Long Term Capital Gain Tax on Shares: Understanding the Implications for Indian Investors

Long Term Capital Gain Tax on Shares: Understanding the Implications for Indian Investors

14 May 2024 | By INDIE

Among the various income sources liable for tax in India, capital gains from investments in shares/stocks are a popular choice. However, when it comes to selling those shares for a profit, understanding the tax implications becomes crucial. In this blog, we will understand the Long-Term Capital Gain tax on shares in India.


Capital Gains On Long Term Shares: The Basics

The profit earned by selling assets, such as shares, at prices higher than the prices at which they were bought is known as capital gain. These gains are categorised based on the holding period of the asset. Shares held for more than one year are classified as long-term capital assets and shares held for one year or less are considered short-term capital assets.


Understanding Long Term Capital Gain Tax on Shares

LTCG on shares specifically refers to the profit earned after selling shares held for over a year. Calculating the LTCG involves subtracting the purchase price (including any associated expenses) from the sale price.


●     Purchase price of shares: Rs. 50,000

●     Selling price of shares: Rs. 75,000

●     LTCG = Rs. 75,000 (Selling price) - Rs. 50,000 (Purchase price) = Rs. 25,000


Current Tax Scenario in India

The good news for Indian investors is that there is LTCG exemption on tax up to Rs. 1 lakh per financial year. This provides a buffer for smaller gains. However, for LTCG exceeding Rs. 1 lakh, a tax of 10% is levied. It's important to note that this is exclusive of surcharge and cess, which adds to the overall tax burden.


Securities Transaction Tax (STT) and LTCG

Securities Transaction Tax (STT) is a tax levied on the buying and selling of shares in the Indian stock market, which can be easily done via stock broking platforms. While STT might seem to add another layer of taxation, it plays a crucial role in LTCG. Shares acquired after paying STT are also eligible for LTCG exemption if the gains fall within the Rs. 1 lakh limit. This essentially eliminates double taxation for smaller gains.


Tax Implications and Calculations

Continuing from the previous example, if the LTCG from the sale of shares surpasses Rs. 1 lakh:

● Taxable LTCG = Rs. 25,000 (Total LTCG) - Rs. 1,00,000 (LTCG Exemption limit) = Rs. -75,000 (Negative value)

As the taxable LTCG is negative, there's no tax liability in this scenario. However, if the total LTCG exceeds Rs. 1 lakh, the tax would be calculated on the exceeding amount:

● Tax on LTCG = (Rs. 25,000 - Rs. 1,00,000) * 10% (Tax rate) = Rs. -7500 (Negative value)

Again, due to the negative taxable LTCG, there's no tax payable.


Strategies for Optimizing LTCG Tax

While the current tax structure offers some relief, exploring tax-saving options can further benefit investors.

● Investing in Equity Linked Saving Schemes (ELSS): LTCG arising from ELSS after the lock-in period of 3 years is taxed at a concessional rate, making them attractive for long-term wealth creation.

● Offsetting LTCG with Capital Losses: If you have incurred capital losses from other investments in the same financial year, you can offset them against your LTCG from shares, potentially reducing your tax liability.



Understanding long term capital gain tax on shares is essential for making informed investment decisions. While the current tax regime in India offers exemptions for smaller gains and a concessional rate for exceeding amounts, consulting a qualified tax advisor and a registered stock broking platform is recommended for personalised guidance based on your specific investment portfolio and financial situation.

If you are looking to start your journey in the stock market, check out digital investing app, INDIE.

INDIE aims to provide insights on various aspects of financial planning to help you navigate your journey effectively. Remember, tax laws are subject to change, so staying updated on any revisions or amendments is crucial.



The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.