On a ₹2 lakh gain from shares bought for ₹10 lakh, the tax bill is either ₹11,575 or ₹42,200. The only thing that separates the two figures is whether you held the shares for more than a year. Working it through also showed me something the headlines missed: for anyone whose long-term gains in a year are between ₹1 lakh and ₹2.25 lakh, the 2024 change to LTCG made the tax smaller, not larger.
These three taxes were back in the news on 13 October 2026, when the finance minister said the government would hear views on LTCG and that a debate on STT was healthy. No change was announced; the remark and the market's move that afternoon are in that day's post-market report. This guide is the arithmetic behind the words, using the rates in force in October 2026.
Two taxes on the gain, one on the trade
| Tax | What it is charged on | Rate | When it applies |
|---|---|---|---|
| LTCG (long-term capital gains) | The gain | 12.5%, after the first ₹1.25 lakh of long-term gains in the year | Listed shares and equity funds held more than 12 months |
| STCG (short-term capital gains) | The gain | 20% | Held 12 months or less |
| STT (securities transaction tax) | The value of the trade | 0.1% on the buy and 0.1% on the sell for delivery | Every trade on the exchange, at a gain or a loss |
LTCG and STCG are alternatives: one sale produces one or the other. STT is collected on top of either, by the exchange through your broker, and appears on the contract note the same day. The capital gains tax is yours to work out and pay through your income-tax return.
When you have bought the same share on different dates, the holding period is decided first-in, first-out: the shares you sell are treated as the oldest ones in your demat account.
One ₹2 lakh gain, three bills
Take one trade. You buy shares worth ₹10,00,000 and later sell them for ₹12,00,000, a gain of ₹2,00,000. Assume it is your only sale of the year.
STT, whatever the holding period. 0.1% of ₹10,00,000 is ₹1,000 on the buy. 0.1% of ₹12,00,000 is ₹1,200 on the sell. Total: ₹2,200.
Held more than 12 months. The first ₹1,25,000 is exempt, leaving ₹75,000. At 12.5%, the tax is ₹9,375. With STT the bill is ₹11,575.
Held 12 months or less. There is no exemption. 20% of ₹2,00,000 is ₹40,000. With STT the bill is ₹42,200.
Bought and sold the same day. This is no longer a capital gain at all. Intraday share trading is treated as speculative business income, taxed at your income-tax slab rate. STT is lower, 0.025% on the sell side only, which is ₹300 here. For someone in the 30% slab, tax on the ₹2,00,000 would be ₹60,000, before deducting the ₹300 of STT and other expenses, which business income allows.
| Holding | STT | Tax on the gain | Total |
|---|---|---|---|
| More than 12 months | ₹2,200 | ₹9,375 | ₹11,575 |
| 12 months or less | ₹2,200 | ₹40,000 | ₹42,200 |
| Same day, 30% slab, before expenses | ₹300 | ₹60,000 | ₹60,300 |
All of these are before cess and any surcharge. The long-term figure works out to 4.69% of the gain, because the exemption covers more than half of it.
One rule in this table catches people out. For capital gains, STT cannot be added to your purchase cost or taken off your sale value. Brokerage and the other charges can. So the ₹2,200 does not reduce the ₹2,00,000 you are taxed on.
STT does not care whether you made money
Run the same trade the other way. You buy for ₹10,00,000 and sell for ₹9,00,000, a loss of ₹1,00,000.
STT is ₹1,000 on the buy and ₹900 on the sell: ₹1,900. There is no capital gains tax, because there is no gain. The loss can be carried forward for eight years. A short-term loss can be set against short-term or long-term gains; a long-term loss only against long-term gains.
That is the structural difference between the two kinds of tax. Capital gains tax takes a share of what you made. STT takes a share of what you moved. A long-term investor who trades twice a year barely notices STT. Someone who turns over the same capital every day pays it on every round trip, which is why it sits in my cost breakdown for a single options trade as a line of its own.
The 2024 rate rise lowered the tax on smaller gains
On 23 July 2024 the LTCG rate went from 10% to 12.5%, and the exemption from ₹1 lakh to ₹1.25 lakh. The headline was the higher rate. The larger exemption works the other way, and for smaller gains it wins.
| Long-term gain in a year | Tax at 10% above ₹1 lakh | Tax at 12.5% above ₹1.25 lakh |
|---|---|---|
| ₹1,00,000 | ₹0 | ₹0 |
| ₹1,25,000 | ₹2,500 | ₹0 |
| ₹2,00,000 | ₹10,000 | ₹9,375 |
| ₹2,25,000 | ₹12,500 | ₹12,500 |
| ₹5,00,000 | ₹40,000 | ₹46,875 |
| ₹10,00,000 | ₹90,000 | ₹1,09,375 |
The two sets of rules cross at a gain of ₹2,25,000. Between ₹1,00,000 and that figure, the tax is lower than it was before July 2024. Above it, the tax is higher, and the gap widens with the size of the gain: at ₹10,00,000 the difference is ₹19,375.
Short-term gains had no such offset. The STCG rate went from 15% to 20% on the same day, so the ₹2,00,000 short-term gain in my example went from ₹30,000 of tax to ₹40,000.
What the April 2026 STT rise did to one futures lot
Budget 2026 left the capital gains rates alone and raised STT on futures and options from 1 April 2026. STT on delivery and intraday share trades did not change.
| F&O trade | Before 1 April 2026 | From 1 April 2026 |
|---|---|---|
| Futures, sell side | 0.02% | 0.05% |
| Options sold, on the premium | 0.1% | 0.15% |
| Options exercised, on intrinsic value | 0.125% | 0.15% |
One lot of Nifty futures is 65 units. Priced at the Nifty's close of 22,721.95 on 13 October 2026, the contract is worth ₹14,76,926.75. STT on selling it is ₹738.46 at 0.05%. At the old 0.02% it would have been ₹295.39. On the contract note STT is rounded to the nearest rupee.
For an option sold at a premium of ₹100, one lot is ₹6,500 of premium, and STT is ₹9.75 against ₹6.50 before April.
F&O profits are not capital gains. They are non-speculative business income, taxed at your slab rate and usually filed on ITR-3. The one consolation is that STT then counts as a business expense, which it never does against capital gains. Losses carry forward eight years for F&O and four years for intraday share trading, and an intraday loss cannot be set against an F&O profit. I cover the filing side briefly in my guide to algo trading in India.
Why LTCG and STT get argued about as a pair
The two taxes have a shared history, which is why a question about one usually brings up the other.
- 2004: STT begins. In the same year, long-term gains on listed shares become exempt from tax.
- 1 April 2018: The exemption ends after 14 years. Long-term gains above ₹1 lakh are taxed at 10%. Gains built up to 31 January 2018 are protected by a grandfathering rule that, in most cases, lets you use the price on that date as your cost. STT stays.
- 23 July 2024: LTCG goes to 12.5% above ₹1.25 lakh, STCG to 20%.
- 1 April 2026: STT on futures and options goes up.
- 13 October 2026: The finance minister says the government will hear views on LTCG and calls a debate on STT healthy, with the next Budget due on 1 February 2027.
So since 2018 an investor has paid both: the transaction tax that arrived with the exemption, and the gains tax that the exemption once replaced. That is the factual core of the debate. Whether either should change is a policy question, and I have no view to offer on how it will be settled.
What this guide leaves out
I am a developer who trades, not a tax professional, and this is the simple case: a resident individual, listed shares, trades on the exchange with STT paid. I have left out cess and surcharge, the income-tax slabs themselves, debt funds and other assets, off-market transfers, non-resident rules, and the turnover and audit rules for business income.
If you are measuring a strategy rather than filing a return, the useful habit is the same one as for brokerage: count every charge inside each trade's result, STT included, before you look at profit factor or expectancy.
Sources
- Zerodha support: how STT is calculated (rates, the 1 April 2026 change, rounding)
- Zerodha Varsity: taxation for investors (LTCG and STCG rates, holding period, STT not deductible, first-in first-out, loss set-off)
- Zerodha Varsity: taxation for traders (business income, loss carry-forward, ITR-3)
- Moneylife: the end of the 14-year exemption in Budget 2018 and itatonline (10% above ₹1 lakh, 31 January 2018 rule)
- Punjab Kesari: the finance minister's remarks on 13 October 2026
- Nifty close: Zerodha Kite market data. The arithmetic in the examples and tables is my own, from the rates above.
This guide explains how taxes on share trades are calculated, with made-up example trades, for information only. It is not tax advice or investment advice, and tax rules change, so check the current rules or ask a chartered accountant before you rely on it. I am not registered with SEBI as an investment adviser or research analyst.