Capital assets include equity shares, mutual funds, land, buildings and other assets that you can sell at a profit. You may hold some of these assets over the long term. Others, however, may be sold after a holding period of just a few months. Depending on this period, the profits may be considered short-term capital gains (STCG).
Like all other earnings, STCG is also included in your total income and subject to tax as per the Income Tax Act, 1961. In this article, we delve into what short-term capital gains are, how they are taxed and what the different short-term capital gains tax rates are.
Also Read More About What is Capital Gain Tax?
Short-Term Capital Gain (STCG) Meaning
The profits you earn when you sell short-term capital assets are called short-term capital gains. To determine what holding period leads to STCG instead of LTCG, you need to understand the new capital gains tax rules in India. In the Union Budget 2024, the government introduced some new rules that came into effect from July 23, 2024.
Calculating Short-Term Capital Gains
Although the short-term capital gain tax rate varies from one capital asset to another, the steps involved in calculating the STCG are the same. While you can use a short-term capital gains tax calculator to determine the STCG from an asset sale, it is always a good idea to understand the process involved. So, let us discuss how to calculate the short-term capital gains from various capital assets.
- Step 1: Note the full value of consideration received for the capital asset. This is the gross consideration.
- Step 2: Reduce the gross consideration by the transfer-related expenses to find the net consideration.
- Step 3: Determine the cost of acquisition of the asset. This may be the amount invested in shares or mutual funds or the purchase price of real estate. Also factor in the cost of improvement, if any.
- Step 4: Account for deductions under sections 54B and 54D, which apply to short-term capital gains.
- Step 5: The resulting amount after you deduct the acquisition cost, improvement cost and exemptions from the net consideration is the short-term capital gain from the asset.
What Is Short-Term Capital Gains Tax?
Short-term capital gains tax is the amount of tax you need to pay on the STCG you earn during a given year. You need to pay this tax at any time before or on the due date of filing your income tax return (ITR). The rate of tax on short-term capital gains is based on the type of asset sold.
Most short-term capital assets are taxed at the slab rate applicable to the taxpayer. However, the STCG on some assets is taxed at fixed rates. Let us now discuss the short-term capital gains tax rate on different capital assets like shares, mutual funds and real estate.
Short-Term Capital Gains Tax on Equity Shares
When listed equity shares are held for less than 12 months and sold at a profit, the resulting short-term capital gains are taxed at 20% w.e.f. July 23, 2024. Earlier, before the new rules introduced in the Union Budget 2024, these short-term gains were taxed at 15%.
Note: For unlisted equity shares, the gains are considered STCG if the shares are sold before 24 months.
Short-Term Capital Gains Tax on Mutual Funds
To determine the short-term capital gains tax rates on mutual funds, you must first identify the type of scheme — which could be equity, debt or hybrid. Check out the STCG tax rates for each of these categories of funds.
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STCG Tax on Equity Mutual Funds
According to the new rules implemented after the Union Budget 2024, profits from equity mutual funds held for 12 months or less are categorised as short-term capital gains and taxed at 20%.
Read More About Short term Capital Gains Tax on Equity Investment
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STCG Tax on Debt Mutual Funds
The profits from debt mutual funds purchased before April 1, 2023, are considered STCG if the funds are sold within 24 months. However, the profits from debt funds purchased after this date are always categorised as short-term gains. In both cases, the short-term capital gains are taxed at the slab rates.
Read More About STCG Tax on Debt Mutual Funds
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STCG Tax on Hybrid Mutual Funds
If aggressive hybrid funds are sold within 12 months, the profits will be considered STCG and taxed at 20%. Similarly, if balanced hybrid funds are sold within 24 months, the profits will be taxed as short-term gains at the slab rates.
However, for conservative hybrid funds, the new holding period rules and short-term capital gains tax rates are as follows w.e.f. July 23, 2024:
- Funds purchased before April 1, 2023: STCG arises if the holding period is 24 months or less and is taxed at slab rates.
- Funds purchased after April 1, 2023: Profits are always considered to be short-term capital gains and taxed at slab rates.
Short-Term Capital Gains Tax on Land and Building
Any property or real estate like land and buildings will be considered a short-term capital asset if it is held for 24 months or less. The short-term capital gains tax rate for these capital assets will be the same as the slab rates applicable for the taxpayer.
Conclusion
This sums up all you need to know about short-term capital gain tax. In most cases, the assets are taxed at slab rates. In some cases, like STCG from equity shares, the tax rate has increased from 15% to 20%. So, ensure that you keep these aspects in mind when formulating your investment and redemption strategies.
FAQs
What is the due date for paying short-term capital gains tax?
You need to pay the short-term capital gains tax at any time on or before the due date of filing your ITR, which is typically July 31 of the relevant assessment year. However, the government may extend this date in some cases.
Are there any exemptions available in short-term capital gains taxation?
Yes, sections 54B and 54D of the Income Tax Act offer exemptions for both long-term and short-term capital gains. So, if you need to pay STCG tax, you can check if you are eligible for these tax benefits and reduce your tax burden accordingly.
Are all short-term capital gains taxed at slab rates?
No, not all STCG is taxed at slab rates. For instance, the short-term capital gains from equity shares and equity mutual funds are taxed at 20%.
Which is chargeable to higher tax rates: STCG or LTCG?
The rates of tax on both short-term and long-term capital gains vary from one asset to another. So, the answer to whether STCG or LTCG is taxed at higher rates depends on the asset you sell and the slab rates applicable to you.
Is the indexation benefit available for short-term capital gains?
No, taxpayers cannot utilise the indexation benefit for short-term capital gain tax. Even for LTCG taxation, the indexation benefit has been withdrawn for most capital assets w.e.f July 23, 2024.
