What you actually keep from investing is what's left after tax. Yet most people invest for years without understanding the basics. The good news: for stocks and equity mutual funds, it's simpler than it sounds. Here are the current (2026) rules, in plain words. This is general information, not tax advice — check your own situation with a professional.
The one idea that decides your tax: how long you held it
For listed shares and equity mutual funds, tax depends on your holding period:
- Held for 12 months or less → Short-Term Capital Gain (STCG)
- Held for more than 12 months → Long-Term Capital Gain (LTCG)
The current rates (equity)
| Type | Holding | Tax rate (2026) |
|---|---|---|
| STCG | ≤ 12 months | 20% on the whole gain |
| LTCG | > 12 months | 12.5%, but only on gains above ₹1.25 lakh in a year |
Two things to notice:
- Long-term is taxed much more gently. Hold beyond a year and your rate drops from 20% to 12.5% — another quiet reward for patience.
- The first ₹1.25 lakh of long-term gains each year is tax-free. So a patient investor can book a good chunk of profit every year with zero tax.
A quick example
Say you invest ₹5 lakh, hold for 2 years, and sell at ₹7 lakh — a ₹2 lakh long-term gain.
- First ₹1.25 lakh of gain → tax-free.
- Remaining ₹75,000 taxed at 12.5% → ₹9,375 tax.
Now imagine you'd sold in 11 months instead (short-term): the full ₹2 lakh would be taxed at 20% = ₹40,000. Same profit, more than four times the tax — just for selling a month too early. Holding period matters.
The small tax you pay on every trade: STT
There's also STT (Securities Transaction Tax) — a tiny tax charged automatically on every buy/sell of shares and on derivatives. It's small per trade, but for frequent traders it adds up quickly — one more reason fast trading is costlier than it looks.
The takeaway
For equity: hold over a year to pay 12.5% instead of 20%, and remember the ₹1.25 lakh yearly exemption on long-term gains. Tax rewards patience just like the market does. Keep simple records of your buy dates and prices, and let the holding period work in your favour. (Rules differ for debt funds, gold and property — those are separate topics.)
The real cost of trading often: brokerage, STT, GST and the charges that add up
Zero-brokerage ads hide the full bill. Every trade carries STT, exchange fees, stamp duty, GST and DP charges — here's what frequent trading actually costs you in India.
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