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." On budget speech 23rd July, 2024, the tax rate of Short-Term Capital Gains on specified financial assets was increased from 15% to 20% under section 111A. Apparently, Short-Term Capital Gain / Loss arises if a Short-Term Capital Asset is transferred. Let us understand the provisions related to Short-Term Capital Gains, tax calculations, exemptions available along with illustrations. 

Key Takeaways

Broadly speaking, the following is the summary of significant points discussed in this article: 

• Listed equity shares, equity oriented fund and units of business trust are Short-Term Capital Assets if held up to 12 months, taxed at :
  • 15% when the asset is transferred before 23rd July, 2024.
  • 20% when the asset is transferred from 23rd July, 2024.

• If the assets are sold from 23rd July 2024, capital assets other than above are Short Term if held up to 24 months, taxed at slab rates. 
• If the assets are sold before 23rd July 2024, holding period differs - ranging from 24 to 36 months.
• Market linked debentures, debt mutual funds, unlisted debentures and bonds are always considered short term irrespective of period of holding.  
• Exemption under section 54B and 54D can be claimed even for Short-Term Capital Gains for specified assets.

 

What are Short-Term Capital Assets?

Capital Assets are classified as short term or long term based on holding period. The table below shows the holding period for different types of capital assets, which determines whether they are categorized as short-term or long-term.

What is 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. 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 on listed shares and equity-oriented mutual funds are subject to a concessional rate of 15% u/s 111A 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.

Exemption on Short-Term Capital Gain

• STCG exemptions are provided under Section 54B and Section 54D of the Income Tax Act,
• 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.

STCG Tax Implications on Specified Assets

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 categorized as Short-Term only if the holding period is less than 24 months.

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.

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).

Before 23rd July 2024, 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.

With effect from 23rd July 2024, 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.

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.

Short-Term Capital Gain Tax on Debentures and Bonds

• Capital gains arising from transfer of 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.
• Capital gains on the sale of unlisted debentures and unlisted bonds transferred from 23rd July 2024 shall always be Short-Term 
• The aforesaid assets are taxable at slab rates, irrespective of the holding period.

Short-Term Capital Gain Tax on ULIP and Others

• It is proposed to include ULIPs with premiums exceeding 10% of the policy’s sum assured, alongside those with annual premiums above Rs. 2.5 lakh as capital assets, and the income arising from redemption as capital gains.
• It is proposed to amend Section 2(14) to clarify that securities held by investment funds under Section 115UB, will be treated as capital assets.