Short-Term Capital Gains(STCG): Tax Rates, Calculation, Exemptions and Examples

Any profit and gains arising from the transfer of capital assets such as property, shares, bonds, vehicles, etc., shall be chargeable to tax under the head "Income from Capital Gains." Capital assets are classified into short-term and long-term assets. 

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, a unit of an equity-oriented fund, and a unit of a business trust has been increased to 20% from 15%.

Short-term capital gain/loss arises if a short-term capital asset is transferred. A short-term capital asset is an asset which is 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, while 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 transfer of units of a specified mutual fund acquired on or after 1.4.2023 and market linked debentures would always be deemed as arising from transfer of short term capital assets irrespective of the period of holding of such assets. Further, as per the change in Budget 2024, capital gains on sale of unlisted debentures and unlisted bonds transferred on or after 23rd July, 2024, shall always be short term and be taxable at slab rates, irrespective of the holding period. In this article, we will discuss the following in detail: 

• Meaning of Short-term Capital Gains
• Calculation of Short-term Capital Gains
• Applicable Tax Rates on Short-term Capital Gains
• Short-term Capital Gains on shares, property and mutual funds
• Applicable exemptions on Short Term Capital Gains

What is Short-term Capital Gains(STCG)?

Capital gains arising from the transfer of short-term capital assets are referred to as short-term capital gains (STCG). STCG is taxed at the taxpayer's slab rate. However, for listed equity shares, a unit of an equity-oriented fund, and a unit of a business trust, the concessional rate of 20% is applicable from 23rd July, 2024. In FY 24-25 any sale of such assets made till 22nd July, 2024 will attract tax rate of 15% only.

How to Calculate Short-term Capital Gain?

The short-term capital gain can be calculated as follows:

Short-term Capital Gains Tax Rate

The short-term capital gain tax rate varies depending on the type of asset being sold. The tax rates applicable for different types of assets are as follows:

1. Listed equity shares and equity-oriented mutual funds: 

• Short-Term Capital Gains (STCG) on listed shares and equity-oriented mutual funds are subject to a concessional rate of 15% till transfer made on or before 22nd July, 2024. From 23rd July, 2024 onwards this rate has been increased to 20%. 

2. Other assets ( such as real estate, land, unlisted shares, etc.): 

• STCG is taxed at normal slab rates applicable to the taxpayer.

Short-term Capital Gain Tax on Shares

Short-term capital gains occur when shares or assets are held for less than a specified duration, usually less than 12 months. Listed securities are considered short-term capital assets if held for less than 12 months. On the other hand, gains from unlisted equity shares are categorised as short-term only if the holding period is less than 24 months.

Click here to learn more about taxation on the sale of shares.

Short-term Capital Gain Tax on Property

A short-term capital gain (STCG) arises from selling property held for less than 24 months. The STCG is taxed at the taxpayer's applicable slab rates, similar to regular income tax rates. There are no indexation benefits available for STCG on the property.

Click here to learn more about taxation on the sale of property.

Short-term Capital Gain Tax on Mutual Funds

In Budget 2024, the finance minister made numerous changes to the way capital gains was taxed as per the Income-tax Act, 1961. 

A major change brought in this budget was in the taxation of units of specified mutual funds (i.e., debt / hybrid mutual funds).

At present units of Specified Mutual Funds are taxed as short-term or long-term basis a holding period of 36 months. The tax rate also depended on the nature of capital gains, i.e., in case of short-term capital gains it was taxed as slab rates whereas in the case of long-term capital gains the tax rate was 20% with the availability of indexation on the cost of acquisition of such units.

Taxation on units of Specified Mutual Funds has been changed, and it is proposed to tax it on a short-term basis at the slab rates applicable to the taxpayer. So, the gains on Specified Mutual Fund shall be taxable as Short Term Capital Gains irrespective of the holding period of the Units. This change is proposed to apply to units acquired after 1st April 2023. Before this budget the units of Specified Mutual Funds were taxed as mentioned above and the proposed change is applicable only for units purchased after 1st April, 2023. 

Specified Mutual Funds has been defined as those mutual funds: 

1. Whose more than 65% of assets have been invested in debt and money market instruments; and
2. Whose 65% or more assets are invested in funds mentioned in (1) above.

Exemption on Short-term Capital Gain

STCG exemptions are provided under Section 54B and Section 54D of the Income Tax Act, allowing taxpayers to reduce their tax liability on short-term capital gains. Section 54B applies to gains from the sale of agricultural land used for agricultural purposes, provided the proceeds are reinvested in another agricultural land. Similarly, Section 54D applies to gains from the sale of industrial land or buildings used for industrial purposes, allowing reinvestment in another industrial property to avail of tax exemptions. These provisions are designed to encourage reinvestment in specific asset categories, thereby minimizing the tax impact on capital gains.

Short-term Capital Gain Example

Ravi bought a house in 2024 for Rs. 20,00,000. He sold it in 2025 for Rs. 65,00,000. Calculate the taxable capital gain.