Short Term Capital Gain on Shares (Section 111A of Income Tax Act) - STCG Tax Rate & Calculation

Under the Income Tax Act, profits from selling shares are treated as capital gains, classified as short-term or long-term based on the holding period. If listed equity shares and equity-oriented mutual funds are held for 12 months or less, the gains are considered Short-Term Capital Gains (STCG).

As per recent changes effective 23rd July 2024, STCG on listed equity shares is taxed at 20% under Section 111A.

Short Term Capital Gains (STCG) under Section 111A

Short-term capital gains (STCG) under Section 111A apply to profits earned from the sale of listed equity shares or equity-oriented mutual funds held for 12 months or less, where Securities Transaction Tax (STT) has been paid.

Currently, STCG under Section 111A is taxed at 20% from 23rd July 2024 onwards. Before this date, such gains were taxed at 15%. These gains are taxed separately and no deductions under Chapter VI-A are allowed against STCG taxable under Section 111A.

Applicability of Section 111A

Section 111A applies to short-term capital gains (STCG) arising from the sale of the following:

• Equity shares of a listed company, bought or sold through a recognised stock exchange with STT paid
• Equity-oriented mutual funds, traded through a recognised stock exchange with STT paid
• Units of a business trust
• Equity shares, units of equity-oriented mutual funds, or units of business trusts traded on a recognised stock exchange in an IFSC, where the consideration is paid in foreign currency, even if STT is not applicable

Tax Rates under section 111A

The tax rate for short-term capital gains (STCG) under Section 111A depends on the date of sale of securities:

• For sales before 23rd July 2024, STCG is taxed at 15%, without indexation benefits.
• For sales on or after 23rd July 2024, STCG is taxed at 20%, also without indexation benefits.

Adjustment of STCG Against Basic Exemption Limit

Short-term capital gains (STCG) under Section 111A can be adjusted against your basic exemption limit if:

• You are an Indian resident taxpayer, and
• Your total income after deductions is below the basic exemption limit.

In such cases, the shortfall can be adjusted against your STCG. Only the remaining STCG, after this adjustment, will be taxed at the applicable rate under Section 111A.

Note: Non-residents, would not be allowed to claim the exemption limit and shall be required to pay a tax of 15% (20% from 23rd July 2024 onwards) on such STCG under section 111A.

Let us understand this by some illustrations –

Illustration: Ajay has a taxable salary income of only Rs 1 lakh and a Short-Term Capital Gain on the sale of equity shares of Rs 4 lakh. He also has Rs 50,000 as Income from Other Sources. Calculate the STCG Tax applicable. 

Total taxable income other than capital gains income is Rs. 1.5 lakhs. As there is a shortfall in the absorption of the basic income tax exemption limit of Ajay by Rs 1 lakh, Short-Term Capital Gain on the sale of equity can be reduced to the extent of Rs 1 lakh. (Note: This calculation is as per the old regime assuming the basic exemption limit as Rs. 2,50,000.)

Suppose he was a non-resident, then he would not be allowed to claim the exemption limit for such STCG and shall be required to pay a tax of 15% (20% from 23rd July 2024 onwards) on the full value of the STCG..

Set Off & Carry Forward of Losses

When specified securities are sold at a loss within 12 months, it results in a Short-Term Capital Loss (STCL). Under Indian Income Tax rules:

• STCL can be set off against both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) in the same financial year.
• If the entire STCL is not set off in the same year, the remaining loss can be carried forward for up to 8 assessment years, to be adjusted only against STCG or LTCG in future years.
• STCL cannot be set off against income from any other head, such as salary or business income.

Calculation of STCG

The STCG on shares can be calculated as follows:

Example:

Mr. A purchased 1000 shares on June 2024 for Rs. 1,00,000 and sold the shares at Rs. 1,40,000 on December 2024 and paid Rs.1,000 as brokerage. The capital gains will be calculated as follows:

The tax liability of Mr. A will be Rs. 7,800 (excluding 4% cess). However, if this is the only source of income for Mr. A, then he can adjust his income from capital gains against his available basic exemption limit and pay zero tax.