Short Term Capital Gain: Tax Rates, Rules & Calculation 2026

Most investors notice the difference only at ITR time. A stock sold six months after purchase. A mutual fund redeemed in a hurry. And suddenly there is a tax bill that was not in the plan.

Here is the thing. Budget 2024 quietly raised the tax on short-term equity gains. Many people still believe the old rate applies — it does not, not for anything sold after July 23, 2024.

Short term capital gains are profits earned when a capital asset — shares, mutual funds, property, or gold — is sold within the prescribed short-term holding period under India's income tax laws.

This guide covers which rate applies to which asset, how STCG is calculated, what the Income Tax Act 2025 changes mean, and why life insurance sits in a completely separate tax compartment.

What is Short Term Capital Gain?

Capital gains are what happens when an asset sells for more than it cost. Whether that profit is short-term or long-term depends entirely on how long the asset sat before the sale.

India draws a line — hold an asset within a certain window, sell it, and the gain is short-term. Cross that window, and the same profit becomes a long-term capital gain. The tax treatment changes substantially depending on which side of that line a transaction falls on.

Actually, let us back up for a second. The line is not the same for all assets. Equity shares have a different threshold than property. And Budget 2024 moved the threshold for some assets but not others. The tables below spell this out clearly.

Short-term capital gains are reported under 'Capital Gains' in the Income Tax Return (ITR).

STCG Tax Rates in India for FY 2026-27

Equity and non-equity assets are taxed completely differently on short-term gains. Section 196 (Erstwhile Section 111A) governs the equity side. Everything else gets folded into regular income and taxed at slab rates. Here is the full breakdown:

Source: Finance (No. 2) Act 2024, Ministry of Finance, GOI. Rates effective 23 July 2024 for Section 111A assets.

Holding Period — What Counts as Short-Term in 2026?

Budget 2024 moved the goalposts for property and non-equity assets. Previously, a house or gold holding needed to be sold within 36 months to qualify as short-term. That window is now 24 months — for assets transferred on or after July 23, 2024.

Here is where it gets interesting. The change works in both directions. Someone who sold a house in January 2026 after holding it for 26 months is now in long-term territory. Before Budget 2024, that exact same transaction would have attracted STCG at slab rates. Same investor, same property, same holding duration — different classification under the new rules.

How to Calculate Short Term Capital Gain

The formula is not complicated. STCG = Sale Price minus Cost of Acquisition minus Transfer Expenses. What trips people up is two things — figuring out what goes into 'cost of acquisition', and whether their transaction actually meets the STT condition for Section 196 (Erstwhile Section 111A).

Start by identifying the asset type and purchase date — that determines which holding period applies. Then confirm whether the sale falls inside or outside that window. If inside, it is short-term. If outside, it is long-term and a different set of rules applies.

Cost of Acquisition is the original purchase price plus brokerage paid when buying. Sale Proceeds are the actual sale price minus any brokerage or transfer charges paid at the point of sale. Subtract one from the other — that is the gain.

From there, two computation steps:

1. Apply the correct rate. If equity assets were sold through a recognised exchange with STT paid — it is the flat rate under Section 196 (Erstwhile Section 111A). For everything else, the gain gets added to income and taxed at the applicable slab.
2. Add the Health and Education Cess of 4% on the tax figure arrived at above.

A worked example: Priya bought 500 shares of a listed company in September 2025 for ₹200 per share. By February 2026, they were at ₹280. She sold — six months in — and STT was paid on the transaction.

One nuance here: if Priya has no other income and her total falls below the basic exemption limit, she can apply that shortfall to reduce the taxable STCG before the flat rate kicks in.

STCG and the New Income Tax Act 2025

April 1, 2026 was a structural milestone. The Income Tax Act 1961 — in use for over six decades — has been replaced by the Income Tax Act 2025.

Most of the familiar provisions survive intact. The rates, the conditions, the basic exemption limit rules — all carried over. What changed is the section numbering. Section 111A becomes Section 196 in the new Act. Section 112A for long-term gains maps to Section 198.

Finance Act 2025 settled something that had been contested since the new tax regime expanded its rebate threshold. The Section 87A rebate — available to taxpayers whose total income falls within the specified limit — is now explicitly unavailable against STCG under 

Section 196 (Erstwhile Section 111A). That ambiguity has been formally closed.

Residents can still use the basic exemption limit to reduce 

Section 196 (Erstwhile Section 111A)gains if their other income falls short of that threshold. But the Section 156(Erstwhile Section 87A) rebate route? That is gone.

How to Reduce Your STCG Tax Liability

Let us be direct. Once the gain is realised, the tax largely follows the rate. Indexation does not apply to equity STCG. Deductions under Section 123(80C) and Section 126(80D) cannot be claimed against Section 196(111A) gains. But the exposure going forward can be managed.

Loss harvesting is the most direct lever. Short-term capital losses can be set off against both short-term and long-term capital gains within the same financial year. Losses that do not get absorbed carry forward for up to eight assessment years — a useful buffer for active traders.

Holding period matters more than most retail investors realise. For equity assets, crossing the 12-month mark converts a short-term gain into a long-term one — taxed at a lower rate above the annual exemption threshold. On a sizable portfolio, the difference between exiting at month eleven versus month thirteen is not trivial.

Basic exemption limit adjustment — this one is often missed. Resident individuals and HUFs whose total income, excluding Section 196(111A) STCG, falls below the basic exemption limit can apply the shortfall against their STCG before computing the flat rate. Particularly relevant for retired investors with modest pension income.

And then there is the structural question of which instruments to hold going forward. Products like ULIPs and qualifying life insurance savings plans operate in a completely different tax compartment — maturity proceeds from eligible policies are exempt under Section-11 read with Schedule II [Table Sl.No 2]of IT Act 2025, entirely outside the capital gains framework.

For insurance buyers thinking about long-term allocation, exploring ULIP plans and Section 10(10D) tax exemption alongside tax saving options beyond 80C is worth factoring into the plan. Also useful: how tax on mutual fund redemption is calculated.

Does STCG Apply to Life Insurance Maturity Proceeds?

Common question. And the answer actually matters for planning.

Life insurance maturity proceeds, survival benefits, and death claim payouts are not treated as capital gains under Indian income tax law. They sit under the head 'Income from Other Sources' — or are fully exempt, depending on policy terms and Section-11 read with Schedule II [Table Sl.No 2] of IT Act 2025 eligibility.

So selling a mutual fund unit triggers STCG. Receiving a maturity payout from a qualifying life insurance policy does not. Entirely different frameworks, assessed independently. An investor with both in their portfolio is navigating two distinct tax systems — not one.

Read more: Is life insurance taxable in India? — and deductions under Chapter VI-A of Income Tax.

Plan Investments with Tax Efficiency in Mind

Short term capital gains are not a problem to avoid — they are a variable to manage. The holding period thresholds are known. The rates are known. What most insurance buyers and investors overlook is that different products sit in entirely separate tax compartments. STCG rules and life insurance tax rules are not competing frameworks. They coexist, apply independently, and serve different parts of a financial plan.

Actually, this is where most tax planning conversations stop short. The question is not just 'how do I reduce STCG?' — it is 'how does my total investment structure look from a post-tax perspective?' Life insurance savings plans and ULIPs with long-term holding offer maturity benefits that never enter the STCG calculation. That is a structural advantage, not a workaround.

Shriram Life Insurance offers savings and investment-linked products designed for long-term wealth creation with favourable tax treatment on maturity. With a claim settlement ratio of 98.52% for FY 2025-26 and ₹13,207 crore in AUM, Shriram Life is built for the long haul — not short-term exits.