1. Budget 2024 Changed Everything
Budget 2024 (effective 23 July 2024) made the most significant changes to equity capital gains taxation in years. Understanding the pre- and post-Budget 2024 rates is essential for tax planning:
| Category | Pre-Budget 2024 Rate | Post-Budget 2024 Rate |
|---|---|---|
| LTCG on listed equity (Section 112A) | 10% | 12.5% |
| STCG on listed equity (Section 111A) | 15% | 20% |
| LTCG annual exemption | Rs 1,00,000 | Rs 1,25,000 |
| Surcharge on equity gains (any income) | Capped at 15% | Still capped at 15% |
| STT requirement | Required for concessional rate | Still required |
2. Grandfathering: Pre-February 2018 Gains
Long-term equity gains that were accumulated before 31 January 2018 (when LTCG on equity was reintroduced after 14 years) are grandfathered:
- Cost of acquisition for shares held before 1 February 2018 = FMV on 31 January 2018 (if higher than actual cost)
- This prevents taxing gains that accumulated during the tax-free era
- For shares sold after Budget 2024 (23 July 2024): the LTCG rate is 12.5% on gains above the grandfathered cost
- The Rs 1.25L annual exemption applies on the total grandfathered+post-Feb 2018 LTCG
3. STT: Mandatory for Concessional Rate
The concessional 12.5% LTCG and 20% STCG rates under Sections 112A and 111A apply only to listed securities on which STT was paid. If STT was not paid — for example, off-market transactions or shares acquired through ESOPs at a discount — normal rates apply:
- LTCG without STT: 20% (Section 112)
- STCG without STT: slab rate
- For shares acquired before STT introduction (2004): STT requirement on acquisition is waived — only sale-side STT needed
4. Rs 1.25 Lakh Annual LTCG Exemption: Strategy
Every individual gets Rs 1.25 lakh of LTCG on listed equity/equity mutual funds tax-free each financial year. Effective tax strategies:
- Annual harvesting: If you have unrealised LTCG of Rs 1.25L in your portfolio, sell and repurchase before 31 March each year — the gain escapes tax, and the cost resets to current market price
- SIP investors: Long-term SIP investors accumulate large LTCG over time; harvesting Rs 1.25L annually over 20 years shelters Rs 25L from tax permanently
- Joint accounts: If spouse is also an investor, they independently get Rs 1.25L exemption — combined Rs 2.5L/year can be sheltered
5. Unlisted Equity Shares
Unlisted shares (private companies, startups) are taxed differently:
- LTCG (held more than 24 months): 20% (or 12.5% without indexation for post-July 2024 acquired shares) — Section 112
- STCG (held 24 months or less): slab rate
- No STT on unlisted shares — so the Section 112A concessional rate (12.5%) does not apply
- ESOP shares: cost of acquisition = FMV at allotment (already taxed as perquisite)
6. Set-Off: Capital Loss on Equity
Capital losses on equity shares and mutual funds can be strategically used:
- Short-term capital loss (STCL): set off against both STCG and LTCG from any asset
- Long-term capital loss (LTCL) from equity: set off against LTCG only (not STCG)
- Carry forward: 8 years for both STCL and LTCL
- Tax loss harvesting: sell loss-making equity positions before year-end to book losses; use to offset gains from other equity or assets
7. Dividend vs Capital Gains: Which is Better?
For equity mutual funds, investors must choose between Growth (capital appreciation taxed as LTCG/STCG) and IDCW/Dividend (income taxed at slab rate). Comparison for a 30% bracket investor:
- LTCG on Growth: 12.5% (effective ~14.95% with surcharge and cess)
- Dividend on IDCW: 30%+ (effective 31.2-42.74% depending on income level)
- Growth is clearly more tax-efficient — especially for HNIs where surcharge makes dividend extremely expensive
- IDCW is only preferable if dividend qualifies the Section 157 rebate (total income within Rs 12L) — then effectively zero tax
8. Equity Capital Gains in ITR: Schedule 112A
LTCG under Section 112A must be entered in Schedule 112A of ITR-2 or ITR-3 — each scrip separately (name, ISIN code, sale date, purchase date, cost, sale proceeds, gain). The portal aggregates and applies the Rs 1.25L exemption automatically. Obtain broker capital gains reports (Zerodha Console, Groww, Angel One) before filing — do not rely on manual computation for equity trades.
9. Why TaxClue
Equity capital gains — with Budget 2024 rate changes, grandfathering, STT conditions, and loss harvesting — require careful planning and accurate ITR reporting. TaxClue handles equity capital gains computation and Schedule 112A filing. Contact us under ITA 2025.