Section 111A Income Tax Act: Short-Term Capital Gains Tax at 20%
Section 111A of the Income-tax Act, 1961 prescribes a special tax rate for specified short-term capital gains on equity shares, units of equity-oriented funds and units of business trusts. The rate is 20% for transfers on or after 23 July 2024, compared with 15% for earlier qualifying transfers. For tax year 2026-27 onward, the corresponding provision is Section 196 of the Income-tax Act, 2025.
Section 111A tax rates and effective dates
| Date of transfer | Rate on qualifying STCG | Applicable law |
|---|---|---|
| Before 23 July 2024 | 15% | Section 111A, Income-tax Act, 1961 |
| 23 July 2024 to 31 March 2026 | 20% | Section 111A, as amended |
| Tax years beginning 1 April 2026 | 20% | Section 196, Income-tax Act, 2025 |
The above rates are base income-tax rates. Applicable surcharge and cess are additional. The date of transfer determines whether the historical 15% rate or the revised 20% rate applies under Section 111A.
Which short-term capital gains qualify?
The concessional provision generally covers short-term capital gains from transfers of:
- Equity shares in a company;
- Units of an equity-oriented mutual fund; and
- Units of a business trust.
The transfer must ordinarily be chargeable to STT under Chapter VII of the Finance (No. 2) Act, 2004. A qualifying transaction on a recognised stock exchange in an IFSC, with consideration paid or payable in foreign currency, can fall within the statutory exception to the STT condition.
Meaning of short-term: For listed equity securities and units of equity-oriented funds, the relevant holding period is generally 12 months. Other assets may have different holding periods and tax treatments. A gain from an unlisted share or a debt-oriented fund does not automatically qualify for Section 111A merely because it is short-term.
Section 111A of the Income-tax Act, 1961: provisions explained
Sub-section (1): Special rate and separate computation
Where qualifying short-term capital gains form part of total income, the income-tax payable is calculated by adding the special-rate tax on those gains to the tax on the remaining total income. Following the 2024 amendment, the special rate is 15% for transfers before 23 July 2024 and 20% for transfers on or after that date.
First proviso: Adjustment of unused basic exemption limit
A resident individual or resident Hindu undivided family (HUF) may reduce qualifying gains by the shortfall between the applicable basic exemption limit and other taxable income. Tax at the special rate is then calculated on the remaining eligible gains. This relief is not automatically available to non-residents, companies or firms.
Second proviso: IFSC transactions
The normal STT requirement does not apply to an eligible transfer on a recognised stock exchange located in an International Financial Services Centre where the consideration is paid or payable in foreign currency.
Sub-section (2): Chapter VI-A deductions
Chapter VI-A deductions under the 1961 Act are allowed against the eligible portion of gross total income excluding the qualifying Section 111A gains. They cannot be directly deducted from such special-rate gains.
Sub-section (3): Historical rebate provision
The original uploaded text includes a former reference to rebate under Section 88. That sub-section was omitted with effect from 1 April 2023 and should not be presented as an operative current entitlement. The treatment of any other rebate must be determined separately under the law applicable to the relevant year.
Explanation: Key definitions
The statutory explanation cross-refers to the meaning of an equity-oriented fund in Section 112A, the meaning of International Financial Services Centre in the Special Economic Zones Act, 2005, and the meaning of recognised stock exchange under Section 43(5). The precise definitions and any amendments must be checked for the relevant tax year.
Examples of Section 111A tax calculation
Example 1: Sale of listed equity shares
Assume an investor sells eligible listed shares after 23 July 2024 and has a net qualifying short-term capital gain of Rs. 2,00,000, with no adjustment for unused basic exemption or eligible capital losses. The base tax on the gain is Rs. 40,000 (20% of Rs. 2,00,000), before applicable surcharge and cess.
Example 2: Resident individual with unused basic exemption
Assume the applicable basic exemption limit for the individual's tax regime and year is Rs. 4,00,000, other taxable income is Rs. 3,00,000 and eligible Section 111A gains are Rs. 2,00,000. The unused basic exemption is Rs. 1,00,000; subject to the statutory conditions, the special-rate gain is reduced to Rs. 1,00,000 and base tax on that gain is Rs. 20,000. This is an illustrative calculation, not a statement that the same exemption threshold applies to every taxpayer.
Section 196 of the Income-tax Act, 2025
For the tax year beginning 1 April 2026, Section 196 of the Income-tax Act, 2025 governs the special tax computation for eligible short-term capital gains. It retains the 20% rate and addresses the separate computation of tax, the unused basic exemption adjustment for resident individuals and HUFs, the IFSC exception and the treatment of deductions under the new law. The 1961 Act provisions remain relevant when examining earlier assessment years and historical transfers.
Related provisions include Section 112 (other long-term capital gains) and Section 112A (specified long-term equity gains). Section 111A is not the applicable special rate for long-term gains.
Practical compliance checklist
- Verify the security or fund classification and the date of transfer.
- Check the holding period and STT status, or the IFSC exception.
- Compute gains after applying the relevant capital-gain computation and loss set-off rules.
- Separate special-rate gains from other taxable income in the income-tax return.
- Review basic exemption adjustments, deductions, rebate eligibility, surcharge and cess for the applicable tax year.
- Keep contract notes, capital gains statements, acquisition records and STT details.
Frequently asked questions
What is the Section 111A tax rate in 2026?
The special rate is 20% on qualifying short-term capital gains for transfers on or after 23 July 2024, plus applicable surcharge and cess. For tax years beginning 1 April 2026, the corresponding provision is Section 196 of the 2025 Act.
Does Section 111A apply to every short-term capital gain?
No. It applies only to specified qualifying equity shares, equity-oriented fund units and business trust units, subject to statutory conditions. Other short-term gains are generally taxed under the provisions applicable to those assets.
Can Section 80C deductions be used against Section 111A gains?
No. Under the 1961 Act, Chapter VI-A deductions are computed against gross total income after excluding the qualifying Section 111A gains.
Can a resident individual use the unused basic exemption limit?
Yes, if the statutory conditions are satisfied. The amount depends on the applicable exemption limit and other taxable income.
Does the old 15% rate still apply?
It applies to qualifying transfers before 23 July 2024. The revised rate for transfers on or after that date is 20%.
Official legislation and guidance
- Income Tax Department: Section 111A (1961 Act, amended text)
- Income Tax Department: special tax cases under the 2025 Act
- Income Tax Department: tax treatment of capital gains
- Income-tax Act, 2025, as amended by Finance Act, 2026 (official PDF)
This article explains the statutory framework for general information. Actual liability depends on the relevant tax year, taxpayer category, nature of asset, applicable deductions, set-off rules and other provisions.