Short-Term Capital Gain (STCG) Tax: Rates, Calculation, and Example
Short-term capital gains (STCG) significantly impact your tax liabilities, especially when dealing with assets sold within a short holding period. Whether you're an investor in shares, mutual funds, or property, understanding STCG is crucial for effective tax planning and compliance. This article provides an in-depth analysis of STCG tax, its tax rates, calculation methods, exemptions, and real-life examples to help you comply with this complex topic with ease.
Table of Contents
Budget 2024 Update
With effect from FY 24-25, there will be only two holding periods: 12 months and 24 months. The holding period for all listed securities is 12 months, and for all other assets, it is 24 months.
For transfers taking place on or after July 23rd, 2024, the taxation of short-term capital gain for listed equity shares, units of equity-oriented funds, and units of business trusts has been increased to 20% from the earlier 15%.
Short-term capital gain/loss arises if a short-term capital asset is transferred. A short-term capital asset is an asset held for a period of less than or equal to 24 months, except for certain exceptions where the period is shorter:
Listed securities and equity-oriented funds qualify if held for less than or equal to 12 months.
All other assets require a holding period of less than or equal to 24 months to be considered short-term capital assets.
Capital gains arising from the transfer of units of a specified mutual fund acquired on or after April 1, 2023, and market-linked debentures will always be deemed as arising from the transfer of short-term capital assets irrespective of the holding period. Further, as per the change in Budget 2024, capital gains on the sale of unlisted debentures and unlisted bonds transferred on or after July 23, 2024, shall always be short-term and taxable at slab rates, irrespective of the holding period.
What is Short-term Capital Gains (STCG)?
Short-term capital gains refer to profits earned from selling a capital asset within a specific short holding period. For most assets, this period is less than 24 months. However, for shares, mutual funds, and listed securities, the holding period is less than 12 months.
STCG is calculated by subtracting the cost of acquisition, improvement, and transfer from the sale price of the asset. The resulting amount is taxed under the applicable short-term capital gains tax rates.
How to Calculate Short-term Capital Gain?
To compute short-term capital gain, follow these steps:
Determine the Sale Price: The amount received from selling the asset.
Deduct Transfer Costs: Expenses incurred during the sale (e.g., brokerage, stamp duty).
Subtract Cost of Acquisition/Improvement: Include the purchase price and any improvement costs.
Result: The remainder is the short-term capital gain.
For example:
Sale Price: ₹10,00,000
Transfer Costs: ₹20,000
Purchase Price: ₹8,00,000
STCG: ₹10,00,000 - ₹20,000 - ₹8,00,000 = ₹1,80,000
Short-term Capital Gains Tax Rate
The STCG tax rate depends on the type of asset sold. For listed shares and equity-oriented mutual funds, STCG is taxed at 20% for transfers after July 23, 2024. For other assets, gains are taxed at the applicable slab rate of the taxpayer.
Short-term Capital Gain Tax on Shares
The tax on STCG on shares arises when listed shares are sold within 12 months of purchase. Gains from such transactions are subject to a flat 20% STCG tax rate for transfers after July 23, 2024. Additionally, securities transaction tax (STT) must be paid during the sale.
Example:
Sale Price: ₹5,00,000
Purchase Price: ₹4,00,000
STT: ₹1,000
STCG: ₹5,00,000 - ₹4,00,000 - ₹1,000 = ₹99,000
Tax Payable: ₹99,000 × 20% = ₹19,800
Short-term Capital Gain Tax on Property
For property held for less than 24 months, the gain is classified as STCG. The tax on short-term capital gain from property is calculated based on your income tax slab rate.
Short-term Capital Gain Tax on Mutual Funds
For equity-oriented mutual funds, the STCG rate is 20% for transfers after July 23, 2024. However, for debt-oriented mutual funds, the gains are taxed as per the individual's tax slab.
Exemption on Short-term Capital Gain
Unlike long-term capital gains, there is no specific STCG exemption limit. However, individuals with total income below the taxable limit can adjust their basic exemption limit against STCG.
Short-term Capital Gain Example
Consider the following scenario:
Asset: Listed shares
Sale Price: ₹3,00,000
Purchase Price: ₹2,50,000
STCG: ₹50,000
Tax Payable: ₹50,000 × 20% = ₹10,000
For non-listed assets:
Sale Price: ₹12,00,000
Purchase Price: ₹10,00,000
STCG: ₹2,00,000
Tax at Slab Rate (30%): ₹60,000
Conclusion
Understanding short-term capital gains tax is essential for proper tax planning. The STCG tax rate varies based on asset type and holding period, so careful evaluation is necessary. Always keep detailed records of asset transactions to ensure accurate calculations and compliance.
Frequently Asked Questions
Q1. What is the STCG tax rate for shares in India?
The STCG tax rate for shares in India is 20% for transfers after July 23, 2024.
2. Can STCG be adjusted against the basic exemption limit?
Yes, if your total income is below the taxable limit, you can adjust STCG against it.
3. Is there an STCG exemption limit for property?
No, STCG from property is taxed as per the individual’s slab rate.
4. How is STCG on mutual funds taxed?
For equity-oriented funds, the rate is 20%, while for debt-oriented funds, gains are taxed at slab rates.
5. Are there any special rules for unlisted bonds and debentures?
Yes, as per Budget 2024, gains on unlisted bonds and debentures transferred on or after July 23, 2024, will always be treated as short-term and taxed at slab rates.
6. What is the impact of Budget 2024 on STCG rates?
The STCG rate for listed shares and equity-oriented mutual funds has increased from 15% to 20% for transfers after July 23, 2024.
7. Do market-linked debentures always result in STCG?
Yes, gains from market-linked debentures will always be deemed as short-term, irrespective of the holding period, for transactions after April 1, 2023.
8. How are STCG losses treated?
Short-term capital losses can be set off against short-term or long-term capital gains in the same financial year. Unutilized losses can be carried forward for up to 8 years.
9. Can STCG apply to inherited assets?
Yes, if the inherited asset is sold within the short-term holding period, the gains will be treated as STCG. The holding period of the original owner is also considered.
10. Are there any exemptions available for agricultural land?
Agricultural land located in rural areas is not considered a capital asset and thus does not attract STCG tax.
11. Does the STCG tax apply to cryptocurrency?
Yes, gains from the sale of cryptocurrencies are considered speculative income and taxed at slab rates, irrespective of the holding period.
12. Are there additional charges on STCG?
Yes, applicable surcharges and cess (e.g., health and education cess) are added to the tax on STCG.
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