Made a Profit on Shares? How the ₹1.25 Lakh LTCG Exemption Works
Quick answer
If you make a long-term profit on listed shares or equity fund units, the first ₹1,25,000 of that profit in a year is not taxed. Above that, the rate is 12.5%, plus 4% cess.
Tax is charged on your profit, not on what you receive when you sell. If you bought shares for ₹10 lakh and sold them for ₹15 lakh, your profit (your capital gain) is ₹5 lakh. That ₹5 lakh is what the rules apply to.
Listed shares and units of an equity-oriented fund become long-term once you have held them for more than 12 months. For the special rate and the allowance to apply, securities transaction tax must have been paid: on buying and selling, for shares; on selling, for fund units.
The ₹1,25,000 is a single allowance for the year, set against all such long-term gains taken together. It is not available again for each investment or each fund.
Keep in mind: Other assets follow other rules. Unlisted shares become long-term only after 24 months, and the ₹1,25,000 allowance does not apply to them.
₹5,00,000 of eligible long-term gains
| Step | Amount |
|---|---|
| Total eligible long-term gains for the year | ₹5,00,000 |
| Less the annual allowance | − ₹1,25,000 |
| Taxable gain | ₹3,75,000 |
| Tax at 12.5% | ₹46,875 |
| Add 4% health and education cess | ₹1,875 |
| Total tax | ₹48,750 |
Legal provisions and technical details
The rate and the allowance are in section 198, which applies only to equity shares, equity-oriented fund units and business trust units on which securities transaction tax has been paid. The 12-month and 24-month periods come from the definition of a short-term capital asset in section 2(101).
Section 198(1): when the special rate applies
198. (1) Irrespective of anything contained in section 197, the tax payable by an assessee on his total income shall be determined as per the provisions of sub-section (2), if— (a) the total income includes any income chargeable under the head “Capital gains”; (b) the capital gains arise from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust; (c) securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004) has— (i) in a case where the long-term capital asset is in the nature of an equity share in a company, been paid on acquisition and transfer of such capital asset; or (ii) in a case where the long-term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, been paid on transfer of such capital asset.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 198(2): 12.5% above ₹1,25,000
(2) The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate of— (a) income-tax calculated on such long-term capital gains exceeding ₹125000 at the rate of 12.5%; and (b) income-tax payable on the total income as reduced by long-term capital gains referred to in sub-section (1) as if the total income so reduced were the total income of the assessee.
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Section 2(101): short-term and long-term
(101) (a) “short-term capital asset” means a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its transfer; and (b) where the capital asset is a— (i) security listed in a recognised stock exchange in India; or (ii) unit of the Unit Trust of India; or (iii) unit of an equity-oriented fund; or (iv) zero-coupon bond, the provisions of sub-clause (a) shall have effect, as if for the words “twenty-four months”, the words “twelve months” had been substituted;
Income-tax Act, 2025 as amended by the Finance Act, 2026 · text as notified, amendment footnote numbers omitted · checked 24 October 2026 · Official text
Checked against the Income-tax Act, 2025 as amended by the Finance Act, 2026 on 24 October 2026. Official text of the Act
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CS Prashant Kumar
Company Secretary & Compliance Officer
Global Horizons Capital Advisors (IFSC) Private Limited — an IFSCA-licensed investment banker
Published in The Chartered Accountant (Jun 2025, Jan 2025, Mar 2024) and Chartered Secretary (Aug 2023)
Prashant Kumar is a seasoned Company Secretary and corporate governance strategist with more than 13 years of experience advising large corporates, promoter-led groups and global businesses on compliance, regulatory risk and board governance. In GIFT IFSC, the IFSCA regime is his day job rather than a research topic.