🎯 In 30 seconds: How your market profit is taxed depends on what you did. Listed shares sold within 12 months give short-term capital gains taxed at 20%. Held longer than 12 months, gains above ₹1.25 lakh a year are taxed at 12.5%. These rates apply to sales from 23 July 2024 and were not changed by Budget 2025 or Budget 2026. Intraday equity trading is speculative business income and F&O trading is non-speculative business income, both taxed at your slab rate and reported in ITR-3. Losses can be carried forward only if you file on time. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 with new section numbers but the same rates. This chapter explains the rules; it is not tax advice. Confirm your own case with a chartered accountant (CA).
Two friends, two tax returns
Aditi and Kabir started investing in the same month with ₹1 lakh each. Aditi bought shares in a few companies and mostly left them alone. Kabir traded intraday most mornings and bought Nifty options on expiry days.
At the end of the year they file very different returns. Aditi has capital gains, taxed at flat special rates, and can use a simpler form. Kabir is running a business in the eyes of the tax law. His profits are taxed like salary at his slab rate, he files a business return, and how his losses can be used depends on which kind of trading produced them. Same market, same broker, different tax world.
Which law applies: 1961 or 2025?
The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961. The government describes it as a simpler, renumbered law rather than a change of tax rates. Two things changed in how you talk about years:
- Income earned from 1 April 2025 to 31 March 2026 (financial year 2025-26, assessment year 2026-27) is still taxed under the 1961 Act, and its return was filed in 2026.
- Income earned from 1 April 2026 onward falls under the 2025 Act. The old "previous year" and "assessment year" are replaced by one tax year: tax year 2026-27 runs from 1 April 2026 to 31 March 2027.
Section numbers changed too. The 2025 Act renumbers every section, so an article that says "section 112A" is using the 1961 numbering. The sections most traders search for, in the old numbering:
| What it covers | Income-tax Act, 1961 |
|---|---|
| Short-term gains on listed equity (STT paid) | Section 111A |
| Long-term gains, general | Section 112 |
| Long-term gains on listed equity (STT paid) | Section 112A |
| Tax audit of accounts | Section 44AB |
The Income Tax Department publishes the new section for each old one. Use its pages, or your CA, to find the 2025 Act equivalent.
The rest of this chapter uses plain descriptions and gives the old section in brackets only where it helps you search.
Four kinds of market income
| What you did | How it is treated | Tax rate |
|---|---|---|
| Bought listed shares or equity funds for delivery and sold within 12 months | Short-term capital gain | 20% (plus cess) |
| Sold after holding more than 12 months | Long-term capital gain | 12.5% on gains above ₹1.25 lakh a year (plus cess) |
| Bought and sold the same shares on the same day without delivery (intraday) | Speculative business income | Your slab rate |
| Futures and options on a recognised exchange | Non-speculative business income | Your slab rate |
Dividends are a fifth item: they are added to your income and taxed at your slab rate. A company deducts tax at source (TDS) once its dividends to you cross ₹10,000 in a financial year (the limit since 1 April 2025).
The line between investing and trading is not always this neat. If you buy and sell delivery shares very frequently, the tax department can argue that it is business income rather than capital gains. This is one of the first questions to take to a CA.
Capital gains: 20% and 12.5%
The Finance (No. 2) Act, 2024 changed the rates for listed equity shares and equity-oriented funds, for transfers on or after 23 July 2024:
| Before 23 July 2024 | From 23 July 2024 (as of October 2026) | |
|---|---|---|
| Short-term (held 12 months or less) | 15% | 20% |
| Long-term (held more than 12 months) | 10% above ₹1 lakh | 12.5% above ₹1.25 lakh |
The ₹1.25 lakh exemption is a yearly total across all your long-term equity gains, not per stock. Securities transaction tax (STT) must have been paid on the sale, and for shares also on the purchase, for these special rates to apply; normal trades on NSE or BSE meet this. A 4% health and education cess is added to the tax. Budget 2025 and Budget 2026 left these capital gains rates unchanged.
Worked example (hypothetical). Aditi buys 100 shares of Sharma Foods Ltd at ₹1,000 (₹1,00,000) and later sells them for ₹1,40,000, a gain of ₹40,000. Her salary already uses up her tax-free slab.
| Sold within 12 months: 20% of ₹40,000 | ₹8,000 + ₹320 cess = ₹8,320 |
| Sold after 12 months, and her only long-term gain this year | ₹0 (inside the ₹1.25 lakh exemption) |
Now a bigger gain of ₹2,00,000:
| Short-term: 20% of ₹2,00,000 | ₹40,000 + ₹1,600 cess = ₹41,600 |
| Long-term: 12.5% of (₹2,00,000 minus ₹1,25,000) | ₹9,375 + ₹375 cess = ₹9,750 |
| Same ₹2,00,000 as F&O business income, if her income is already in the 30% slab | ₹60,000 + ₹2,400 cess = ₹62,400 |
Old holdings. For listed shares bought before 1 February 2018, the cost used for long-term gains can be stepped up: it is the higher of what you paid and the lower of the share's value on 31 January 2018 and your sale price. This "grandfathering" protects gains made before long-term tax on equity returned in 2018.
Young investors with little other income
Two rules interact here, and they surprise many students.
- Unused tax-free slab helps. For a resident individual, if your income other than these gains is below the amount not chargeable to tax, the gains are reduced by the shortfall before the 20% or 12.5% applies. Under the new regime that amount is ₹4,00,000 for FY 2025-26 onward.
- The ₹12 lakh rebate does not. From AY 2026-27 the new regime's rebate (section 87A in the 1961 Act) makes income up to ₹12 lakh tax-free, but the Finance Bill 2025 memorandum says the rebate is not available on tax on income charged at special rates, such as these capital gains.
Worked example (hypothetical, new regime). A student with no other income has short-term gains of ₹5,00,000.
| Unused tax-free slab | ₹4,00,000 |
| Gains left to tax: ₹5,00,000 minus ₹4,00,000 | ₹1,00,000 |
| Tax at 20%, plus 4% cess | ₹20,000 + ₹800 = ₹20,800 |
A salaried person earning ₹10 lakh with no other income pays no tax because of the rebate. The same person with an extra ₹1 lakh of short-term gains owes tax on those gains, because the rebate does not cover them.
Intraday and F&O: business income
Under the 1961 Act's definition, a transaction settled without actual delivery is speculative, but F&O trades on a recognised exchange are specifically excluded from that. In practice:
- Intraday equity (buy and sell the same day, no delivery) is speculative business income.
- Futures and options are non-speculative business income, the same as running a shop.
Business income is your net profit: what you made minus the expenses of the business, such as brokerage, exchange charges, stamp duty, the trading part of your internet bill or software, and STT. STT is allowed as a deduction against business income, but not when you work out capital gains. Your net profit is added to your other income and taxed at your slab rate. For FY 2025-26 onward the new regime slabs (Finance Act 2025) are:
| Total income (new regime) | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus 4% cess, and a surcharge at high incomes. Budget 2026 did not announce changes to these slabs. The old regime with deductions still exists as an option; a CA can tell you which is better for you.
STT on F&O went up. The Finance Act, 2026 raised STT from 1 April 2026: on the sale of futures from 0.02% to 0.05%, on the sale of options from 0.1% to 0.15% of the premium, and on options that are exercised from 0.125% to 0.15%. STT on delivery equity trades stayed at 0.1% on both the buy and the sell side. Higher STT is a higher cost per trade even though it is deductible from business profit. See Trading costs.
Turnover and the tax audit
A business must have its accounts audited by a CA if its turnover crosses a limit. Under the audit rule (section 44AB in the old numbering), the limit is ₹1 crore of turnover, raised to ₹10 crore if cash receipts and cash payments are each no more than 5% of the totals. Trading through a broker is all bank transfers, so the ₹10 crore limit is the one most traders compare with.
"Turnover" for F&O is not the value of the contracts you traded. Under the Institute of Chartered Accountants of India's guidance note on tax audit, it is broadly the total of your favourable and unfavourable differences: the profits and the losses added together as positive numbers.
| Trade 1 | +₹20,000 |
| Trade 2 | -₹35,000 |
| Trade 3 | +₹5,000 |
| Trade 4 | -₹70,000 |
| Net result | -₹80,000 |
| Turnover for audit purposes | ₹1,30,000 |
Few beginners come anywhere near ₹10 crore on that basis. There are other situations in which an audit or extra reporting can be required, especially when you declare a loss or a low profit, and the way option premium is counted has been revised more than once. Ask a CA before you file a business return for the first time.
Losses: what you can set off and carry forward
From the Income Tax Department's guide to set-off and carry forward of losses:
| Type of loss | Can be set off against | Carry forward |
|---|---|---|
| Short-term capital loss | Short-term or long-term capital gains | 8 years, against capital gains |
| Long-term capital loss | Long-term capital gains only | 8 years, against long-term gains |
| Speculative loss (intraday) | Speculative income only | 4 years, against speculative income |
| Non-speculative business loss (F&O) | Any income in the same year except salary, including speculative income | 8 years, against business income |
The catch: business and capital losses can be carried forward only if the return for the loss year is filed on or before the due date. A late return can cost you the right to use a loss in future years. Losses carried forward from 1961 Act years can be used under the 2025 Act on the same terms.
Worked example (hypothetical). Kabir earns a salary of ₹6,00,000. In the year he makes ₹10,000 trading intraday and loses ₹80,000 in options.
| Options loss set off against intraday profit | ₹80,000 minus ₹10,000 |
| Remaining F&O loss | ₹70,000 |
| Set off against salary? | No |
| Carried forward (if he files ITR-3 on time) | ₹70,000, for up to 8 years |
If it had been the other way round, an intraday loss with an F&O profit, the intraday loss could not reduce the F&O profit. It could only be carried forward for 4 years against future speculative income.
Forms, dates and advance tax
- Which form. Capital gains without any business income go in ITR-2. Intraday or F&O trading is business income, so it needs ITR-3. Check the forms notified for your year on the e-filing portal; forms under the 2025 Act apply from tax year 2026-27.
- Due dates for AY 2026-27 (income of FY 2025-26): 31 July 2026 for ITR-1 and ITR-2, 31 August 2026 for business cases not needing an audit (a change from Budget 2026), and later dates for audit cases. Budget 2026 also allowed revised returns up to 31 March after the year, with a fee of ₹1,000 or ₹5,000 depending on income. Dates can be extended, so confirm on incometax.gov.in each year.
- Advance tax. If your tax for the year, after TDS, will be ₹10,000 or more, you pay it in instalments: at least 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. Shortfalls attract interest. A profitable trading year can trigger this even for a salaried person.
- Records. Download your broker's tax P&L, tradebook, contract notes and ledger each year, and check them against your AIS. A trading journal makes this much easier.
Buybacks after Budget 2026
Buyback taxation was changed in 2024 so that money received in a buyback was taxed as dividend income in the shareholder's hands. Budget 2026 changed it again: under the Finance Act, 2026, buybacks are taxed as capital gains for all shareholders, with an additional buyback tax for promoters that makes their effective rate 22% for corporate promoters and 30% for non-corporate promoters. For an ordinary shareholder, a buyback now works much like any other sale. Which treatment applies depends on the date of the buyback, so check it with a CA. Details are in Dividends, splits and buybacks.
Try it
- Download your broker's tax P&L report for last year, or take the trades in your journal.
- Sort every trade into four groups: short-term capital gains, long-term capital gains, intraday (speculative) and F&O (non-speculative).
- Work out the net result of each group. Apply 20% to short-term gains, 12.5% to long-term gains above ₹1.25 lakh, and your slab rate to business profits. Add 4% cess.
- For any group with a loss, use the set-off table to see what it can reduce this year and what carries forward.
- Work out your F&O turnover as the sum of profits and losses as positive numbers. Take the whole sheet to a CA and compare notes.
- You sell listed shares after 10 months for a ₹60,000 gain in October 2026. At what rate is it taxed? Answer: 20% plus cess, as a short-term capital gain, because you held them 12 months or less.
- You have ₹1,50,000 of long-term gains on listed shares this year and no other long-term gains. How much tax, ignoring cess? Answer: 12.5% of ₹25,000 (the amount above ₹1.25 lakh), which is ₹3,125.
- Is intraday equity profit taxed as capital gains? Answer: No. It is speculative business income, taxed at your slab rate and reported in ITR-3.
- You lose ₹50,000 in F&O and earn a salary. Can the loss reduce your salary income? Answer: No. A business loss cannot be set off against salary. It can be carried forward for 8 years against business income, if you file on time.
- Which Act governs a gain you made in November 2026, and what is the section for long-term gains on listed equity? Answer: The Income-tax Act, 2025, which came into force on 1 April 2026. It was section 112A in the old Act; the 2025 Act gives it a new number, which the Income Tax Department lists.
Sources
- PIB: Income-tax Act, 2025 comes into force from 1 April 2026
- Income Tax Department: Section 112A, Income-tax Act, 1961 (rates before and from 23 July 2024)
- Union Budget 2025-26: Memorandum explaining the Finance Bill, 2025 (new regime slabs, rebate, TDS limits, PDF)
- Budget 2026-27 speech of the Finance Minister (STT, buyback, return dates, PDF)
- NSE circular NSE/FATAX/73524: Changes in rates of securities transaction tax from 1 April 2026
- Income Tax Department: Section 44AB, Income-tax Act, 1961 (tax audit)
- Income Tax Department: Set off and carry forward of losses
- Income Tax Department FAQ: Carry forward and set off of loss from speculative business
- Income Tax Department: Deductions under the Income-tax Act (STT against business income)