2.