No tax on LTCG and STCG from equity mutual funds and shares in these four conditions, says expert

A taxpayer doesn't always have to pay tax on long-term capital gains (LTCG) and short-term capital gains (LTCG) from selling equity mutual funds and shares. There are several exceptions and exemptions available under the Income-tax Act, 1961 that may apply based on individual circumstances.

If a taxpayer’s total income, including capital gains, falls below the basic exemption limit, they are not required to pay any tax on the gains realised from the transfer of equity shares or mutual funds.

The following transactions are not regarded as 'transfers' under the Income Tax Act and, therefore, do not attract capital gains tax. For instance,

• Transfers made by way of gift, or

• Transfers made under an irrevocable trust

provided that such transfers are made by an individual or a Hindu Undivided Family (HUF).

Therefore, no capital gains tax is levied at the time of such transfers.

Under Section 112A of the Income Tax Act, LTCG up to ₹1.25 lakh in a financial year (from the sale of equity shares or equity-oriented mutual funds, where STT is paid) is exempt from tax.

LTCG from equity shares or mutual funds can be exempt if the amount is reinvested in a residential house property, subject to specific conditions.

Dr Surana shared the above details in response to a query by one of our readers, Vaibhav Kothari. In an email, Kothari had asked whether he would need to pay tax his LTCG and STCG is below the basic exemption limit and he has no other income.

"I have ₹1,50,000 LTCG, bank interest at ₹30,000, and ₹60,000 STCG. I have no other income and this is my total income. Individually, it is above every exemption limit however it is still under ₹2.5 lakh limit for taxation. Would I need to still pay LCTG, STCG taxes or not?," Kothari had asked in the mail.

The basic exemption limit under the old tax regime is ₹2.5 lakh and under the new regime, it is ₹4 lakh from FY 2025-26.