BAJAJ BROKING
March 18, 2025
5 mins read
Short-term capital gains tax (STCG) is levied on profits earned from selling capital assets held for a duration shorter than the prescribed holding limit. In India, the holding period defining short-term capital gains varies based on the type of asset. STCG is taxed at different rates depending on whether the asset falls under Section 111A (equity-oriented assets) or general capital assets. Understanding STCG tax implications is essential for investors and traders looking to optimize their tax liability.
Short-term capital assets are those held for a period less than the prescribed duration before being sold. The classification varies depending on the asset type:
Listed Assets: Equity shares and equity-oriented mutual funds held for less than 12 months are considered short-term.
Unlisted Assets: Unlisted shares and immovable property held for less than 24 months fall under short-term assets.
Debt Assets: Debt mutual funds do not have any long-term or short classifications. They are taxed the same way irrespective of the holding period.
Other Assets: Assets like gold, property, and other investments held for less than 24 months are deemed short-term.
If the holding period exceeds these durations, the asset is classified as a long-term capital asset and taxed accordingly.
Asset Type | Short-Term Holding Period |
Equity shares & equity MF | Less than 12 months |
Debt mutual funds | Holding period doesn’t matter |
Real estate & immovable property | Less than 24 months |
Unlisted shares | Less than 24 months |
Gold & other assets | Less than 24 months |
The tax rates for short-term capital gains have been revised in the Union Budget 2024-25:
For equity shares & equity-oriented mutual funds (under Section 111A), the STCG tax rate has increased from 15% to 20%. For debt related assets, the short-term capital gains are added to the total income and taxed at the specific income tax slab rate of the individual.
Type of Asset | STCG Tax Rate |
Equity shares & equity-oriented mutual funds (under Section 111A) | 20% (plus cess & surcharge) |
Other capital assets (debt funds, real estate, gold, etc.) | Taxed as per income slab |
To compute STCG, follow these steps:
Determine the Full Sale Value: Total consideration received from selling the asset.
Deduct Expenses: Any expenses incurred on sale, such as brokerage, commission, and transfer fees.
Subtract the Purchase Cost: The cost of acquiring the asset. Expenses incurred for enhancing the asset's value can also be considered here.
Calculate the Net Gain:
STCG = Sale Value - (Purchase Cost + Expenses on Sale)
Example:
If you buy 100 shares at ₹ 200 each (₹ 20,000 total) and sells them within one year, at ₹ 250 each (₹ 25,000 total) with a brokerage fee of ₹200, the STCG is:
STCG = ₹ 25,000 - (₹ 20,000 + ₹ 200) = ₹ 4,800
If this is an equity transaction under Section 111A, a 20% tax applies:
Tax Payable = ₹ 4,800 × 20% = ₹ 960
Basic Exemption Limit: Individuals with taxable income below ₹2.5 lakh (₹3 lakh for senior citizens) do not need to pay STCG tax.
Tax Deductions: STCG is not eligible for deductions under Section 80C, but capital gains can be offset with capital losses.
Set-off Against Losses: Short-term capital losses can be adjusted against short-term or long-term capital gains in the same year.
Debt Mutual Fund Taxation: Post-April 1, 2023, capital gains from debt mutual funds are taxed as per income slabs, eliminating the benefit of indexation.
Changes in Tax Regime: The new tax regime does not offer deductions on capital gains, making tax-efficient investment planning essential.
Increased STCG Tax Rate: The tax rate on short-term capital gains under Section 111A has been raised from 15% to 20%.
LTCG Tax Adjustments: Long-term capital gains tax has been set at 12.5%, with the exemption limit increased from ₹ 1 lakh to ₹ 1.25 lakh.
These changes require a reevaluation of investment strategies to optimize tax efficiency.
Holding Investments Longer: Converting STCG into LTCG (by holding assets longer) can lower tax liability.
Offsetting Capital Losses: Use capital loss harvesting to set off gains against losses, reducing taxable income.
Utilizing Tax-Free Income Limits: Ensure total income, including STCG, remains within the basic exemption limit to avoid tax.
Tax-Saving Investment Vehicles: Opting for tax-exempt instruments like ELSS or PPF can help reduce overall tax burden.
Here’s a summary of the key differences between short-term and long-term capital gain and how they are taxed:
Aspect | Short-Term Capital Gains | Long-Term Capital Gains |
Holding Period | Less than specified duration (varies by asset) | More than specified duration (varies by asset) |
Tax Rate | 20% for equity assets; others as per slab rate | 12.5% (above ₹1.25 lakh exemption) |
Indexation Benefit | Not available | Available for certain assets based on the date of purchase |
Set-off Provisions | Can be set off against both STCG and LTCG | Can be set off only against LTCG |
Additional Read - How to Calculate STCG Tax on Debt Funds in India
Income Tax Return (ITR) Filing: Report STCG in the 'Capital Gains' section of the ITR form.
Advance Tax: If tax liability exceeds ₹10,000 in a financial year, advance tax payments are mandatory.
Documentation: Maintain records of purchase and sale transactions, along with related expenses, to substantiate claims during assessments.
Short-term capital gains tax in India applies to profits from selling assets held for a duration shorter than the prescribed holding limit. STCG tax rates differ for equity (20%) and other assets (income slab rates). As an investor, you can lower your STCG tax burden through loss set-off, long-term holding, and tax-exempt investment strategies. With recent tax changes, understanding and planning for STCG is crucial to optimize overall returns.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Short-Term Capital Gains (STCG) Tax is the tax applicable on profits earned from selling capital assets within a short holding period. The tax rate depends on the asset type, with equity assets taxed at 20% under Section 111A and others taxed as per individual income slabs.
No, STCG tax is not applicable when inheriting property. However, if you sell the inherited asset within 24 months (for real estate) or 36 months (for other assets), the gains will be classified as short-term and taxed as per your income tax slab.
Yes, equity shares and equity-oriented mutual funds sold within 12 months attract STCG tax at 20% under Section 111A. For debt mutual funds and other non-equity assets, the gains are taxed based on the investor’s applicable income tax slab irrespective of the holding period.
The STCG tax rate varies based on the asset:
- Equity shares and equity mutual funds: 20% (plus cess & surcharge) under Section 111A.
- Other assets (real estate, debt funds, gold, etc.): Taxed as per the individual’s income tax slab.
No direct exemptions exist for STCG under Section 111A. However, short-term capital losses can be offset against short-term and long-term gains. Also, if total taxable income, including STCG, is within the basic exemption limit, no tax is payable.
You can reduce STCG tax liability by:
- Holding investments longer to qualify for long-term capital gains tax.
- Offsetting STCG with short-term capital losses.
- Utilizing the basic exemption limit if total income remains below it.
- Investing in tax-efficient instruments like ELSS for long-term benefits.
The holding period depends on the asset type:
- Equity shares & equity mutual funds: Less than 12 months.
- Unlisted shares, real estate, gold, and other assets: Less than 24 months.
- Debt funds: Doesn’t matter.
No specific exemption exists for STCG. However, if an individual's total taxable income, including STCG, does not exceed the basic exemption limit (₹ 2.5 lakh for individuals under 60), they can adjust the STCG tax against the basic exemption limit.
Yes, unlike long-term capital gains, which have an exemption up to ₹ 1.25 lakh, all short-term capital gains are taxable. However, if your total income (including STCG) is within the basic exemption limit, the tax can be adjusted if you meet the eligibility criteria.
No, STCG on equity shares and mutual funds under Section 111A is taxed at a flat 20%. Other short-term gains are taxed as per individual income tax slabs, which can go up to 30% if the taxpayer falls in the highest bracket.
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