Short-Term Capital Gain on Shares Under Section 111A in India (2026)
Short-term capital gain (STCG) on listed shares is one of the most common tax items for Indian investors, and the rules changed significantly in 2024. If you sold listed equity shares, equity-oriented mutual funds or units of a business trust within a short holding period, your gain is likely taxed under Section 111A of the Income-tax Act. This guide explains how Section 111A works in 2026, the revised 20% rate, the holding period, the interaction with the Section 87A rebate, the basic exemption limit adjustment for residents, and how losses can be set off.
What is Section 111A?
Section 111A applies a special, flat rate of tax to short-term capital gains arising on the transfer of certain equity instruments on which Securities Transaction Tax (STT) has been paid. Because it is a "special rate" income, it is taxed separately from your salary, business income or interest, and does not follow the normal slab rates.
Section 111A covers gains from:
- Listed equity shares sold through a recognised stock exchange where STT is paid;
- Units of an equity-oriented mutual fund on which STT is paid;
- Units of a business trust (such as REITs and InvITs) on which STT is paid;
- Equity instruments transferred on a recognised stock exchange in an International Financial Services Centre (IFSC), where the consideration is in foreign currency (in which case STT is not required).
Holding period: what counts as short-term
For listed equity shares, equity-oriented mutual fund units and units of a business trust, the holding period threshold is 12 months. If you hold the asset for 12 months or less before transfer, the gain is short-term and falls under Section 111A. If you hold it for more than 12 months, the gain is long-term and is instead governed by Section 112A.
The tax rate: raised from 15% to 20%
The most important recent change is the rate. Section 111A gains were historically taxed at 15%. The Finance (No. 2) Act, 2024 raised this rate to 20% for transfers made on or after 23 July 2024.
This means the date of transfer decides the rate:
- Transfers up to 22 July 2024: taxed at 15%;
- Transfers on or after 23 July 2024: taxed at 20%.
The 20% is a base rate. On top of it, a health and education cess of 4% applies, along with surcharge where relevant. Notably, the surcharge on Section 111A gains is capped at 15%, even for taxpayers whose other income attracts a higher surcharge rate.
| Particulars | Position under Section 111A (2026) |
|---|---|
| Assets covered | Listed equity shares, equity-oriented MF units, units of business trust (STT paid) |
| Holding period for STCG | 12 months or less |
| Rate (transfer on/after 23 Jul 2024) | 20% plus cess and surcharge |
| Rate (transfer up to 22 Jul 2024) | 15% plus cess and surcharge |
| Surcharge cap | 15% |
| Basic exemption adjustment | Available to residents only |
Who does it apply to?
Section 111A applies to all categories of taxpayers who earn qualifying short-term gains: resident individuals, Hindu Undivided Families (HUFs), non-residents, firms and companies. The 20% special rate is the same across these categories. However, one relief – the adjustment against the basic exemption limit – is available only to resident individuals and HUFs, not to non-residents.
Adjusting the basic exemption limit (residents only)
A resident individual or HUF whose other income is below the basic exemption limit can use the unabsorbed part of that limit against Section 111A gains. In other words, if your normal income does not fully use up your basic exemption, the shortfall can be set off against your short-term gains, and only the balance is taxed at 20%.
Example. Suppose a resident individual (opting for the old regime, basic exemption Rs 2,50,000) has salary income of Rs 1,80,000 and Section 111A STCG of Rs 1,00,000 in a year. The unused exemption is Rs 70,000 (Rs 2,50,000 minus Rs 1,80,000). This Rs 70,000 is set off against the STCG, leaving Rs 30,000 taxable at 20%, i.e. Rs 6,000 before cess. A non-resident with the same gains could not use this adjustment and would be taxed on the full Rs 1,00,000.
Interaction with the Section 87A rebate
Many small investors ask whether the Section 87A rebate wipes out their Section 111A tax. The answer, following the Finance Act, 2025 clarification, is generally no. The rebate under Section 87A is not available against tax on special rate income such as Section 111A STCG.
Two points follow from this:
- Section 111A gains are still counted when checking whether your total income is within the rebate threshold. So a large short-term gain can push your total income above the limit and cost you the rebate on your normal income too.
- Even if you remain within the threshold, the rebate does not reduce the 20% tax specifically charged on the Section 111A portion.
The rebate thresholds themselves differ by regime – broadly total income up to Rs 5,00,000 under the old regime and up to Rs 12,00,000 under the new regime for FY 2025-26 – but in both cases the rebate is applied to tax on normally-taxed income, not to the special-rate STCG.
Set-off and carry-forward of losses
Short-term capital losses (STCL) can be set off flexibly, which helps manage the Section 111A liability:
- A short-term capital loss can be set off against both short-term and long-term capital gains in the same year;
- A long-term capital loss can be set off only against long-term capital gains;
- Unabsorbed capital losses can be carried forward for up to 8 assessment years, provided the return of income is filed within the due date under Section 139(1).
Capital losses cannot be set off against income under other heads such as salary or business income.
Reporting and compliance
Section 111A gains are reported in the capital gains schedule of your income tax return, typically in ITR-2 or ITR-3 depending on your other income. Keep contract notes, broker statements and the annual capital gains statement handy, and match the figures against your Annual Information Statement (AIS). If you need help computing gains, choosing the correct ITR form or reconciling broker data, our team can support your income tax filing end to end.
Frequently asked questions
Is the Section 111A rate 15% or 20% in 2026?
For transfers made on or after 23 July 2024, the rate is 20% (plus cess and surcharge). The older 15% rate applies only to transfers up to 22 July 2024.
Does Section 111A apply to unlisted shares?
No. Section 111A applies to listed equity shares, equity-oriented mutual fund units and units of a business trust where STT is paid (or IFSC transfers in foreign currency). Short-term gains on unlisted shares are taxed at normal slab rates, not under Section 111A.
Can a resident with low income avoid tax on small STCG?
Possibly. A resident individual or HUF can adjust Section 111A gains against any unused portion of the basic exemption limit, so if your other income is below that limit, part or all of the gain may effectively escape tax. This benefit is not available to non-residents.
Will the Section 87A rebate cover my STCG tax?
Generally no. Following the Finance Act, 2025 position, the rebate does not apply to tax on Section 111A special-rate income, and such gains are still counted toward your rebate eligibility threshold.
How long can I carry forward a short-term capital loss?
Up to 8 assessment years, provided you file your return within the due date. It can be set off against both short-term and long-term capital gains in future years.
This article is for general information as of 2026 and is not a substitute for professional advice. Please confirm the current provisions for your specific facts before filing.
