Short-term Capital Gain (STCG) is the profit made when a capital asset is sold after being held for a short time, usually less than 12 months for listed shares and up to 36 months for other types of assets. The tax you pay on these gains depends on the type of asset and the current tax rules.
For example, imagine an investor buys 100 shares of ABC Ltd. at ₹100 each, spending ₹10,000 in total. After 9 months, they sell the shares for ₹125 each, receiving ₹12,500. After paying ₹500 in brokerage and other costs, the net sale amount is ₹12,000. When we subtract the original cost of ₹10,000, the short-term gain comes to ₹2,000. Since this is a share transaction under Section 111A, it is taxed at 20%.
So, the investor would pay ₹400 in tax on the gain. This simple example shows how short-term capital gains are calculated and taxed, and why the type of asset and how long you hold it matter for tax purposes. In this blog, you’ll learn everything you need to know about Short-term Capital Gains, covering tax rules, exemptions, and how to calculate them accurately.
STCG Tax Rates: Equity vs. Other Assets
Short-term capital gains (STCG) are taxed differently depending on the type of asset you sell. From 23 July 2024, if you sell listed equity shares, equity mutual funds, or units of a business trust through a recognised stock exchange and pay Securities Transaction Tax (STT), your gains are taxed at a flat rate of 20%. This is a change from the earlier rate of 15%, as per the new tax rules announced in July 2024.
However, if you sell other assets, like property, gold, unlisted shares, or debt mutual funds, within the short-term holding period (usually less than 24 or 36 months depending on the asset), the gain is added to your total income. It is then taxed at your individual income tax slab rate, which can be 5%, 10%, 20%, or 30%, depending on your total income for the year.
On top of the basic tax, you also need to pay a 4% Health and Education Cess. If your income is very high, a surcharge of 10% to 37% may also apply.
Example 1: STCG on Listed Equity Shares
Let’s say you made a profit of ₹2,50,000 by selling listed company shares within 12 months. Since this falls under the 20% flat STCG rule:
- STCG Tax = ₹2,50,000 × 20% = ₹50,000
- Cess (4%) = ₹50,000 × 4% = ₹2,000
- Total Tax Payable = ₹52,000
- (No surcharge applies if total income is below ₹5,000,000)
Example 2: STCG on Property
Now, imagine you sold a flat within 18 months and earned a short-term gain of ₹5,00,000. If you're in the 30% income-tax bracket:
- STCG Tax = ₹5,00,000 × 30% = ₹1,50,000
- Cess (4%) = ₹1,50,000 × 4% = ₹6,000
- Total Tax Payable = ₹1,56,000
- (Surcharge may apply if your total income crosses ₹₹5,00,000).
If you sell listed equity assets, you pay a flat 20% tax on short-term gains, no matter your income bracket. But if you sell other assets, your gains are taxed as part of your total income and could be taxed at higher rates depending on how much you earn.
Calculation & Offsets: How to Compute STCG Tax
To work out your short-term capital gains tax, you first calculate your gain by subtracting the costs from the sale price. Then, you can adjust any short-term losses and apply the correct tax rate. The table below shows these steps clearly with an example.
Remember, you can carry forward any unused short-term losses for up to eight years to reduce your future capital gains tax. Also, if your income is high, a surcharge may apply on top of this tax.
Exemptions, Deductions & Recent Regulatory Updates
Understanding what exemptions apply to short-term capital gains (STCG) is important, especially with new rules from the Income-Tax Bill 2025. The table below gives a quick overview of the current rules, restrictions, and recent changes.
These updates limit deductions on STCG but also offer one-time relief for earlier losses. If you made gains or losses in this period, it’s important to apply the correct rules and meet the new ITR deadline.
Conclusion
Short-term capital gain (STCG) is the profit you earn when you sell a capital asset like shares, property, or mutual funds within a short period, typically less than 12 months for listed shares or 36 months for other assets. These gains are taxable and follow specific rules depending on the type of asset. Understanding how to calculate, adjust, and report STCG can help you manage your taxes better and avoid unnecessary penalties.
FAQs
1. Can I avoid paying tax on short-term capital gains?
You can’t avoid the tax completely, but you may reduce your liability. For example, if your total income is below the basic exemption limit and you're a resident individual, you can use that limit to lower your taxable STCG (but only for non-Section 111A gains). Losses from other assets can also be used to reduce your gains.
2. What happens if I forget to report STCG in my tax return?
If you don’t report your STCG, you could face penalties, interest on unpaid tax, or even scrutiny from the tax department. It’s always safer to report all capital gains accurately, even if the gain is small.
3. Can I carry forward short-term capital losses?
Yes, you can carry forward short-term capital losses for up to 8 assessment years. You can use them to reduce both short-term and long-term capital gains in future years. But you must declare the loss in your tax return to carry it forward.
4. Do I need to file ITR if I only have STCG and no other income?
Yes, if your total income including STCG exceeds the basic exemption limit (e.g. ₹2.5 lakh), you must file an Income Tax Return. Even if your income is below the limit, filing ITR is a good idea if you’ve had capital gains, as it helps with future set-offs and refunds.
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