Short-Term Capital Gains Tax (STCG) in India: Tax Rate & Limit
When selling an asset such as stocks and bonds, one of the key factors to consider is capital gains tax. The short-term capital tax (STCG) is levied on the profit earned from the sale of an asset. Understanding STCG can help you manage your investments efficiently and ensure you are fully aware of the tax implications on your profits.
In this article, we will explore short-term capital gains tax (STCG), explaining what it is, how it’s calculated, and the important considerations for investors.
What is Short-Term Capital Gains Tax?
Short-term capital gains tax (STCG) is applied when the profit earned from the sale of assets held for a short period. The holding period is defined as less than 12 months for securities such as stocks and mutual funds, and less than 24 months for real estate. If you sell an asset within this time frame, then you have to pay short-term capital gains tax on the profit you make.
Budget 2024-25 Updates on STCG Tax on Shares
The Union Budget 2024-25 introduced important changes to short-term capital gains (STCG) tax, asset classification, and holding periods.
- Assets will now be classified based on two holding periods: 12 months and 24 months, removing the previous 36-month classification. Shares held for less than 12 months will be considered short-term, and investors have to pay taxes on the returns when they sell the shares.
- The STCG tax rate on listed equity shares, equity-oriented mutual funds, and business trust units has increased from 15% to 20%. Other assets, both financial and non-financial, held for less than the defined period will continue to be taxed based on the individual’s income tax slab.
- Assets like unlisted bonds, debentures, market-linked debentures, debt mutual funds, and debt ETFs are not classified as short-term capital gains, regardless of their holding duration.
- Short-term capital gain tax on property and unlisted securities is based on the individual’s regular income tax slab rate. This means the gains are added to the total income, and the tax rate will be determined based on the taxpayer’s income bracket.
How to Calculate Your Short-Term Capital Gains on Shares?
Here’s a step-by-step guide to help you determine your STCG on shares:
1. Determine the Sale Price
Find out the total amount you received when you sold the asset. For example, if you sold shares for ₹1,50,000, that is the sale price.
2. Subtract Selling Costs
Subtract any expenses directly related to the sale of the asset, such as brokerage fees, transaction charges, or other related costs.
3. Subtract the Cost of Acquisition
Now, subtract the amount you originally paid for the asset. For example, if you bought the shares for ₹1,00,000, then:
Capital Gain = Net Sale Price – Purchase Price
₹1,50,000 – ₹1,00,000 = ₹50,000
4. Apply the Tax Rate
After calculating capital gain on short-term, apply the relevant tax rate. Note that the tax rate depends on the type of asset and its holding period.
For example, if your STCG is ₹50,000 and the tax rate is 20%, then the tax you owe is:
Tax Payable = ₹50,000 × 20% = ₹10,000
5. STCG Tax Payment
At last, you need to pay short-term capital gains tax as part of your annual income tax filing. However, it’s important to stay updated with any changes in the tax rates, as they are revised periodically by the government.
Short-term Capital Gains Tax Rates & Holding Periods (FY 2024-25)
| Asset Type | Holding Period for STCG | STCG Tax Rate (Before 23rd July 2024) | STCG Tax Rate (From 23rd July 2024) |
| Listed Equity Shares & Equity-Oriented Mutual Funds | ≤ 12 months | 15% | 20% |
| Unlisted Equity Shares | ≤ 24 months | Taxed at applicable income tax slab rate | Taxed at applicable income tax slab rate |
| Real Estate (Land, Building) | ≤ 24 months | Taxed at applicable income tax slab rate | Taxed at applicable income tax slab rate |
| Debt Mutual Funds, Unlisted Bonds/Debentures | ≤ 36 months | Taxed at applicable income tax slab rate | Taxed at applicable income tax slab rate |
| Other Assets (e.g., Gold, Silver, Paintings) | ≤ 24 months | Taxed at applicable income tax slab rate | Taxed at applicable income tax slab rate |
To Wrap It Up…
Short-term capital gains tax (STCG) is imposed on the sale of assets such as stocks within 12 months. Understanding its rates and implications helps you make informed decisions and minimise tax impact. While the Union Budget adjusts tax rules periodically, staying updated about these changes will help investors come up with a better investment strategy.
Frequently Asked Questions About Short-Term Capital Gains Tax
Short-term capital gains tax (STCG) is the tax levied on the profit from the sale of assets like stocks, bonds, or property, which are held for a short duration.
In India, if stocks are sold within three years, the gain is taxed as short-term capital gain (STCG). STCG on listed equity with STT is taxed at a flat 20% (revised from 15%), regardless of income slab.
No, deductions under Sections 80C to 80U do not apply to short-term capital gains. These sections primarily offer deductions for other income types like life insurance premiums, PPF, etc.
Section 111A applies to short-term capital gains from equity shares and mutual funds, taxed at 15%. Section 112A applies to long-term capital gains above ₹1 lakh from these assets, taxed at 10%.
To avoid short-term gains tax, investors can hold assets for longer than the short-term threshold (usually 12 months for listed equity, 24 months for unlisted shares and property) to qualify for long-term capital gains tax, which is taxed at a lower rate.
To avoid short-term gains tax, investors can hold assets for longer than the short-term threshold (usually 12 months for listed equity, 24 months for unlisted shares and property) to qualify for long-term capital gains tax, which is taxed at a lower rate.
If you sell US stocks within 24 months, the profits are considered short-term capital gains and will be taxed based on the investor’s income tax slab rate.
Short-term capital gains on equity shares are not tax-free. However, if your total taxable income, including STCG, is below the basic exemption limit, you may not have a tax liability.
Yes, short-term capital gains on assets like real estate, bonds, or debt instruments are typically taxed at 30% under the Income Tax Act, depending on the holding period.
