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Your capital gains rates haven't moved — but the sections that govern them have new numbers, and F&O trading just got more expensive to run.
For equity investors, the new Act's impact is almost entirely about renumbering — the rates and thresholds you already know stay the same. For F&O traders, there's a real cost change to account for: a Securities Transaction Tax hike from Budget 2026 that lands independent of the Act itself but takes effect the same year.
If you've been tracking your equity tax planning by section number, update your references — the substance hasn't changed, only the citations:
| What it covers | Old section (1961 Act) | New section (2025 Act) |
|---|---|---|
| STCG on listed equity/equity MFs (20%) | Section 111A | Section 196 |
| LTCG on other assets | Section 112 | Section 197 |
| LTCG on listed equity/equity MFs (12.5% above ₹1.25L) | Section 112A | Section 198 |
The rates themselves — 20% STCG, 12.5% LTCG above the ₹1.25 lakh annual exemption — were last changed by the July 2024 Budget, not by the new Act. The Act just reorganizes where these rules live.
Futures & Options trading continues to be classified as non-speculative business income, not capital gains — this is unchanged in substance under the new Act. What moved is the section number: the old Section 43(5) classification now sits under Section 66. Intraday equity trading (buy and sell within the same day, no delivery) remains classified separately as speculative business income.
This classification has real consequences traders sometimes overlook:
Reported as business income, not capital gains. F&O profit/loss goes in ITR-3 under Schedule BP (Profits & Gains from Business/Profession) — filing it under ITR-2 as capital gains is a filing error that can make the return defective.
Expenses are deductible. Brokerage, internet, advisory fees, and other trading-related costs can be claimed against F&O income, unlike capital gains.
Loss set-off rules differ from speculative losses. F&O (non-speculative) losses can be set off against most other income (except salary) and carried forward 8 years. Speculative losses (intraday equity) can only be set off against speculative gains and carried forward just 4 years.
Tax audit applies above ₹10 crore turnover, or below that if profit falls under 6% of turnover and total income exceeds the exemption limit.
Separate from the Act's renumbering, Budget 2026 raised the Securities Transaction Tax specifically on derivatives, effective April 1, 2026:
| Segment | Old rate | New rate |
|---|---|---|
| Futures (on sell side) | 0.02% | 0.05% |
| Options — on premium (sell side) | 0.10% | 0.15% |
| Options — on exercise | 0.125% | 0.15% |
Futures STT rose 150%. This isn't income tax — it's charged on every transaction regardless of profit or loss, and it isn't refundable if the trade loses money. It can, however, be claimed as a business expense against F&O income, which softens the blow somewhat for active traders filing under PGBP.
Illustration: A trader running 10 option contracts a day at typical premium values sees their daily STT cost rise meaningfully under the new rate — the exact amount depends on contract value, but the direction is clear: frequent traders absorb a proportionally bigger hit than buy-and-hold investors, since STT is charged per transaction, not per profit.
Cash-market equity delivery trades were left untouched — this hike specifically targets the derivatives segment.
The impact is uneven by trading style:
Buy-and-hold equity investors: Barely affected. STT applies only twice — at purchase and eventual sale — and the capital gains sections they fall under (196/198) kept the same rates.
Active F&O traders: Directly affected. Higher per-trade STT on top of existing brokerage costs compounds with trading frequency — the more contracts per day, the bigger the cumulative hit.
Arbitrage strategies: Particularly sensitive, since arbitrage funds trade high volumes on thin margins where a 150% STT increase on futures meaningfully compresses returns.
1. Filing F&O income under capital gains instead of business income. This is a classification error, not a preference — F&O has always been business income under Section 43(5)/Section 66, and filing it as capital gains forfeits expense deductions and the 8-year loss carry-forward.
2. Confusing the new Act's renumbering with an actual rate change. Seeing "Section 196" or "Section 198" for the first time can read as a new rule — it isn't. Cross-check against the mapping table before assuming your tax treatment changed.
3. Not factoring the STT hike into trading cost calculations from April 2026 onward. Traders who model costs using pre-Budget 2026 STT rates will underestimate their break-even point on every trade.
Key Takeaway: For equity investors, this is a paperwork update — Sections 111A, 112, and 112A are now 196, 197, and 198, with rates unchanged. For F&O traders, the section renumbering (43(5) → 66) is equally cosmetic, but the Budget 2026 STT hike is a genuine cost increase that raises the bar for profitable active trading. Want to see how the transition period itself works? See Common Mistakes to Avoid.
No — the 20% STCG and 12.5% LTCG (above ₹1.25 lakh) rates are unchanged. Only the section numbers (now 196 and 198) are different.
Business income — specifically non-speculative business income, reported in ITR-3 under Schedule BP. This was true under the old Section 43(5) and remains true under the new Section 66.
No — the Budget 2026 STT increase applies specifically to futures and options. STT rates on cash-market equity delivery and intraday trades were not changed.
Yes — STT paid on F&O transactions can be claimed as a business expense against F&O income when filed under PGBP, though it cannot be adjusted directly against capital gains tax.
Disclaimer: This article is for general educational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Figures, rates, and rules mentioned may change over time — verify current details with an official source or a qualified professional before making financial decisions.