Tax on short-term capital gains in certain cases
[Section-196 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 196(1) of Income Tax Act 2025
196(1) Where the total income of an assessee includes any income chargeable under the head “Capital gains”, arising from the transfer of a short-term capital asset––
- (a) being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust; and
- (b) the transaction of sale of such equity share or unit is chargeable to securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004, then,
the tax payable by the assessee on the total income, subject to the provisions of sub-section (2), shall be the aggregate of—
- (i) income-tax calculated on such short-term capital gains at the rate of 20%;
- (ii) income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.
Section 196(2) of Income Tax Act 2025
196(2) In the case of an individual or a Hindu undivided family, being a resident, where the total income, as reduced by short-term capital gains computed under sub-section (1), is below the maximum amount which is not chargeable to income-tax, then,—
- (a) such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax; and
- (b) the tax on the balance of such short-term capital gains shall be computed at the rate as applicable in sub-section (1)(i).
Section 196(3) of Income Tax Act 2025
196(3) The provisions of sub-section (1)(b) shall not apply to a transaction undertaken on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency.
Section 196(4) of Income Tax Act 2025
196(4) Where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter VIII shall be allowed from the gross total income as reduced by such capital gains.
Section 196(5) of Income Tax Act 2025
196(5) In this section, “equity oriented fund” shall have the meaning assigned to it in section 198.
FAQs on Section 196 of Income Tax Act 2025
What types of assets are covered under Section 196(1)?
Short-term capital gains from equity shares, units of an equity oriented fund, or units of a business trust are covered, provided the transaction is chargeable to securities transaction tax (STT) under Chapter VII of the Finance (No. 2) Act, 2004.
What is the tax rate on such short-term capital gains?
The tax rate is 20% on the short-term capital gains arising from such transactions.
How is the total tax liability calculated if such capital gains are part of the total income?
The tax payable is the sum of 20% on the specified short-term capital gains and income tax on the remaining total income computed as if it were the total income of the assessee.
Is there any relief for resident individuals or HUFs with income below the exemption limit?
Yes. If their total income (excluding such capital gains) is below the exemption limit, the short-term capital gains are reduced by the shortfall, and the remaining gains are taxed at 20%.
Are all STT-paid transactions eligible under Section 196?
No. Transactions conducted on a recognised stock exchange in an International Financial Services Centre (IFSC) and settled in foreign currency are excluded from this section.
Can deductions under Chapter VIII be claimed from these short-term capital gains?
No. Deductions under Chapter VIII are allowed only on the gross total income as reduced by such capital gains.
What does “equity oriented fund” mean for this section?
It carries the meaning assigned in Section 198 of the Income Tax Act, 2025.
Is indexation benefit allowed for these short-term capital gains?
No. The gains are taxed at a flat 20% without indexation benefits.
Is rebate under Section 200 available for these short-term capital gains?
No. Rebate under Section 200 does not apply to income taxed under Section 196.
Do these provisions apply to both residents and non-residents?
Yes, the general provisions apply to all assessees. However, the specific relief under sub-section (2) is only for resident individuals and HUFs.
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