When you sell equity shares or equity mutual funds you usually pay a tax on the profit.
These profits are called capital gains. There are two types of capital gains:
- Long-Term Capital Gains (LTCG): When you hold an investment for more than one year.
- Short-Term Capital Gains (STCG): When you hold it for one year or less.
But you do not have to pay any tax on these gains in four situations.
A tax expert, CA Dr Suresh Surana, explains these in an Upstox article updated on April 26, 2025. [ No tax on LTCG and STCG from equity mutual funds and shares in these four conditions, says expert ]
1. Your Total Income Is Below the Basic Exemption Limit
If all your income added together (salary, interest, capital gains, etc.) is less than the basic exemption limit then you owe no tax on capital gains.
2. The Transaction Is Not Taxable
Some transfers do not count as a “sale” under the law. For example:
- You gift shares to a close relative.
- You transfer shares into an irrevocable trust.
These transfers are not treated as capital gains events. So you pay no tax on them.
3. Your Gain Is Within the Exemption Limit
Under Section 112A of the Income Tax Act you get an exemption of up to ₹1.25 lakh on LTCG each financial year. This applies only if Securities Transaction Tax (STT) was paid when you bought or sold the shares or equity funds. Any gain above ₹1.25 lakh is taxed at 10% without indexation.
4. You Reinvest the Gain in a Home (Section 54F)
You can claim full exemption on LTCG if you use the sale proceeds to buy or build one residential house. You must not own more than one house on the date of sale. You must buy the new house within one year before or two years after the sale. If the house is under construction you get three years to complete it.
In any of these four cases you keep your full profit from selling equity shares or funds without paying capital gains tax. If you think you qualify speak to a chartered accountant before you file your return.
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