Section 111A of Income Tax Act: STCG Tax Rate, Rules & How It Applies (FY 2025–26)

What Is Section 111A? (Definition and Scope)

Under Section 111A of the Income Tax Act, 1961, as amended by the Finance Act 2024, a flat tax rate applies to short-term capital gains arising from the transfer of specified securities on which Securities Transaction Tax (STT) has been paid.

Specified securities under Section 111A:

• Equity shares of a company listed on a recognised stock exchange in India
• Units of an equity-oriented mutual fund (where at least 65% of the fund's corpus is invested in equity shares of domestic companies)
• Units of a business trust — specifically the equity component of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts)

The holding period requirement: To fall under Section 111A, the asset must have been held for less than 12 months from the date of purchase. An asset held for 12 months or more shifts to Section 112A (long-term capital gains) at a different rate.

The STT condition is non-negotiable: Section 111A applies only when the transaction goes through a recognised stock exchange and STT is paid. Equity shares sold off-market — even if listed — do not qualify and are taxed at your slab rate instead.

STCG Tax Rate Under Section 111A (Budget 2024 Update)

Budget 2024 (Finance Act 2024) raised the Section 111A rate from 15% to 20%, effective July 23, 2024. For FY 2024–25 returns, this creates a split-year situation that many investors have not accounted for.

Period of Sale	Section 111A STCG Rate
Before July 23, 2024	15%
July 23, 2024 onwards	20%

Adding surcharge and cess: The base rate of 20% is not the final number for everyone. Health and Education Cess at 4% applies on top of the tax (and surcharge, if applicable). Surcharge kicks in when total income exceeds ₹50 lakh.

• Total income ₹50 lakh or below: effective rate = 20% + 4% cess = 20.8%
• Total income ₹50 lakh–₹1 crore: surcharge 10% → effective rate = 20% × 1.10 × 1.04 = 22.88%
• Total income ₹1 crore–₹2 crore: surcharge 15% → effective rate = 23.92%

Unlike LTCG under Section 112A, Section 111A STCG has no ₹1.25 lakh annual exemption. Every rupee of gain is taxable at the flat rate (after any applicable basic exemption offset — explained below).

What Section 111A Does Not Cover

Much of the confusion around Section 111A stems from what it does not include. These four situations are outside its scope:

Debt mutual funds: Since April 1, 2023, debt mutual funds (funds with less than 65% in equity) no longer have a special capital gains rate. Both short-term and long-term gains on debt MFs are now added to your total income and taxed at your applicable slab rate.

Unlisted equity shares: Shares not listed on a recognised Indian stock exchange — including shares of private companies — are outside Section 111A. Short-term gains on unlisted shares are taxed at your slab rate.

Property: Residential and commercial real estate follows an entirely separate set of rules under Sections 48 and 50C. The 24-month holding period (not 12 months), indexation rules, and Section 54 exemption are all unique to property.

Equity held for more than 12 months: Once you cross the 12-month holding mark on listed equity or equity MFs, you move into Section 112A territory. The LTCG rate there is 12.5% — but only on gains above ₹1.25 lakh per year.

How to Calculate STCG Tax Under Section 111A

The formula is straightforward: STCG tax = (Sale price − Purchase price − Brokerage and STT) × 20% × 1.04

Indexation (cost inflation indexing) does not apply to Section 111A assets. You use the actual purchase price, not an inflation-adjusted figure.

Worked example (FY 2025–26):

• Bought 100 shares of Infosys at ₹1,500 each on January 1, 2025 — total cost: ₹1.5 lakh
• Sold 100 shares at ₹1,900 each on August 15, 2025 — total proceeds: ₹1.9 lakh
• Holding period: approximately 7.5 months → qualifies as short-term (under 12 months)
• Sale date: August 15, 2025 → after July 23, 2024 → 20% rate applies
• STCG = ₹1.9 lakh − ₹1.5 lakh = ₹40,000
• Tax at 20% = ₹40,000 × 20% = ₹8,000
• Add 4% Health and Education Cess = ₹8,000 × 1.04 = ₹8,320 total tax

If you had sold the same shares before July 23, 2024 at the same price, the tax would have been ₹40,000 × 15% × 1.04 = ₹6,240 — a ₹2,080 difference on this one trade. Across a portfolio with significant short-term turnover, the rate change adds up.

Use CalcPhi's Capital Gains Tax Calculator to compute your exact Section 111A liability for FY 2025–26 with the correct rate applied based on your sale date.

Can You Reduce Section 111A STCG with the Basic Exemption?

Yes — partially, and only if you have unused basic exemption left after accounting for all your other income. This is one of the most misunderstood mechanics of Section 111A.

The basic exemption limits for FY 2025–26 under the old regime are ₹2.5 lakh (general), ₹3 lakh (senior citizens aged 60–79), and ₹5 lakh (super senior citizens aged 80 and above). Under the new tax regime, the basic exemption is ₹3 lakh.

Scenario 1 — STCG is your only income for the year:
You sold mutual funds at a short-term gain of ₹40,000, and this is your only income. Since ₹40,000 is well below the ₹2.5 lakh basic exemption (old regime), your tax liability is zero.

Scenario 2 — You also have salary income:
You earn ₹7 lakh in salary and have ₹40,000 in STCG under Section 111A. Your ₹7 lakh salary already exceeds the basic exemption — so the full ₹40,000 of STCG is taxed at 20% = ₹8,000 (plus cess). The exemption has been used up by your salary income.

Scenario 3 — Partial exemption available:
You have ₹1.8 lakh in other income (interest, rent, etc.) and ₹1.5 lakh in STCG. Basic exemption is ₹2.5 lakh. After your ₹1.8 lakh other income, you have ₹70,000 of unused exemption. That ₹70,000 can be set off against STCG, leaving ₹80,000 taxable at 20% = ₹16,000 (plus cess).

One important note: Section 87A rebate (which eliminates tax for incomes up to ₹5 lakh under old regime, or ₹7 lakh under new regime) is not available against STCG under Section 111A. Even if your other income is below the rebate threshold, the STCG tax cannot be wiped out by the Section 87A rebate.

Loss Set-Off Rules for Section 111A

If your listed equity or equity MF sale results in a loss — not a gain — Section 111A still governs how that loss can be used.

Same-year set-off: A short-term capital loss under Section 111A can be set off against:

• Any other short-term capital gain (from shares, MFs, property, gold)
• Any long-term capital gain (including LTCG under Section 112A on equity)

The loss cannot be set off against salary income, business income, house property income, or any other non-capital income head.

Carry forward: If the short-term capital loss is not fully absorbed in the year it arose, the remaining amount can be carried forward for up to 8 assessment years. In those future years, it can again be set off against any capital gain — both short-term and long-term.

Note on long-term capital losses: The reverse does not hold. A long-term capital loss (for example, a loss on equity held more than 12 months) can only be set off against long-term capital gains — not against short-term gains under Section 111A.

Frequently Asked Questions

• What is the STCG tax rate on shares sold in 2025?

  If you sold listed equity shares or equity-oriented mutual fund units on or after July 23, 2024, the STCG tax rate under Section 111A is 20% (plus 4% cess). If you sold before July 23, 2024, the rate was 15%. Both rates apply only when STT was paid on the transaction.

• Does Section 111A apply to debt mutual funds?

  No. Debt mutual funds are taxed at your applicable income slab rate — not under Section 111A. This has been the case since April 1, 2023, when the Finance Act 2023 removed the special rate and indexation benefit for debt mutual funds.

• How is Section 111A different from Section 112A?

  Section 111A covers short-term capital gains on listed equity shares and equity-oriented mutual funds held for less than 12 months — taxed at a flat 20%. Section 112A covers long-term capital gains on the same assets held for more than 12 months — taxed at 12.5% on gains above ₹1.25 lakh per year. The holding period is the key dividing line.

• Can I claim the ₹1.25 lakh exemption on STCG under Section 111A?

  No. The ₹1.25 lakh annual exemption applies exclusively to long-term capital gains under Section 112A. Section 111A has no such threshold exemption — the full STCG amount is taxed at 20%, subject only to your unused basic exemption limit (if any) being offset first.

• What happens if I have a capital loss under Section 111A?

  A short-term capital loss under Section 111A can be set off against any capital gain in the same year — both short-term and long-term. If not fully absorbed, the remaining loss can be carried forward for up to 8 assessment years to offset future capital gains. It cannot be set off against salary, business income, or any non-capital income.