Short-Term and Long-Term Capital Gains Tax: Practical AIS Calculation Guide for FY 2025-26

The answer in one minute

For listed equity shares and equity-oriented mutual funds on which the required Securities Transaction Tax conditions are satisfied, a holding period of 12 months or less normally produces short-term capital gain, while a holding period of more than 12 months normally produces long-term capital gain.

For transfers during FY 2025-26, qualifying short-term gain under Section 111A is generally taxed at 20%. Qualifying long-term gain under Section 112A is generally taxed at 12.5% only on the amount exceeding the annual exemption of ₹1.25 lakh. Health and Education Cess at 4% and surcharge, where applicable, are calculated separately.

These rates cannot be applied directly to the sale amount shown in AIS. First calculate the gain or loss after verifying the correct acquisition cost and allowable transfer expenditure.

What is capital gain

Capital gain is the profit arising when a capital asset is transferred. Shares, securities and mutual-fund units held as investments are normally capital assets. The gain is generally taxable in the financial year in which the transfer takes place.

The basic theory is simple: capital gain equals sale consideration minus transfer expenses minus cost of acquisition and eligible cost of improvement. Shares and mutual-fund units normally do not have an improvement cost, but the correct acquisition cost can require adjustment for bonus shares, splits, mergers, demergers, gifts or inheritance.

If the result is positive, it is a capital gain. If the result is negative, it is a capital loss. The holding period decides whether the result is short-term or long-term.

Sale value is not the same as capital gain

AIS may show total share sales of ₹5 lakh, ₹10 lakh or even more. That does not mean the entire amount is taxable income. AIS reports the value of the transaction received from a reporting entity. It may not contain the complete purchase history or correct adjusted cost.

For example, shares sold for ₹3,00,000 may have been purchased for ₹2,40,000. Before transfer expenses, the gain is ₹60,000, not ₹3,00,000.

This distinction is one of the most important practical lessons. Never offer the gross AIS sale value as capital gain without preparing a transaction-wise working.

How to decide short-term or long-term

For listed securities, the capital-gains holding period is generally 12 months under the rules applicable to transfers after 23 July 2024. Equity-oriented mutual-fund units also generally use a 12-month test for this purpose.

A qualifying listed share sold after being held for 12 months or less is normally short-term. If it was held for more than 12 months, it is normally long-term. Purchase date and sale date must therefore be checked for every lot sold.

Other assets can have a different holding period. Unlisted shares and immovable property generally use a 24-month test. Debt-oriented mutual funds and specified mutual funds can also have different tax treatment. Do not apply equity-share rates to every investment appearing in AIS.

Tax rates for FY 2025-26

• STCG under Section 111A: qualifying listed equity shares, equity-oriented mutual funds and business-trust units are generally taxed at 20% where the required STT conditions are satisfied.
• LTCG under Section 112A: qualifying long-term gains are generally taxed at 12.5% on the aggregate amount exceeding ₹1.25 lakh for the financial year.
• Other short-term capital gains: gains not covered by Section 111A are generally included in total income and taxed at the applicable normal rate unless another special provision applies.
• Other long-term capital gains: the applicable provision, asset type, acquisition date and available exemption must be checked separately.
• Health and Education Cess: 4% is added to income tax plus surcharge, where applicable.
• A resident individual may receive the benefit of an unused basic exemption limit against eligible capital gains in the manner permitted by law. The final tax therefore depends on other taxable income as well.

Capital-gain calculation formula

Use the following working for each sale lot: Full value of consideration minus expenditure wholly and exclusively connected with the transfer minus cost of acquisition equals capital gain or loss.

Brokerage and eligible transfer-related charges may form part of the computation when supported by the statement. However, Securities Transaction Tax is not allowed as a deduction in the capital-gain computation under Section 48.

After calculating every lot, total the short-term gains and losses separately from the long-term gains and losses. Then apply current-year and brought-forward loss set-off rules before calculating tax.

Documents needed before calculation

• Annual Information Statement and Taxpayer Information Summary for the relevant financial year.
• Form 26AS for available tax-credit and transaction information.
• Broker capital-gain statement or Tax P&L for every trading and demat account.
• Broker ledger and contract notes where the capital-gain report contains a mismatch.
• Demat transaction statement showing corporate actions and off-market credits.
• Mutual-fund capital-gain statement from the registrar, AMC or investment platform.
• Evidence of old purchases, gifts, inheritance, bonus issues, splits, mergers and demergers.
• Earlier-year capital-loss schedule and the previous income-tax return.
• Bank statement and supporting documents for any transaction not properly identified in AIS.

Practical method: AIS to final capital gain

• Download AIS and TIS for the correct financial year.
• Identify every entry under sale of securities and mutual-fund units.
• Separate listed equity, equity-oriented mutual funds, debt funds, bonds and other assets.
• Compare AIS sale totals with the broker or AMC capital-gain statements.
• Check the purchase date, sale date, quantity, sale value and cost for every lot.
• Investigate blank or zero acquisition cost instead of accepting it automatically.
• Adjust the cost for splits, bonus shares, mergers, demergers, gifts or inheritance where required.
• Classify every result as short-term or long-term using the applicable holding period.
• Aggregate gains and losses, apply set-off rules and then calculate the special-rate tax.
• Report the figures in the correct ITR schedules and preserve the detailed working.

Worked example 1: Short-term gain on listed shares

Assume a taxpayer sells qualifying listed shares during FY 2025-26 for ₹3,00,000. The verified purchase cost is ₹2,40,000, and eligible brokerage and transfer expenses are ₹2,000. The shares were held for eight months.

The calculation is: ₹3,00,000 minus ₹2,40,000 minus ₹2,000 equals short-term capital gain of ₹58,000.

Tax under Section 111A at 20% is ₹11,600. Health and Education Cess at 4% is ₹464. The tax attributable to this gain is therefore ₹12,064, before considering any basic-exemption adjustment, surcharge, rebate restrictions, loss set-off or other income.

Worked example 2: Long-term gain on listed shares

Assume another investor sells qualifying listed shares for ₹5,00,000 after holding them for more than 12 months. The verified cost is ₹3,20,000, and eligible transfer expenses are ₹5,000.

The long-term capital gain is ₹5,00,000 minus ₹3,20,000 minus ₹5,000, which equals ₹1,75,000.

The Section 112A annual exemption is ₹1,25,000. The taxable long-term gain is therefore ₹50,000. Tax at 12.5% is ₹6,250, and 4% cess is ₹250. Total tax attributable to this gain is ₹6,500, subject to the complete tax computation.

Combined practical tax example

Using the two examples above, the provisional short-term tax including cess is ₹12,064 and the provisional long-term tax including cess is ₹6,500. The combined capital-gain tax is therefore ₹18,564.

This is still not the final ITR liability. Other income, the unused basic exemption limit, current-year losses, brought-forward losses, surcharge, advance tax and TDS can change the amount payable or refundable.

What to do when AIS shows acquisition cost as zero

A zero acquisition cost in AIS does not always mean the legal cost is zero. AIS may not receive the original purchase information where shares came through an off-market credit, another broker, a corporate action, a gift or inheritance.

First check the broker Tax P&L, demat statement and the original transaction. If the shares were transferred from another demat account, the purchase cost may need to be imported or entered manually in the broker records.

If shares were received by gift or inheritance, the cost may generally be linked to the cost in the hands of the previous owner under Section 49, subject to the applicable facts. Reporting the full sale value as gain merely because AIS shows zero cost can materially overstate taxable income.

Splits, bonus shares, mergers and demergers

In a share split, the total original cost is normally spread over the increased number of shares. The cost does not become zero merely because the new ISIN or revised quantity appears through a corporate action.

Bonus shares can have a specific statutory cost treatment depending on the date and circumstances of allotment. In many common post-1 April 2001 bonus issues, the cost assigned to the bonus shares is nil, but the original shares retain their own cost.

A merger or demerger can require statutory cost allocation and continuity of holding period. The depository entry may show an off-market credit or a new security code, but the income-tax working must follow the applicable corporate-action provisions rather than the blank AIS cost.

Shares purchased before 1 February 2018

Long-term gains under Section 112A can require the 31 January 2018 grandfathering calculation where the listed equity share or eligible unit was acquired before 1 February 2018.

The deemed cost broadly uses the higher of actual cost and the lower of the fair market value as on 31 January 2018 and sale consideration, subject to the statutory conditions. A simple broker cost column may not always perform this calculation correctly.

Where an old investment is involved, preserve the purchase evidence, quantity, corporate-action history and 31 January 2018 market value used in the working.

Basic exemption limit and special-rate income

For a resident individual or HUF, where income excluding eligible special-rate capital gain is below the maximum amount not chargeable to tax, the unused portion of the basic exemption limit may be adjusted against eligible capital gain in the prescribed manner.

Example: if normal taxable income uses only part of the available basic exemption, the remaining portion can reduce the eligible capital gain on which the special rate is applied. The amount depends on residential status, age where relevant, tax regime and other income.

This is why the tax on one capital-gain statement cannot always be treated as the final tax payable for the return.

Set-off and carry-forward of capital losses

• A short-term capital loss can generally be set off against both short-term and long-term capital gains.
• A long-term capital loss can generally be set off only against long-term capital gains. It cannot be adjusted against short-term capital gain.
• An eligible unabsorbed capital loss can generally be carried forward for eight assessment years.
• To preserve normal carry-forward eligibility, the loss return should be filed within the applicable due date under Section 139(1), subject to the law.
• Capital loss cannot normally be adjusted against salary, business income, house-property income or ordinary interest income.

Which ITR form should be used

An Individual or HUF having capital gains but no income from business or profession will commonly use ITR-2, subject to the complete eligibility conditions.

Where an Individual or HUF also has business or professional income, ITR-3 is commonly applicable. A person with short-term capital gain cannot use ITR-4 under the AY 2026-27 eligibility guidance.

The correct form must be selected after checking all sources of income, residential status, foreign assets, unlisted shares, losses, directorship and other filing conditions.

Where the figures go in the ITR

Qualifying short-term listed-equity and equity-oriented mutual-fund gains are reported through Schedule Capital Gains and the applicable special-rate fields under Section 111A.

Qualifying long-term transactions under Section 112A are reported through Schedule 112A and the related Schedule Capital Gains fields. Scrip-wise information can be required, particularly where grandfathering applies.

Current-year loss adjustment is reflected in Schedule CYLA, brought-forward loss adjustment in Schedule BFLA, and eligible unabsorbed losses in Schedule CFL. Tax at special rates is carried to Schedule SI and the total-tax computation.

Common mistakes that can create a notice or excess tax

• Treating the entire AIS sale value as taxable capital gain.
• Using AIS alone without obtaining broker and mutual-fund capital-gain statements.
• Accepting a zero cost for off-market or corporate-action shares without investigation.
• Applying the 20% Section 111A rate to an asset that does not satisfy the required conditions.
• Ignoring the ₹1.25 lakh aggregate exemption for qualifying Section 112A gains.
• Setting off a long-term capital loss against short-term capital gain.
• Deducting STT from capital gain even though Section 48 does not permit it.
• Ignoring the 31 January 2018 grandfathering rule for old eligible investments.
• Failing to reconcile multiple demat accounts, brokers and mutual-fund platforms.
• Filing after the due date and losing normal capital-loss carry-forward eligibility.
• Selecting ITR-4 despite having short-term capital gain.
• Not preserving the transaction-wise working used for the ITR.

Practical reconciliation checklist

• AIS listed-equity sales total agrees with all broker sale totals.
• AIS equity-mutual-fund sales agree with AMC or registrar statements.
• Every sale quantity is matched to an acquisition lot using the applicable method.
• No transaction line or serial number is missing from the downloaded statement.
• Zero-cost and off-market entries have supporting explanations.
• Corporate-action quantities and costs agree with demat records.
• Short-term and long-term totals agree with Schedule Capital Gains.
• Section 112A scrip-wise totals agree with the aggregate long-term working.
• Losses in CYLA, BFLA and CFL reconcile with the detailed schedule.
• Tax, cess, TDS, advance tax and self-assessment tax agree with the final computation.

Frequently asked questions

Can AIS alone be used to calculate capital gain? No. AIS is an important reconciliation record, but it may not contain the complete or adjusted acquisition cost. Use AIS together with broker capital-gain statements, demat records, contract notes and corporate-action documents.

Is the entire share sale amount taxable?

No. Only the correctly computed capital gain is taxable. The verified cost of acquisition and eligible transfer expenditure are deducted from the sale consideration in accordance with the law.

Is long-term gain below ₹1.25 lakh ignored?

A qualifying aggregate long-term gain under Section 112A up to the annual exemption may not produce tax under that section, but the transaction and gain should still be disclosed correctly in the applicable ITR schedule.

Can long-term loss reduce short-term gain?

No. Long-term capital loss can generally be set off only against long-term capital gain. Short-term capital loss has the wider set-off rule and can generally be adjusted against both categories of capital gain.

What if the broker and AIS figures differ?

Check whether the difference relates to gross sale value, charges, trade date, settlement date, multiple demat accounts, corporate actions or duplicate reporting. Prepare a reconciliation and use the legally correct figure supported by records. Where AIS information is incorrect, feedback can also be submitted on the portal.

Does zero cost in AIS always mean zero cost?

No. Zero may be correct for some bonus shares under the applicable rule, but it can also mean that the reporting entity did not have the original cost. The transaction history must be checked before filing.

Key takeaway

The theory of capital gain is simple, but the practical calculation depends on correct data. Sale value minus eligible deductions and correct acquisition cost produces the gain or loss; the holding period then decides the tax category.

For FY 2025-26, qualifying Section 111A short-term gain is generally taxed at 20%, while qualifying Section 112A long-term gain is generally taxed at 12.5% above the ₹1.25 lakh annual exemption. The final result must be reconciled with AIS, broker records, losses and the taxpayer complete income profile.

A careful transaction-wise working prevents both excess tax and under-reporting. Keep the calculation and supporting records with the filed return.