Short-Term Capital Gains (STCG) Tax

Key Mutual fund Terms

Short-Term Capital Gains (STCG) refer to the profit earned from selling a capital asset that was held for a short period, generally less than 12 to 24 months. Tax rates vary by asset class: listed equity shares and equity-oriented mutual funds are taxed at a flat 20%, while other assets, such as real estate, are taxed at your standard slab rate.

Short-Term Capital Gains (STCG) Tax in India: Rates, Calculation & Rules

Whenever you sell a capital asset for a profit, the gain may be subject to Capital Gains Tax under the Income Tax Act, 1961. Depending on how long you held the asset before selling it, the gain is classified as either Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG).
Understanding STCG tax is important for investors, property owners, and anyone buying or selling capital assets. This guide explains what Short-Term Capital Gains Tax is, the applicable tax rates, and how to calculate your tax liability.

What is Short-Term Capital Gains Tax?

Short-Term Capital Gains Tax (STCG) is charged on the profit earned from selling a capital asset within a specified holding period.
The holding period varies depending on the type of asset:

• Listed equity shares and equity-oriented mutual funds: Held for 12 months or less
• Immovable property (land and buildings): Held for 24 months or less
• Other capital assets: Holding period depends on the applicable provisions under the Income Tax Act.

If an asset is sold before completing the prescribed holding period, any profit earned is treated as a Short-Term Capital Gain and taxed accordingly.

Short-Term Capital Gains Tax Rates

The applicable STCG tax rate depends on the type of asset sold.

1. Listed Equity Shares & Equity-Oriented Mutual Funds

For equity shares and equity-oriented mutual funds where Securities Transaction Tax (STT) has been paid:

• Up to 22 July 2024: STCG taxed at 15%
• From 23 July 2024 onwards: STCG taxed at 20%

This revised rate was introduced in the Union Budget 2024.

2. Real Estate, Land, Unlisted Shares & Other Capital Assets

Short-term capital gains arising from assets such as:

• Residential property
• Commercial property
• Land
• Unlisted shares
• Gold
• Other capital assets

are generally taxed according to the taxpayer’s applicable income tax slab rate.
Since these gains are added to your total taxable income, the amount of tax payable depends on your income tax bracket.

How to Calculate Short-Term Capital Gains

Calculating Short-Term Capital Gains is simple once you know the purchase cost and sale value.

STCG Formula

Short-Term Capital Gain = Sale Consideration − Purchase Cost − Transfer Expenses − Cost of Improvement (if applicable)
The resulting gain is taxed at the applicable STCG tax rate based on the type of asset.

Steps to Calculate STCG

Follow these simple steps:

Step 1: Determine the Sale Value

Identify the total amount received from selling the asset.

Step 2: Deduct Selling Expenses

Subtract expenses directly related to the sale, such as brokerage charges, transfer fees, or legal expenses.

Step 3: Deduct the Purchase Cost

Subtract the original acquisition cost of the asset.

Step 4: Deduct Eligible Improvement Costs

If you have incurred eligible expenses to improve the asset, deduct those costs where permitted under the Income Tax Act.

Step 5: Calculate the Net Short-Term Capital Gain

The remaining amount is your taxable Short-Term Capital Gain.

Step 6: Apply the Applicable Tax Rate

Tax the gain based on:

• 20% for eligible listed equity shares and equity-oriented mutual funds (where applicable)
• Applicable income tax slab rate for most other short-term capital assets

Example of STCG Calculation

Suppose you purchased listed equity shares for Rs.5,00,000 and sold them within 12 months for Rs.6,20,000.
Sale Value: Rs.6,20,000
Purchase Cost: Rs.5,00,000
Short-Term Capital Gain: Rs.1,20,000
Since the shares qualify under Section 111A and STT has been paid, the applicable STCG tax rate would be 20% (for transactions from 23 July 2024 onwards).
Tax payable:
Rs.1,20,000 × 20% = Rs.24,000 (excluding surcharge and cess).

Essential Points to Remember

• STCG tax depends on both the holding period and the type of capital asset.
• Listed equity shares and equity-oriented mutual funds are taxed at a concessional rate if eligible conditions are met.
• Short-term gains from property and many other assets are taxed according to your income tax slab.
• Proper tax planning can help optimize your investment returns and reduce unnecessary tax liability.

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