Quick answer
For tax year 2026-27, short-term gains on listed shares and equity mutual funds are taxed at 20%, and long-term gains at 12.5% on the amount above ₹1.25 lakh a year. Dividends are taxed at your slab rate, F&O trading is business income, STT on futures and options went up from 1 April 2026, and buyback proceeds are now taxed as capital gains.
Key takeaways
- STCG on listed equity and equity mutual funds: 20% (section 196 of the Income-tax Act, 2025).
- LTCG: 12.5% on gains above ₹1.25 lakh a year (section 198).
- Shares and equity funds become long-term after 12 months.
- STT on F&O rose from 1 April 2026: futures 0.05%, options 0.15%.
- Buybacks are now taxed as capital gains in the shareholder's hands.
Table of contents
Investing in shares and mutual funds can build wealth, but the tax treatment changed in two important ways recently. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, renumbering every section, and the Union Budget 2026-27 changed STT on derivatives and the taxation of buybacks. This guide explains how share market income is taxed for tax year 2026-27 (1 April 2026 to 31 March 2027).
How are capital gains on shares taxed?
| Type of gain | Holding period | Rate | Section (ITA 2025) |
|---|---|---|---|
| Short-term, listed shares / equity MF (STT paid) | 12 months or less | 20% | 196 |
| Long-term, listed shares / equity MF (STT paid) | More than 12 months | 12.5% above ₹1.25 lakh | 198 |
| Long-term, other capital assets | More than 24 months | 12.5% | 197 |
The rates are the same as those introduced in July 2024; only the section numbers changed. Surcharge and 4% health and education cess apply on top.
How are dividends taxed?
Dividends are taxed at your slab rate. The company deducts 10% TDS if it pays a resident individual more than ₹10,000 in dividends in the year. If your income is below the taxable limit, you can submit a no-deduction declaration (Form 121, which replaced Forms 15G and 15H).
What changed for F&O traders in 2026?
Futures and options profits are business income, not capital gains. From 1 April 2026, the Budget raised Securities Transaction Tax:
- Futures: 0.02% → 0.05%
- Options premium: 0.1% → 0.15%
- Options exercised: 0.125% → 0.15%
STT is not deductible against capital gains, but for traders reporting F&O as business income it is an allowable business expense. Keep a contract note register and reconcile it with your broker’s P&L statement before filing.
How are share buybacks taxed now?
From tax year 2026-27, money received in a buyback is taxed as capital gains in the shareholder’s hands, not as dividend. Promoters pay an additional tax so that their effective rate is about 22% (companies) or 30% (others).
Practical tips for investors
- Harvest the ₹1.25 lakh exemption: selling and re-buying long-term holdings each year can reset the cost and use the exemption.
- File on time to carry forward losses.
- Report every trade: the Annual Information Statement (AIS) shows your broker’s data, and mismatches trigger notices.
- NRIs: TDS applies on capital gains; DTAA relief may be available. See our NRI tax guide.
If you trade actively or have large gains, talk to our income tax consultants in Kochi before the year ends.
Sources: Union Budget 2026-27 Speech and Memorandum to the Finance Bill 2026 (indiabudget.gov.in); Income Tax Department section pages. Budget changes are as proposed in the Finance Bill 2026.
Frequently Asked Questions
01.What is the tax rate on short-term capital gains from shares in 2026-27?
Short-term gains on listed equity shares, equity-oriented mutual fund units and business trust units on which STT is paid are taxed at 20% under section 196 of the Income-tax Act, 2025, plus surcharge and cess.
02.Is long-term capital gain on shares tax-free up to ₹1.25 lakh?
Yes. Long-term gains on listed equity shares and equity mutual funds are taxed at 12.5% only on the amount above ₹1.25 lakh in a tax year.
03.How is F&O trading income taxed?
Profit or loss from futures and options is treated as non-speculative business income, taxed at your slab rate. You may need a tax audit if turnover crosses the limit.
04.How are dividends taxed?
Dividends are added to your income and taxed at your slab rate. The company deducts 10% TDS when dividends to a resident individual exceed ₹10,000 in the year.
05.Can I carry forward a capital loss on shares?
Yes. A short-term capital loss can be set off against any capital gain, a long-term loss only against long-term gains, and unabsorbed losses can be carried forward for eight tax years if your return is filed on time.
