Section 196 — STCG Rates FA2024 20pc | ITA 2025

Section 196 — - TAX ON SHORT-TERM CAPITAL GAINS

Section 196 is the substantive equivalent of 1961 s. 111A -- the SPECIAL RATE provision for STCG on STT-paid listed equity / equity-MF units / business-trust units. FA 2024 SIGNIFICANT INCREASE: STT-paid listed equity STCG rate enhanced from 15% to 20% effective 23-Jul-2024, aligning more closely with general-CG-rate convergence policy. For OTHER STCG (debt MFs / non-STT-paid securities / unlisted equity / property held <24 months / forced-STCG under s. 76 etc.): regular slab rate (individuals/HUF) or corporate rate (companies); no concession. Resident-individual / HUF have BASIC-EXEMPTION SHIELDING -- can shield STCG against unutilised basic-exemption slab; non-individuals don't. The provision is critical for high-frequency equity traders / intra-year exit positions / momentum investors. PRACTITIONER-GRADE RULE: STCG vs LTCG character determination (12-month holding boundary for listed equity) is the single most-impactful planning decision.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on short-term capital gains in certain cases

(1) Where the total income of an assessee includes any income chargeable under the head “Capital gains”, arising from the transfer of a short-term capital asset—

(a) being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust; and

(b) the transaction of sale of such equity share or unit is chargeable to secu- rities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004), then, the tax payable by the assessee on the total income, subject to the provisions of sub-section (2), shall be the aggregate of—

24. Substituted for “60%” by the Finance Act, 2026, w.e.f. 1-4-2026.

(i) income-tax calculated on such short-term capital gains at the rate of 20%;

(ii) income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.

(2) In the case of an individual or a Hindu undivided family, being a resident, where the total income, as reduced by short-term capital gains computed under sub-section (1), is below the maximum amount which is not chargeable to income-tax, then,—

(a) such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax; and

(b) the tax on the balance of such short-term capital gains shall be computed at the rate as applicable in sub-section (1)(i).

(3) The provisions of sub-section (1)(b) shall not apply to a transaction undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in for- eign currency.

(4) Where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter VIII shall be allowed from the gross total income as reduced by such capital gains.

(5) For the purposes of this section, the expression “equity oriented fund” shall have the meaning assigned to it in section 198. Tax on long-term capital gains.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 196	INCOME-TAX ACT, 1961 -- s. 111A
Sub-s. (1)(a) -- STT-paid listed equity STCG -- 20% (FA 2024)	1961 s. 111A(1)(i) [FA 2024 enhanced from 15%]
Equity-oriented MF unit STCG (>=65% equity)	1961 s. 111A(1)(ii)
Business-trust unit STCG (s. 198 trust definition)	1961 s. 111A(1)(iii)
Sub-s. (1)(b) -- non-STT-paid STCG: regular slab rate	1961 s. 111A non-coverage
Sub-s. (1) Proviso -- Resident-individual basic-exemption shielding	1961 s. 111A(2) Proviso
Surcharge cap 15% under s. 111A regime	1961 s. 111A surcharge

STATUTORY ARCHITECTURE

ELIGIBILITY for s. 196 concessional rate: STCG arising from transfer of: (a) EQUITY SHARE in company chargeable to STT on transfer (transferred on recognised stock exchange in India with STT paid); (b) UNIT of equity-oriented MUTUAL FUND (>=65% equity exposure under Schedule V definition); transfer chargeable to STT (or RBI-approved dividend distribution); (c) UNIT of BUSINESS TRUST (REIT / InvIT under s. 198 / 1961 s. 2(13A) definition; SEBI-recognised). HOLDING PERIOD: < 12 MONTHS for listed equity / equity-MF / business-trust units (s. 2(101) of 2025 Act / 1961 s. 2(42A)). 12-month threshold same across these listed-asset categories. STT REQUIREMENT: equity / equity-MF transfer must be on RECOGNISED STOCK EXCHANGE with STT paid. Non-STT-paid (off-market sale / private placement) or non-listed transfers DO NOT QUALIFY for s. 196 concession; those go to regular slab rate as ordinary STCG. RATE (post FA 2024): 20% flat (was 15% pre 23-Jul-2024). Plus surcharge: 7%-15% capped under s. 196 regime; Plus 4% Health & Education Cess. EFFECTIVE for individual: ~22.4-23% post surcharge / cess. RESIDENT INDIVIDUAL BASIC-EXEMPTION SHIELDING: where TOTAL INCOME EXCLUDING such STCG falls SHORT of basic-exemption-slab limit, the unutilised exemption can SHIELD STCG portion. Worked example: A (resident individual, age 35) total income = INR 2L salary + INR 4L STT-paid listed equity STCG. Basic exemption (new regime, FY 2025-26) = INR 4L. Salary INR 2L absorbs INR 2L of basic exemption; UNUTILISED = INR 2L. STCG INR 4L can use UNUTILISED INR 2L → effective taxable STCG = INR 2L × 20% = INR 40,000. Without shielding: INR 4L × 20% = INR 80,000 (saving = INR 40,000). NON-INDIVIDUAL ASSESSEES (firm / company / etc.): no basic-exemption shielding.

FA 2024 RATE INCREASE IMPACT

Pre 23-Jul-2024: 15% rate. Post 23-Jul-2024: 20% rate. Significant 5-percentage-point increase. Effective tax cost increase: ~33% (5pp on 15% base = 33% increase). Impact on retail investors: HIGH-frequency traders saw effective tax cost rise from ~17% (15+surcharge+cess) to ~22% (20+surcharge+cess). Impact on momentum strategies: short-term-momentum strategies less attractive; favours longer-duration holding to qualify for s. 198 LTCG (12.5%, INR 1.25L exemption). TRANSITION: gains from transfers BEFORE 23-Jul-2024: 15% rate; AFTER: 20% rate. Date of transfer determines.

STCG vs LTCG CHARACTER PLANNING

CRITICAL HOLDING-PERIOD MANAGEMENT: (i) Listed equity / equity-MF / business-trust units: 12-month threshold; cross-over CONVERTS STCG (s. 196 20%) → LTCG (s. 198 12.5% with INR 1.25L exemption). (ii) Cost saving on cross-over: from 20% to 12.5% = 7.5 percentage-points savings + INR 1.25L exemption = SUBSTANTIAL. (iii) For typical INR 5L gain: STCG tax = INR 1L; LTCG tax = INR 0.46L (post-exemption); SAVING = INR 54,000. (iv) Strategic holding extension by 1-2 weeks to cross 12-month anniversary often economically optimal. (v) FOR HIGH-FREQUENCY TRADERS: business-income classification (under s. 26 PGBP head) may apply -- intra-day / weekly turnover-driven trading typically business income (not CG); s. 196 inapplicable; slab rate at full PGBP head.

INTRA-DAY TRADING DISTINCTION

INTRA-DAY EQUITY TRADING (squared off same day): Treated as SPECULATIVE BUSINESS under s. 43(5) of 1961 / equivalent in 2025 Act. NOT CG; NOT s. 196. Speculative-business income at slab rate; speculative-business losses can only set off against speculative-business income. DELIVERY-BASED TRADING (T+2 settlement, then sold): IS CG. STCG if held < 12 months; s. 196 concessional 20% applies. F&O (FUTURES / OPTIONS): NON-SPECULATIVE BUSINESS under s. 43(5)(d) -- treated as PGBP business income; can off-set against any business income. Practitioner: classify each transaction's character correctly; intra-day vs delivery vs F&O have distinct tax treatments.

PLANNING NOTES

(i) HOLDING-PERIOD CROSS-OVER -- strategic 1-2 week extension to cross 12-month anniversary; convert STCG 20% to LTCG 12.5% with INR 1.25L exemption. (ii) BASIC-EXEMPTION SHIELDING -- low-income individual selectively realising STCG can use unutilized exemption. (iii) STT VERIFICATION -- broker contract notes; off-market transfers go to slab rate. (iv) FA 2024 TIMING -- transfer date determines rate; post 23-Jul-2024 = 20%. (v) INTRA-DAY vs DELIVERY -- correct character classification; speculative business vs CG. (vi) F&O CHARACTER -- non-speculative business; PGBP head. (vii) FAMILY MEMBER PLANNING -- spouse / child / parent's basic-exemption shielding utilisable via gift-and-realise structuring. (viii) FORCED-STCG (s. 76) DISTINCT -- debt MFs / unlisted bonds outside s. 196 ambit; full slab rate. (ix) SURCHARGE CAP -- s. 196 regime caps surcharge at 15% (pre FA 2024 was 25%); FA 2024 alignment beneficial for HNIs.

CROSS-REFERENCES

Section 67 -- CG charge.
Section 72 -- Mode of computation.
Section 76 -- Forced-STCG (Specified MFs / MLDs / unlisted bonds outside s. 196).
Section 90(7)-(8) -- Pre-FA 2018 grandfathering for cost (when conversion to LTCG).
Section 197 -- LTCG general rates (12.5% / 20%-indexed land-building).
Section 198 -- LTCG STT-paid listed equity (12.5% with INR 1.25L exemption).
Section 26 -- PGBP charge (intra-day / F&O business income).
Section 202 -- New-regime simplified rates (basic-exemption coordination).
Schedule V -- Equity-oriented fund definition (65%+ equity).
Finance (No. 2) Act 2004 Chapter VII -- STT framework.
SEBI REIT / InvIT Regulations -- business trust framework.

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