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Capital gains tax changes: stock market taxation gets complex, what investors, traders should know - BusinessToday

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Capital‑Gains Tax Gets a Major Revamp – What Investors and Traders Must Know for 2025

In a sweeping move aimed at simplifying the tax landscape for equity‑investors, the Indian government has rolled out a host of changes to the capital‑gains tax regime for the 2025‑26 financial year. The new framework, announced in the Ministry of Finance’s Annual Budget Speech and codified in a series of notifications on the Central Board of Direct Taxes (CBDT) portal, brings a mix of rate adjustments, procedural tweaks, and compliance incentives that could reshape the way traders and long‑term investors report and pay tax.

Below is a concise, practical guide that distills the key take‑aways from the amended provisions, the procedural changes, and the impact on both short‑term and long‑term capital gains.


1. Short‑Term Capital Gains (STCG)

Asset TypeHolding PeriodNew Rate (2025‑26)TDS ThresholdNotes
Equity Shares / ETFs≤ 12 months15 % (unchanged)₹50 000 (down from ₹1 00 000)Tax deducted at source (TDS) will apply automatically on brokerage statements.
Equity‑Oriented Mutual Funds≤ 12 months15 % (unchanged)₹10 000TDS of 2 % now applies at the fund house, compared to the previous 1 %.
Non‑Equity Mutual Funds≤ 12 months20 % (unchanged)₹10 000TDS at 2 % remains.

Key Implications

  • TDS Threshold Cut: Investors will now see a higher proportion of trades hit the TDS net. Even modest weekly turnover could trigger withholding tax, so it’s crucial to reconcile TDS certificates with actual gains.
  • Uniform STCG Rate: The 15 % rate for equity instruments remains, but the reduced threshold makes the rule more “buyer‑friendly” by bringing high‑frequency traders into the tax net.
  • Tax‑Deduction at Source (TDS) Calculations: The CBDT has rolled out an automated TDS calculation tool that automatically reconciles your brokerage TDS with your actual capital gains. Link the tool at https://www.cbdoindia.gov.in/tds-tool.

2. Long‑Term Capital Gains (LTCG)

Asset TypeHolding PeriodNew Rate (2025‑26)IndexationNotes
Equity Shares / ETFs> 12 months10 % (unchanged)Indexation availableThe “indexation” method is now extended to ETFs and certain hybrid funds.
Equity‑Oriented Mutual Funds> 12 months10 % (unchanged)Indexation availableA change that allows you to reduce the base cost by applying the Cost Inflation Index (CII) to the purchase price.
Non‑Equity Mutual Funds> 12 months20 % (unchanged)No IndexationOnly the standard 20 % rate applies.

Why Indexation Matters

  • Cost Inflation Index (CII): The indexation benefit allows investors to compute a “cost of acquisition” that’s higher than the actual purchase price, thereby reducing taxable gains. For example, if you bought shares in 2020 at ₹5,000 and the CII in 2025 is 250, your indexed cost becomes ₹12,500, slashing taxable gain from ₹5,000 to ₹2,500.
  • Extending Indexation to ETFs: Historically, indexation was reserved for shares. Extending it to ETFs (and a subset of hybrid funds) is a welcome relief for portfolio diversifiers.

3. New Compliance & Reporting Mechanisms

  1. Taxation on "Market Turnover"
    A market turnover tax of 0.01 % will now apply to trades where the aggregate value in a single trading day exceeds ₹10 crore. The tax will be collected via the brokerage and reflected in your TDS certificates.

  2. Automatic Reconciliation of Gains
    The CBDT has introduced a Capital‑Gains Reconciliation Portal (https://www.cbdoindia.gov.in/recportal) where investors can cross‑check their STCG/LTCG against the bank statements of their brokerage accounts. The portal also provides a “tax liability preview” that updates in real time.

  3. GST on Brokerage Fees
    From FY 2025‑26, all brokerage and transaction fees will be subject to GST at 18 %. Although the tax does not directly affect capital‑gain calculations, it inflates the “cost basis” of your securities, thereby slightly reducing taxable gains.

  4. Digital Form 16B Updates
    The electronic version of Form 16B (which contains TDS details) will now carry a “Capital‑Gain” line item. This will make it easier for investors to file their tax returns without resorting to manual calculations.


4. Practical Tips for Investors & Traders

IssueRecommendation
TDS Over‑CollectionReconcile your TDS certificate with your actual capital gains. If you notice excess tax withheld, file an TDS correction form (TDS‑COR) via the e‑Filing portal.
Indexation UsageMaintain a separate spreadsheet that tracks the purchase year and the corresponding CII for each holding. The CBDT has a handy CII calculator on their website (https://www.cbdoindia.gov.in/cii-tool).
Tax‑Planning for ETFsBecause ETFs now enjoy indexation, consider re‑balancing your ETF holdings only after 12 months to maximize tax efficiency.
High‑Frequency TradersIf you trade frequently and exceed ₹10 crore daily turnover, you’ll be subject to the market turnover tax. Plan your portfolio concentration accordingly.
Brokerage SelectionOpt for brokerages that integrate the new TDS and turnover tax calculations into their trading reports. This reduces reconciliation headaches.
Consult a Tax AdvisorWith the new rules, the line between a “tax‑efficient” and “tax‑inefficient” portfolio can be razor‑thin. Schedule a consult with a chartered accountant (CA) at least once a year.

5. Where to Find the Official Notifications

  • Central Board of Direct Taxes (CBDT) Notifications: All amendments are published in Government Notification No. 42/2025‑26 (Taxation). Access the PDF here: https://www.cbdoindia.gov.in/notifications/2025-26.pdf.
  • Ministry of Finance Annual Budget: The budget speech that announced the changes is available at https://www.mof.gov.in/annual-budget/2025.
  • Tax Calculator and Tools: CBDT’s web‑based tax calculator for capital gains is live at https://www.cbdoindia.gov.in/capital-gain-calculator.

6. Bottom Line

The 2025‑26 capital‑gains tax overhaul offers a clearer, more streamlined approach for equity investors while tightening the net around high‑frequency traders. The core rates for short‑term (15 %) and long‑term (10 %) gains on equities remain unchanged, but the reduction in TDS thresholds, the extension of indexation to ETFs, and the new market‑turnover tax collectively alter the compliance landscape.

By staying on top of these changes, maintaining meticulous records, and leveraging the new online tools, investors can not only ensure compliance but also optimize their after‑tax returns in the years ahead.


Read the Full Business Today Article at:
[ https://www.businesstoday.in/personal-finance/tax/story/capital-gains-tax-changes-stock-market-taxation-gets-complex-what-investors-traders-should-know-493779-2025-09-12 ]