Tax on Stocks in India FY 2026-27 — LTCG, STCG, Intraday, F&O, Dividends

Stock-market gains in India are taxed under two distinct regimes depending on the holding period and activity type. For long-horizon investors (delivery-based buying and holding): listed equity held more than 12 months attracts 12.5% LTCG above a ₹1.25 lakh annual exemption; held 12 months or less attracts 20% STCG. For traders (intraday or F&O): the same gains are business income taxed at slab rate — 20-30% for most middle-income filers. The reclassification from "capital gains" to "business income" matters dramatically: it triggers ITR-3 filing (not ITR-2), possible tax audit requirements above ₹10 crore turnover, and the ability to claim trading expenses as business costs. Dividends are taxed at slab rate since FY 2020-21 (DDT abolished). The capital gains regime applies identically in both old and new tax regimes for FY 2026-27. Freedomwise's Tax Pillar covers regime choice; Stocks Pillar covers the broader investing context.

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What is the tax on stock investing in India FY 2026-27?

For delivery-based stock investing (buying shares and holding them in your demat account), the tax depends on two variables: holding period and profit amount.

Long-Term Capital Gains (LTCG) — listed equity held > 12 months:

• Rate: 12.5% flat (raised from 10% in Budget 2024)
• Annual exemption: ₹1.25 lakh per investor per financial year (raised from ₹1 lakh in Budget 2024)
• Application: Gains above ₹1.25L for the year are taxed at 12.5% without indexation
• Loss carry-forward: LTCG losses can be carried forward 8 years and set off only against future LTCG

Short-Term Capital Gains (STCG) — listed equity held ≤ 12 months:

• Rate: 20% flat (raised from 15% in Budget 2024)
• No exemption
• Loss carry-forward: STCG losses can be carried forward 8 years; set off against future STCG OR LTCG

Worked example. Investor sells a stock after 18 months; total LTCG for the year ₹4 lakh:

• First ₹1.25L: exempt
• Next ₹2.75L: taxed at 12.5% = ₹34,375
• Plus 4% cess: ₹35,750 total tax
• Net after-tax gain: ₹3,64,250

The same gain made by selling within 12 months (STCG): ₹4L × 20% × 1.04 = ₹83,200. STCG is 8 percentage points higher rate — the cost of being a "trader" rather than an "investor" in tax terms is meaningful.

What is STT and how does it work?

Securities Transaction Tax (STT) is a separate transaction tax levied by the central government on the buy and sell of equity:

Transaction type	STT rate
Delivery purchase (buy + sell)	0.1% on each side (0.2% round trip)
Intraday equity (square-off same day)	0.025% on sell side only
Equity F&O — futures sell	0.0125%
Equity F&O — options sell	0.0625% on premium
Equity F&O — exercise/assigned options	0.125% on settlement

STT is not deductible from your capital gains for tax purposes — it's a separate tax cost. The exception: for traders classified as "business income" (intraday and F&O), STT can be claimed as a business expense.

Practical impact: STT adds roughly 0.2% to the cost of every delivery round-trip, plus 0.1-0.5% on F&O. For a long-term investor doing few transactions, STT is small in absolute terms. For active traders, STT plus brokerage plus slippage often consume 1-3% per round-trip — destroying any modest edge.

How is intraday trading taxed?

Intraday trading (buying and selling the same stock the same day, without taking delivery) is classified by Indian tax law as "speculative business income" — not capital gains.

Implications:

• Rate: Slab rate. 5%, 10%, 15%, 20%, 25%, or 30% depending on your total income
• Filing: ITR-3 (business income), not ITR-2
• Expense deductions: Brokerage, STT, internet costs, depreciation on computers used for trading — all deductible against intraday gains
• Set-off rules: Speculative business losses can be set off ONLY against speculative business gains, carried forward 4 years
• Tax audit: May be required if turnover crosses ₹10 crore in a financial year

For a 30%-slab investor: intraday gains of ₹5 lakh attract ~₹1.5 lakh tax + cess. Compare to delivery-based STCG on the same gains: ₹5L × 20% = ₹1 lakh. Intraday taxation is meaningfully worse — combined with the 89-91% retail F&O loss rate documented by SEBI, the structural case against retail intraday is overwhelming.

How is F&O (futures and options) taxed?

F&O income is classified as "non-speculative business income" under Indian tax law (different from intraday equity, which is speculative).

Implications:

• Rate: Slab rate
• Filing: ITR-3
• Expense deductions: All trading-related costs deductible
• Set-off rules: Non-speculative business losses can be set off against any income head (except salary), carried forward 8 years — this is more flexible than speculative loss set-off
• Tax audit: Required if turnover crosses ₹10 crore (revised threshold) or if a tax audit is otherwise triggered

The asymmetry: while F&O loss set-off is more flexible than intraday, the SEBI data shows F&O traders lose money 89-91% of the time. The favorable loss-treatment rule helps you offset other income with F&O losses — but most retail traders aren't using F&O to legitimately hedge equity positions; they're speculating, and the structural odds are against them.

How are dividends taxed?

Since FY 2020-21, dividend distribution tax (DDT) was abolished. Dividends are now taxed in the investor's hands at slab rate.

Specifics:

• Dividends from Indian listed companies → taxed at slab rate
• TDS at 10% if total dividend from one company exceeds ₹10,000 in a financial year (₹5,000 for some scenarios)
• TDS is a withholding tax, not a final tax — slab-rate liability still applies at year-end
• Dividend reinvestment plans: dividends are still taxable at receipt, even if reinvested

Worked example. 30%-slab investor receives ₹50,000 dividend from Indian stocks during FY 2026-27:

• TDS at 10%: ₹5,000 withheld by company (if from one company exceeds ₹10K)
• Final tax: ₹50K × 30% = ₹15K + cess = ₹15,600
• Net dividend received post-tax: ₹50K − ₹15.6K = ₹34,400

For 30%-slab investors, dividend income is structurally less tax-efficient than capital gains (12.5% LTCG vs 30% on dividend). Growth-oriented investing — companies that reinvest earnings rather than distribute — typically dominates dividend-focused investing for long-horizon portfolios.

What is advance tax for stock investors?

If your total tax liability for the year exceeds ₹10,000 (after TDS), you must pay advance tax in four installments:

Due date	Cumulative advance tax payable
June 15	15% of annual tax liability
September 15	45%
December 15	75%
March 15	100%

For salaried investors, salary TDS typically covers most of the liability — but realised capital gains beyond ₹1.25L LTCG exemption can trigger additional advance tax requirements. Failing to pay advance tax attracts interest under Sections 234B and 234C at 1% per month.

Practical workflow:

• Estimate annual capital gains at each due date
• Pay advance tax if cumulative liability + salary TDS won't cover total
• Senior citizens (age 60+) with no business income are exempt from advance tax requirements

How do I file ITR for stock activities?

ITR-2 (capital gains only, no business income):

• Use if you're a delivery-based investor with capital gains
• LTCG, STCG, dividend income all reported here
• Simple compared to ITR-3

ITR-3 (with business income):

• Use if you have any intraday or F&O activity
• Even one intraday trade in the year triggers ITR-3 requirement
• More complex; includes profit & loss account and balance sheet for the trading business
• Many CA-assisted filings cost ₹3,000–8,000

ITR-4 (Presumptive scheme):

• For small business owners with annual turnover ≤ ₹2 crore
• Generally not applicable to active stock traders due to turnover and audit requirements
• Used by some intraday traders with very small turnover

Common filer mistake: doing intraday trading the previous year and continuing to file ITR-2 the next year. The shift to ITR-3 should happen in the year of business activity, not retroactively.

Tax-loss harvesting for stock investors

Two practical tactics:

1. LTCG harvesting (year-end, before March 31):

• Sell stock with LTCG up to ₹1.25 lakh
• Immediately repurchase the same stock
• Captures the annual exemption that otherwise expires unused
• Resets the cost basis higher for future LTCG calculations

2. Loss-offset across financial years:

• STCG losses can be set off against STCG or LTCG within the same year
• LTCG losses can be set off only against LTCG
• Unutilised losses can be carried forward 8 years
• Maintain detailed records of buy dates, sell dates, costs, and proceeds for each transaction (capital gains statements from your broker simplify this)

Both tactics require active year-end review — most investors miss the LTCG exemption opportunity because they don't realise it expires unused if not crystallised.

Use this on Freedomwise

• Tax Pillar — full regime choice and instrument-specific treatment
• Tax on Mutual Funds — same LTCG/STCG framework for equity MFs
• Stocks Pillar — broader stock-investing context, valuation, fundamentals
• Trading Pillar — SEBI's data on retail F&O loss rates, why intraday is negative-EV for most retail
• Old vs New Tax Regime — capital gains apply identically in both regimes