Short Term Capital Gain Tax

Short Term Capital Gain Tax

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When are you liable to pay Short Term Capital Gain Tax? Find out.

Key Takeaways

  • Short-Term Capital Gain Tax is the tax imposed on short-term capital gains.
  • Typically, you have to pay STCG tax on selling assets held for less than 36 months.
  • STGC is applicable on real estate sold within 24 months of purchase.
  • Gains under Section 111A are subject to a blanket 15% tax.
  • Gains other than those under section 111A are charged per your tax bracket.

When you earn a profit on the sale of assets, it is referred to as a capital gain. The term ‘Capital Gains Tax’ is referred to the tax liable on this capital gain. You can compute this tax in the financial year that the asset transfer happens. Depending on when you sell the asset, you are liable to pay the short-term capital gains (STGC) tax or the long-term capital gains (LTGC) tax. The tax rate for STCG and LTCG differs. Let us try and delve deeper into the concept of Short-Term Capital Gain Tax in India.

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Understanding Short Term Capital Gain Tax

Short-term capital gains are categorised into two types:

  • Short-term capital gains as provided under section 111A.
  • Short-term capital gains other than as provided under section 111A.

Certain assets like shares (equity or preference) listed in a recognised stock exchange in India attract Short-Term Capital Gain Tax under Section 111A. The period of holding for such assets to be considered for STCG is 12 months. As such, if you sell off your assets within the 12 month holding period, you have to pay STCG on your gains.

This is particularly true in units of equity-oriented mutual funds, listed financial instruments like debentures and Government securities, Units of UTI and Zero-Coupon Bonds. In the case of a debt-oriented mutual fund, the provisions of section 111A are not applicable, and your gains on recouping the investment will be treated as regular gains based on your tax bracket.

Under section 111A, the Short-Term Capital Gain Tax rate is 15% irrespective of your income tax slab when Securities Transaction Tax (STT) is applicable. Likewise, you should add the short-term capital gain to your income while filing your tax returns when the STT is not applicable. As such, Short-Term Capital Gains, other than those under section 111A, are charged at a standard rate of tax based on your total taxable income.

Calculating Short-Term Capital Gains is easy. After taking the total value of the asset into account, you need to deduct the expenses incurred. Also, the cost of acquisition and improvement needs to be considered. The remaining amount will be a short-term capital gain that will be liable for STCG tax.

Short-Term Capital Gain Tax on Real Estate

  • All real estate transactions, for instance, land, building, or immovable property, attract Short-Term Capital Gain Tax if you sell the property within 24 months of purchase.
  • You must pay the applicable Short-Term Capital Gains tax rate in India on selling an inherited property.
  • Typically, capital gains from the sale of agricultural land may be entirely exempted from income tax.

Final Note

While filing your tax returns, you should segregate assets that qualify for Short Term Capital Gains Tax with those qualifying for Long Term Capital Gains tax. If you wish to reduce your tax outgo, you should stay invested for at least a few years as STCG rates are typically higher than LTCG rates in India.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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