LTCG vs STCG: Capital Gains Tax on Stocks & MFs
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- Last Updated: 01 Dec 2025 at 3:33 PM IST
Before delving deep into the concept of short term capital gains vs long term capital gains, it is crucial to understand the holding period. Because jumping into short term vs long term capital gains taxes without understanding the holding period is akin to starting to write sentences in any language without learning the basics of grammar.
Holding period basically refers to the time until which you remain invested in a stock or mutual fund. Let us understand this with an example. Let’s say, you buy or invest in a stock or mutual fund on 15th November 2025 and sell or redeem it on 20th November, 2026. This makes the holding period more than one year. If you sell or redeem it on 20th October, 2026, it makes the holding period less than a year.
The tax you need to pay on your stock or mutual fund is based on the holding period. If the holding period is more than one year in the case of listed equity shares or mutual funds, you need to pay an LTCG tax. On the other hand, if the holding period is less than one year, you need to pay an STCG tax.
Short Term Capital Gains vs Long Term Capital Gains
Now that you know the importance of the holding period, let us discuss short term capital gains vs long term capital gains. In case of listed equity stocks and mutual funds, the LTCG tax applicable is 12.5% on gains above ₹1.25 lakhs. Gains above ₹1.25 lakhs! Yes, you read it right. Gains for up to ₹1.25 lakhs are tax exempt.
Let us understand this further with an example. Suppose the gain you make by selling a listed equity stock or mutual fund after more than a year is ₹1.50 lakhs. In this case, you do not need to pay any LTCG tax on ₹1.25 lakhs. However, you need to pay tax on the remaining ₹50,000 (₹1.5 lakhs - ₹1.25 lakhs) at the rate of 12.5%, which comes to ₹6250 (12.5% of ₹50,000).
On the other hand, if you sell your stock or redeem your equity mutual fund before a year of investment, the gains qualify as short-term capital gains and are taxed at a rate of 20% plus cess.
Short Term Capital Gains vs Long Term Capital Gains On Debt Mutual Funds
While STCG and LTCG tax rates differ for equity mutual funds, they are different in the case of debt funds. For debt funds, STCG and LTCG taxes are levied as per the income tax slab you fall under, irrespective of the holding period. This means the holding period barrier is no longer applicable for debt mutual funds.
Let us understand with an example. Suppose you are in the 30% tax slab and you sell a debt mutual fund after 3 months or even after 3 years; the gain will be taxed at 30% in both cases. The period you hold the fund does not change the tax rate.
What are the Differences Between Long Term and Short Term Capital Gains?
The differences between long term and short term capital gains on stocks and mutual funds are highlighted in the table below:
Equity Stocks | More than 12 months | LTCG | 12.5% on gains above ₹1.25 lakhs |
Equity Mutual Funds | More than 12 months | LTCG | 12.5% on gains above ₹1.25 lakhs |
Equity Stocks | Less than 12 months | STCG | 20% |
Equity Mutual Funds | Less than 12 months | STCG | 20% |
Debt Mutual Funds | Not Applicable | Not Applicable | Taxed at your tax slab |
Conclusion
As the year draws to a close, it is vital for you to keep a tab on your long term and short term gains you make in the next few months. Why? Because these will be added to your income and taxed accordingly. While you can compute the gains manually, today brokers and registrars provide ready-made statements that readily highlight short term vs long term capital gains. Access these while filing your tax returns.
