Capital gains tax calculation examples: mutual funds, shares, SIPs, losses and harvesting
Worked capital gains examples for 2026-27: SIP redemptions, FIFO, loss set-off, the ₹1.25 lakh exemption, gain harvesting and pre-2018 shares.
To calculate capital gains tax on shares and mutual funds for tax year 2026-27: (1) match each sale with its purchase on a first-in, first-out basis; (2) classify each lot as short-term (held 12 months or less for listed equity) or long-term; (3) compute gain = sale value − cost − transfer expenses; (4) set off losses in the permitted order; (5) subtract the ₹1,25,000 yearly exemption from long-term equity gains; (6) apply 20% to short-term and 12.5% to long-term equity gains, then add 4% cess. The examples below are illustrative and use the rates in sections 196 and 198 of the Income-tax Act, 2025.
Example 1: redeeming an equity SIP
You invested ₹10,000 a month in an equity fund from April 2025 to March 2026 (12 instalments, ₹1,20,000). In August 2026 you redeem all the units for ₹1,50,000.
- Units bought from April 2025 to July 2025 (4 instalments, ₹40,000) have been held for more than 12 months → long-term.
- Units bought from August 2025 to March 2026 (8 instalments, ₹80,000) are held for 12 months or less → short-term. Treat the August 2025 lot carefully: if it was bought on a date in August later than the redemption date in August 2026, it is short-term.
Assume the fund statement shows long-term gain ₹12,000 and short-term gain ₹18,000.
- Long-term ₹12,000 is within the ₹1,25,000 exemption → no tax.
- Short-term ₹18,000 × 20% = ₹3,600, plus cess = ₹3,744.
Lesson: waiting a few more months for every lot to cross 12 months would have turned the whole gain into exempt long-term gain.
Example 2: setting off losses
During the year: short-term gain on shares ₹1,00,000; short-term loss on other shares ₹40,000; long-term gain on funds ₹3,00,000; long-term loss on shares ₹50,000.
| Step | Calculation | Result |
|---|---|---|
| Short-term loss vs short-term gain | ₹1,00,000 − ₹40,000 | STCG ₹60,000 |
| Long-term loss vs long-term gain | ₹3,00,000 − ₹50,000 | LTCG ₹2,50,000 |
| Exemption | ₹2,50,000 − ₹1,25,000 | Taxable LTCG ₹1,25,000 |
| Tax | ₹60,000 × 20% + ₹1,25,000 × 12.5% | ₹12,000 + ₹15,625 = ₹27,625 |
| With cess | × 1.04 | ₹28,730 |
A short-term loss may be set off against long-term gains too. A long-term loss can only be set off against long-term gains. Most practitioners set short-term losses against short-term gains first, because those are taxed at 20%, more than the 12.5% on long-term gains.
Example 3: tax-gain harvesting
You hold equity funds with an unrealised long-term gain of ₹4,00,000 built up over several years. If you sell everything in one year, taxable LTCG = ₹2,75,000, tax ≈ ₹35,750 with cess.
Instead, each year you sell units with about ₹1,25,000 of long-term gain and immediately reinvest. The gain is exempt, and your cost base rises. Over three years you would realise ₹3,75,000 of gains tax-free, leaving little to tax later.
Points to watch:
- The exemption is per tax year and covers all long-term equity gains under section 198 together.
- Exit loads, stamp duty on the new purchase and the bid-ask spread on ETFs are real costs.
- Reinvesting resets the holding period for the new units.
- The capital gains statement from your registrar shows the realised gains. Check them before 31 March.
Example 4: shares bought before 1 February 2018
You bought 100 shares in 2016 at ₹200 each (₹20,000). The highest price on 31 January 2018 was ₹500 (₹50,000). You sell in 2026 at ₹900 (₹90,000).
- Cost for the calculation = higher of actual cost (₹20,000) and the lower of the 31 January 2018 value (₹50,000) and sale value (₹90,000). That gives ₹50,000.
- Long-term gain = ₹90,000 − ₹50,000 = ₹40,000. This counts towards the ₹1,25,000 exemption.
Without grandfathering, the gain would be ₹70,000.
Example 5: debt fund versus equity fund
You earn ₹50,000 of gains on a debt fund bought in 2024 and ₹50,000 on an equity fund held for two years. You are in the 30% slab.
- Debt fund (bought after 1 April 2023): taxed at slab rate → ₹50,000 × 31.2% = ₹15,600.
- Equity fund: long-term, within the exemption → ₹0.
This difference explains why fund choice matters more than ever for after-tax returns.
Reporting in the return
- Use the capital gains statements from your broker and from the mutual fund registrars (CAMS and KFintech issue consolidated statements).
- Report listed equity gains scrip-wise or in summary as the return form requires.
- Match totals with the sale entries in your Annual Information Statement. See the AIS mismatch guide.
- File by the due date if you want to carry forward a capital loss. A late return loses it.
The rates and holding periods are explained in the capital gains rates guide. Run your figures through the capital gains calculator. The worked examples guide shows how gains combine with salary.
When to consult a professional
Intraday trading and F&O are taxed as business income, not capital gains, and may require a tax audit above set limits. Bonus issues, splits, mergers, buybacks and foreign shares all need extra adjustments. A chartered accountant can prepare these correctly.
Before filing, gather the statements listed in the ITR documents checklist. If you are weighing ELSS against other options, read the tax-saving investments comparison.
Frequently asked questions
Do I need to pay advance tax on capital gains?
Yes, if total tax after TDS is ₹10,000 or more. Pay it in the instalments after the gain arises.
Does switching between direct and regular plans of the same fund create a gain?
Yes. A switch is treated as a sale and a fresh purchase.
Can I carry forward unused exemption?
No. Unused exemption in one tax year lapses.
Sources
- Income Tax Department: sections 196 and 198 of the Income-tax Act, 2025 and loss set-off rules
- Securities and Exchange Board of India: investor education on mutual funds
- Association of Mutual Funds in India: fund categories and investor resources
