Capital Gains · STCG LTCG · Investment Tax · FY 2026-27
STCG vs LTCG: Key Differences Explained
STCG vs LTCG explained in simple terms. Learn the key differences in holding period, tax rates, calculation, ITR reporting, and how capital gains are treated under the Income-tax Act.
TL;DR — The 60-second version
You sold some shares or mutual funds and made a profit of Rs. 80,000. Before reporting it in your ITR, you need to know: Is it a short-term gain or long-term gain? The tax rate changes based on holding period. If you misclassify it, you'll either overpay tax or underpay and face a notice. Most investors file their capital gains incorrectly because they don't understand the holding-period rules or confuse holding dates.
Check when you bought and when you sold. For listed equity shares and equity-oriented mutual funds: if held under 12 months, it's STCG (taxed at 20%). If held over 12 months, it's LTCG (taxed at 12.5% if gains exceed Rs. 1.25 lakh). Calculate the gain correctly: sale price minus cost, minus transfer costs. Report it in Schedule CG of your ITR. Reconcile against your broker statement and AIS before filing.
We classify your capital gains correctly, calculate holding periods precisely, verify against your broker statement and AIS, ensure Schedule CG is filled accurately, and file your ITR so you pay the right tax — not a rupee more. Talk to a TaxSavvy CA before reporting capital gains.
Stage 01Fact of the Case
Vikram bought 500 shares of XYZ Ltd at Rs. 400 per share (total Rs. 2 lakh) in June 2024. In May 2025, when the share price rose to Rs. 560, he sold all 500 shares for Rs. 2.8 lakhs. His gain: Rs. 80,000. Before filing his ITR, he wasn't sure: Is this a short-term or long-term capital gain? Does it matter? How much tax does he owe? A colleague said LTCG is taxed lower, but Vikram wasn't sure if his holding period qualifies. He also bought 200 shares of mutual fund units in September 2024 and redeemed them in November 2025 (after 14 months) for a gain of Rs. 60,000. Is this LTCG? He needed clarity on holding periods, tax rates, and how to report both gains correctly in his ITR.
Stage 02Applicable Laws & Provisions
Section 2(42A) & Section 46
Definition of Short-Term and Long-Term Capital Assets
A capital asset held for 12 months or less (for listed equity shares and equity-oriented mutual funds) is a short-term capital asset. An asset held for more than 12 months is a long-term capital asset. The holding period is calculated from the date of acquisition to the date of sale. The classification determines tax treatment and exemptions.
Section 111A
Short-Term Capital Gain (STCG) Tax Rate
Short-term capital gains on listed equity shares and equity-oriented mutual funds are taxed at a flat rate of 20%. This tax applies regardless of the individual's income or tax slab. STCG is added to total income for calculating surcharge, health and education cess, but is taxed at the fixed 20% rate.
Section 112A
Long-Term Capital Gain (LTCG) Tax Rate — 12.5% Concessional Rate
Long-term capital gains on listed equity shares and equity-oriented mutual funds are taxed at 12.5% if the gain exceeds Rs. 1.25 lakh in a financial year. If LTCG is Rs. 1.25 lakh or less, no tax applies. The concessional rate applies only to specified equity transactions. Other long-term capital gains may be taxed differently under Section 112.
Schedule CG of ITR
Reporting of Capital Gains in Income Tax Return
Both STCG and LTCG must be reported in Schedule CG of the applicable ITR form. The schedule requires: asset description, date of purchase, date of sale, cost of acquisition, sale consideration, holding period, and calculated gain. Misreporting or omitting capital gains in Schedule CG is a common error that triggers notices and scrutiny.
Stage 03Mapping Laws to the Case
Here's where capital-gain classification goes wrong, why it matters, and how to report correctly.
| Fact | Section | Impact | Action |
|---|---|---|---|
| You held listed equity shares for 11 months before selling | Section 111A | Classified as STCG, taxed at 20%, not 12.5% | Check exact holding period; if 11 months 29 days, it's STCG; if 12+ months, it's LTCG |
| Your LTCG is Rs. 80,000 (below Rs. 1.25 lakh threshold) | Section 112A | No tax on LTCG if under Rs. 1.25 lakh threshold | Report correctly in Schedule CG; tax is zero, so refund claim is possible |
| Your LTCG is Rs. 1.5 lakhs (above threshold) | Section 112A | Only gain above Rs. 1.25 lakh (Rs. 25K) is taxed at 12.5% | Calculate precisely: 12.5% × Rs. 25,000 = Rs. 3,125 tax (not 12.5% × Rs. 1.5L) |
| You miscalculate capital gain (don't deduct brokerage/transfer costs) | Schedule CG | Inflated gain reported → overpay tax OR underpay if gains exceed threshold | Recalculate: Sale price − Purchase price − Brokerage − Commissions − Legal fees |
| Your broker statement shows different gains than your AIS | Schedule CG + Form 26AS | Mismatch triggers notice; department has broker data via TCS reporting | Reconcile broker statement against AIS before filing; flag any discrepancies with broker |
| You file ITR without including capital losses to offset gains | Schedule CG | Miss opportunity to reduce tax liability through loss set-off | Report all capital losses; set off against LTCG; carry forward if excess |
| You hold for 12 months exactly but sell on 12th-month anniversary | Section 2(42A) | Ambiguity — is it STCG or LTCG? | Clarify: holding period is count from acquisition date; if sold on exactly 12-month date, consult CA |
| You forgot to report a capital gain in your ITR | Schedule CG | Omission discovered in AIS match; notice issued for missing income | Report all gains; cross-check against broker's TCS reporting and AIS before filing |
⚠️ Additional risk found during mapping
⚠️ Your broker files Tax Collection at Source (TCS) data with the Income Tax Department. Your capital
gains are also reported in your AIS. If your ITR doesn't match this data, the department automatically
flags it for scrutiny. Underreporting even one capital gain can trigger a detailed notice. Report
accurately, reconcile against AIS, and keep contract notes.
Stage 04Conclusion
✅ Action Plan — in order
01
Collect your broker statements and capital-gains reports for the entire financial year.
Log into your brokerage account (stockbroker, mutual fund platform, trading app). Download: detailed
transaction history with buy and sell dates, prices, and quantities; capital gains statement (broker
usually generates a summary showing STCG and LTCG); contract notes for each trade. Export everything
to a spreadsheet or PDF. Don't rely on memory or quick mental math. Brokers maintain precise records;
use them as your primary source. Deadline: By August 10.
02
Verify holding period for each asset: When did you buy? When did you sell?
For each investment you sold, calculate the holding period. Example: Bought on June 15, 2024. Sold
on July 20, 2025. Holding period = 13 months = Long-term. Another example: Bought on September 1,
2024. Sold on August 28, 2025. Holding period = 11 months 27 days = Short-term. The holding period
determines whether it's STCG or LTCG. For listed equity shares and equity-oriented mutual funds:
under 12 months = STCG; 12+ months = LTCG. Check every single holding period. Deadline: By August 12.
03
Calculate capital gain correctly: Sale price − Purchase price − All costs.
For each sale, use this formula: Capital Gain = Sale Consideration − Cost of Acquisition − Cost of
Improvement (if applicable) − Transfer Expenses. Example: Shares sold for Rs. 2.8 lakhs. Purchased
for Rs. 2 lakhs. Brokerage on purchase = Rs. 1,000. Brokerage on sale = Rs. 1,500. Transfer tax =
Rs. 500. Capital Gain = 2,80,000 − 2,00,000 − 1,000 − 1,500 − 500 = Rs. 76,000. Don't forget
transfer costs — they reduce taxable gain. Deadline: By August 13.
04
Classify each gain as STCG or LTCG based on holding period and asset type.
Rule for Listed Equity Shares and Equity-Oriented Mutual Funds: If held ≤ 12 months = STCG. If held
> 12 months = LTCG. Create a table: Asset | Buy Date | Sell Date | Holding Period | Gain Amount |
Classification. Example: XYZ Shares | June 15, 2024 | July 20, 2025 | 13 months | Rs. 76,000 | LTCG.
Once classified, you know the tax rate: STCG = 20%, LTCG = 12.5% (if above Rs. 1.25 lakh).
Deadline: By August 14.
05
Calculate tax on each category: STCG at 20%, LTCG at 12.5% (if above Rs. 1.25 lakh).
STCG Tax: Total STCG × 20%. Example: STCG of Rs. 50,000 = Rs. 50,000 × 20% = Rs. 10,000 tax. LTCG
Tax: If total LTCG ≤ Rs. 1.25 lakh, tax = 0. If total LTCG > Rs. 1.25 lakh, tax = (LTCG − Rs.
1.25 lakh) × 12.5%. Example: LTCG of Rs. 1.5 lakhs = (Rs. 1.5L − Rs. 1.25L) × 12.5% = Rs. 25K ×
12.5% = Rs. 3,125 tax. Note: You also pay surcharge and health cess on capital gains; your CA will
calculate the full tax liability including these. Deadline: By August 15.
06
Download your AIS and compare it against your broker's capital gains statement.
Log into incometaxindia.gov.in and pull your Annual Information Statement (AIS). Look for "Capital
Gains" section. Check: Does AIS show all your capital gains? Do the amounts match your broker
statement? Are they classified correctly as STCG or LTCG in AIS? If AIS is missing a gain or shows
incorrect classification, flag it. Your broker files TCS (Tax Collection at Source) data, which feeds
into AIS. If there's a mismatch between your records and AIS, resolve it before filing. Contact your
broker to verify or correct the data. Deadline: By August 17.
07
Reconcile capital losses against capital gains if you have both.
If you had losses on some investments and gains on others, the rules allow set-off. STCG losses can
offset STCG gains. LTCG losses can offset LTCG gains. Losses can also be carried forward to the next
year to offset future gains (subject to conditions). Example: STCG gain Rs. 80,000, STCG loss Rs.
30,000. Net STCG = Rs. 50,000. Only the net is taxable. If you have capital losses, list them in
Schedule CG and show the calculation. Deadline: By August 18.
08
Collect supporting documents: Contract notes, invoices, and brokerage statements.
For every capital gain reported, keep: broker's contract notes for buy and sell transactions,
purchase invoices or confirmations, sale confirmations, brokerage receipts, delivery reports (for
physical holdings), mutual fund redemption statements. Organize these by asset and date. If the
Income Tax Department asks for proof of a capital gain (cost, date, sale price), you produce these
documents. Missing documents = cannot defend your gain = penalties if audited. Digital copies are
fine; keep them backed up. Deadline: Ensure all are organized by August 20.
09
Choose the correct ITR form and fill Schedule CG accurately.
Capital gains can be reported in ITR-2 (if capital gains are your only income) or ITR-3 (if you have
business/professional income along with capital gains). Determine which applies to you. Once in the
ITR, navigate to Schedule CG. Fill in: asset description, acquisition date, sale date, cost of
acquisition, cost of improvement (if any), sale consideration, transfer expenses, holding period,
classification (STCG or LTCG), and calculated gain. Schedule CG is where errors often occur — double-
check every field. Deadline: By August 25.
10
File your ITR with Schedule CG completed and reconciled against AIS.
Submit your ITR (ITR-2 or ITR-3, depending on your income profile) through the official portal.
Schedule CG should reflect all your capital gains and losses, properly classified and calculated.
Before clicking submit, compare your Schedule CG totals against your AIS to ensure alignment. Small
mismatches can trigger notices post-filing. Once filed, you receive a confirmation. Save it.
Deadline: By July 31 (or extended deadline if applicable)
11
E-verify your return within 30 days of filing — this finalizes your capital gains reporting.
Filing is not complete until you e-verify. Log back into the income tax portal, navigate to your
submitted return, and verify using OTP or Digital Signature. Once verified, your capital gains
reporting is locked in. The department processes your return based on verified data. If you e-verify
incorrectly or miss the 30-day window, your return may be rejected or deemed incomplete. Deadline:
Within 30 days of filing.
12
After filing, monitor your account for 143(1) intimation and reconcile any adjustments.
The Income Tax Department will process your return and issue a Section 143(1) intimation showing how
your capital gains were treated. Check this intimation carefully: Did they accept all your gains? Did
they disallow any? Did they reclassify any STCG as LTCG or vice versa? If the intimation differs from
your filing, investigate the reason. If it's an error in the department's processing (not your filing),
file a rectification request under Section 154 within 4 years. Deadline: Check your account monthly
for 2-3 months after filing.
Capital gains are simple in concept — profit from sale of an asset. But the tax treatment hinges on holding period, and that's where most investors slip up. A one-month difference in holding period can change your tax from 20% to 12.5%. That's worth getting right. Classify your gains accurately, calculate them correctly, reconcile against AIS, and report them cleanly in Schedule CG. The broker already reported your gains to the Income Tax Department via TCS data — your ITR must match that data. Do it right the first time, and you avoid notices, scrutiny, and stress. Get it wrong, and you either overpay or underpay and face penalties. The choice is yours — spend an hour now getting it right, or deal with notices later.
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