Share Trading Tax 2025-26 — Equity LTCG 12.5%, STCG 20%, Intraday & F&O

Q: What ITR form should I use for stock market trading?

ITR form depends on the type of trading: ITR-1: Only if you have salary and no capital gains (cannot use if you have any share sale). ITR-2: Salary + capital gains (STCG/LTCG from delivery-based trading) — no business income. ITR-3: If you have intraday trading or F&O trading income (business income). Most active traders file ITR-3. Investors who only buy and hold listed shares and sell them (delivery-based, no intraday/F&O) file ITR-2. If you have both capital gains and F&O/intraday income, use ITR-3.

Q: Is STT (Securities Transaction Tax) deductible from income tax?

STT (Securities Transaction Tax) is not deductible as an expense when computing LTCG or STCG. However, STT paid is the key condition for availing the concessional tax rates — 12.5% LTCG (Section 112A) and 20% STCG (Section 111A) apply only to transactions on which STT has been paid (i.e., shares traded on recognised stock exchange). For F&O and intraday trading (business income), STT can be claimed as a business expense in Schedule P&L of ITR-3 to reduce taxable profit.

Q: How to claim LTCG exemption of ₹1.25 lakh?

The ₹1.25 lakh annual LTCG exemption under Section 112A is automatic — you do not need to file a separate claim. When computing LTCG tax: total LTCG from all listed equity shares and equity mutual funds in the year → subtract ₹1.25L → balance × 12.5% = tax. The exemption is per financial year, not per transaction. If LTCG is ₹1.25L or less, tax is zero. The exemption applies to the combined LTCG from all equity shares and equity-oriented mutual funds. It cannot be used against LTCG from property, gold, or debt funds.

Q: Can intraday trading loss be carried forward?

Intraday trading loss is treated as speculative business loss. It can be carried forward for 4 assessment years (not 8 years like non-speculative losses). In the carry-forward period, it can only be set off against speculative business income — meaning future intraday trading profits. It cannot be set off against salary, F&O income, capital gains, or other business income. In the same year, speculative loss can only be offset against speculative income. You must file ITR-3 on or before the due date to carry forward speculative losses.

Updated: 3 June 2026 | Budget 2024 Rates | Section 111A, 112A | Income-tax Act, 2025

Share trading income tax in India depends on holding period and trade type. Listed equity held >12 months: LTCG at 12.5% under Section 112A (first ₹1.25L exempt). Listed equity held <12 months: STCG at 20% under Section 111A. Intraday trading: Speculative business income taxed at slab rate — file ITR-3. F&O trading: Non-speculative business income at slab rate — file ITR-3. STT (Securities Transaction Tax) must be paid for concessional LTCG/STCG rates to apply.

4 Types

4 types of equity income — each taxed differently.
LTCG 12.5% | STCG 20% | Intraday at slab | F&O at slab. Choose your ITR form accordingly.

Equity Share Trading — Complete Tax Summary (FY 2025-26)

Trade Type	Holding Period	Tax Rate	ITR Form	Audit Applicable?
Delivery LTCG (listed equity)	More than 12 months	12.5% (Section 112A); ₹1.25L exempt	ITR-2 / ITR-3	No
Delivery STCG (listed equity)	12 months or less	20% (Section 111A)	ITR-2 / ITR-3	No
Intraday (equity)	Same-day (no delivery)	Slab rate (speculative business)	ITR-3	Turnover > ₹3Cr
F&O (Futures & Options)	N/A (contract-based)	Slab rate (non-speculative business)	ITR-3	Turnover > ₹3Cr
Unlisted equity (LTCG)	More than 24 months	12.5% (Section 112)	ITR-2 / ITR-3	No
Unlisted equity (STCG)	24 months or less	Slab rate	ITR-2 / ITR-3	No

LTCG Grandfathering — Shares Bought Before 1 February 2018

Budget 2018 re-introduced LTCG tax on equity shares. To protect investors who held shares before the announcement, a grandfathering provision was introduced under Section 112A:

Scenario	Cost of Acquisition for LTCG	Effect
Shares acquired before Feb 1, 2018	Higher of: (a) Actual purchase price, or (b) FMV (Fair Market Value) as on January 31, 2018	Gains up to Jan 31, 2018 FMV are effectively exempt
FMV on Jan 31, 2018 > sale price	Cost = Sale price (no loss recognised on pre-2018 portion)	LTCG = zero; loss not recognised for pre-2018 period
Shares acquired on or after Feb 1, 2018	Actual purchase price	Normal LTCG computation; no grandfathering

Practical note: FMV on January 31, 2018 for listed shares is taken as the highest price on the stock exchange on that date (or the preceding trading day if Jan 31 was a holiday). This data is available from NSE/BSE historical data.

Loss Set-off Rules for Share Trading

Understanding which losses can be set off against which income is critical for tax planning:

Loss Type	Set-off in Same Year Against	Carry Forward Against	Years
STCG loss (delivery equity)	STCG or LTCG from any capital asset	STCG or LTCG	8 years
LTCG loss (delivery equity)	LTCG only (not STCG)	LTCG only	8 years
Intraday loss (speculative)	Speculative business income only	Speculative business income only	4 years
F&O loss (non-speculative)	Any business income (speculative or non-speculative), house property	Non-speculative business income only	8 years

Key rule: Capital losses cannot be set off against salary, business income, or other sources. Business losses (intraday/F&O) cannot be set off against salary. File ITR before the due date to carry forward any losses.

Frequently Asked Questions

How to compute tax on selling shares?

Tax on selling shares depends on how long you held them and how you traded: (1) Listed equity held ≥12 months: LTCG at 12.5% (Section 112A). First ₹1.25L LTCG is exempt. Tax = (LTCG - ₹1.25L) × 12.5%. (2) Listed equity held <12 months: STCG at 20% (Section 111A). No exemption. Tax = STCG × 20%. (3) Intraday (buy-sell same day): speculative business income at your slab rate. (4) F&O: non-speculative business income at slab rate. Plus 4% H&E cess on all taxes. STT must have been paid (STT-paid trades qualify for concessional STCG/LTCG rates).

What ITR form should I use for stock market trading?

ITR form depends on the type of trading: ITR-1: Only if you have salary and no capital gains (cannot use if you have any share sale). ITR-2: Salary + capital gains (STCG/LTCG from delivery-based trading) — no business income. ITR-3: If you have intraday trading or F&O trading income (business income). Most active traders file ITR-3. Investors who only buy and hold listed shares and sell them (delivery-based, no intraday/F&O) file ITR-2. If you have both capital gains and F&O/intraday income, use ITR-3.

Is STT (Securities Transaction Tax) deductible from income tax?

STT (Securities Transaction Tax) is not deductible as an expense when computing LTCG or STCG. However, STT paid is the key condition for availing the concessional tax rates — 12.5% LTCG (Section 112A) and 20% STCG (Section 111A) apply only to transactions on which STT has been paid (i.e., shares traded on recognised stock exchange). For F&O and intraday trading (business income), STT can be claimed as a business expense in Schedule P&L of ITR-3 to reduce taxable profit.

How to claim LTCG exemption of ₹1.25 lakh?

The ₹1.25 lakh annual LTCG exemption under Section 112A is automatic — you do not need to file a separate claim. When computing LTCG tax: total LTCG from all listed equity shares and equity mutual funds in the year → subtract ₹1.25L → balance × 12.5% = tax. The exemption is per financial year, not per transaction. If LTCG is ₹1.25L or less, tax is zero. The exemption applies to the combined LTCG from all equity shares and equity-oriented mutual funds. It cannot be used against LTCG from property, gold, or debt funds.

Can intraday trading loss be carried forward?

Intraday trading loss is treated as speculative business loss. It can be carried forward for 4 assessment years (not 8 years like non-speculative losses). In the carry-forward period, it can only be set off against speculative business income — meaning future intraday trading profits. It cannot be set off against salary, F&O income, capital gains, or other business income. In the same year, speculative loss can only be offset against speculative income. You must file ITR-3 on or before the due date to carry forward speculative losses.

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