Short-term capital gains tax applies to profits from selling assets within a short holding period. This blog covers tax rates, exemptions, time limits, and payment rules. Get clarity on how STCG affects your overall tax liability.
Budget 2025 STCG Update:
Short-Term Capital Gains (STCG)
Assets outside a short duration are treated as Long-term capital gains while barely bordering upon the returns from investments being raised in the Union Budget 2024 from 15% to 20% for certain financial assets. Investors must keep these rates in mind.
Short-Term Capital Gains Tax Rate for FY 2024-25
The short-term capital gains (STCG) tax rates for FY 2024-25 vary based on the type of asset. Here’s a breakdown:
| Asset Type | STCG Tax Rate |
| Listed Equity Shares | 20% |
| Equity-Oriented Mutual Fund Units | 20% |
| Unlisted Equity Shares (including foreign) | Taxed as per the individual’s income tax slab |
| Immovable Assets (house, land, buildings) | Taxed as per the individual’s income tax slab |
| Movable Assets (gold, silver, antiques, etc.) | Taxed as per the individual’s income tax slab |
Short-Term Capital Gains Tax on Equity & Non-Equity Assets
The short-term capital gains (STCG) tax on equity-oriented assets such as equity mutual funds and on individual stocks is flat 20% if sold after 12 months. This tax remains the same irrespective of the income bracket you are in, e.g. if I sell equity shares after 9 months with a profit of ₹50,000, I must pay ₹10,000 as STCG tax i.e. 20% on ₹50,000. However, non-equity assets like debt mutual funds, bonds and gold are taxed in a different way. Their STCG will be counted into one’s overall income and taxed as per your applicable income tax slab, meaning that your entire earnings will determine what rate you have to pay.
Short-Term Capital Gain Tax on Shares
Short-term capital gain on shares arises on the sale of shares held for a temporary period. In this regard, the holding period for short-term capital gain is different for listed and unlisted shares. For listed shares transacted on a stock exchange, shares sold within a period of 12 months qualify for short-term capital gain, whereas unlisted shares have a longer limit of 24 months. Thus, all profits arising from the sale of shares within such time limits are given the meaning of short-term capital gain and are taxed accordingly.
Short-Term Capital Gains Tax on Property
If property is sold within 24 months, any resulting gains are termed short-term capital gains. The taxable amount is equal to the sale price less acquisition, improvement, and transfer costs. Under the Income Tax Act of 1961, such income is then added to that of the seller for taxation. Any gains from the sale can, however, be exempted, should the consideration amount be invested in another residential property, as provided in Section 54.
Short-Term Capital Gains Tax on Hybrid Funds
The treatment of short-term capital gains tax differs for hybrid funds, where they combine equity and debt. Where the equity exposure exceeds 65%, gains from investments held for less than twelve months would be taxed at 20%; otherwise, if the exposure is below 65%, there would be short-term capital gains which would simply be added to your total income and taxed at your applicable slab. Understanding the equity exposure in a fund would help ascertain the tax liability.
Short-Term Capital Gains Tax on SIP
Today, SIPs mean investing in mutual funds regularly and redeeming the units as per the FIFO basis, enunciating that older units are sold first. Simply speaking, if you had the units for more than 12 months, you would pay long-term capital gains tax; for units sold within 1 year, a 20% STCG tax would apply. In any case, all equity mutual funds are taxed with STT on transactions of 0.001%.
Holding Period Rules for Short-Term Capital Gains (STCG)
Understanding the holding period rules for Short-Term Capital Gains (STCG) is essential for tax planning. The table below outlines the holding periods for different asset types:
| Asset Type | STCG Holding Period | Example |
| Listed equity shares | 12 months or less | Shares of XYZ Ltd. traded on NSE |
| Equity-oriented mutual fund units | 12 months or less | Units of XYZ Growth Fund |
| Unlisted equity shares (including foreign shares) | 24 months or less | Shares of a privately held tech startup |
| Immovable assets (house, land, buildings) | 24 months or less | A residential property in Bangalore |
| Movable assets (gold, silver, paintings, etc.) | 24 months or less | A diamond necklace |
How to Calculate Short-Term Capital Gains Tax?
To calculate short-term capital gains (STCG), subtract the purchase cost and related expenses from the sale price. Use the following formulas:
- Sale Proceeds = Total Sale Value – Expenses (e.g., brokerage, stamp duty)
- Cost of Acquisition = Purchase Price + Associated Costs (e.g., registration, stamp duty)
- STCG = Net Sale Proceeds – Total Acquisition Cost
Example of STCG Tax Calculation
Let’s consider that you bought 100 shares of ABC Ltd. on January 1, 2024, at Rs. 100 per share and sold these shares on June 1, 2024, for Rs. 125 per share. The total brokerage and transaction costs amounted to Rs. 2,000. With no exemptions applicable under Section 54B or 54D, short-term capital gains shall be computed accordingly.
1. Sale Proceeds:
- Total Sale Value: 100 shares × Rs. 125 per share = Rs. 12,500
- Less: Brokerage & Other Expenses: Rs. 2,000
- Net Sale Proceeds: Rs. 10,500
2. Cost of Acquisition:
- Purchase Price: 100 shares × Rs. 100 per share = Rs. 10,000
- Total Cost of Acquisition: Rs. 10,000 (assuming no extra costs)
3. Short-Term Capital Gains (STCG) Calculation:
- STCG = Net Sale Proceeds – Cost of Acquisition
- Rs. 10,500 – Rs. 10,000 = Rs. 500
Since this is a short-term capital gain, it will be taxed at 20% for equity-oriented assets.
- Tax Payable: 20% of Rs. 500 = Rs. 100
Exemptions on Short-Term Capital Gains Tax
Under the Income Tax Act and the recent updates from the 2024 Union Budget, you are entitled to further relief from short-term capital gains (STCG) tax with exemption under Section 54B and Section 54D, provided you fulfill certain conditions.
- Section 54B: Selling agricultural land which has been used for farming purposes and reinvesting in another agricultural property provides an exemption for STCG.
- Section 54D: Selling industrial land or buildings with the income reinvested in another industrial property may qualify for exemption.
These exemptions mitigate the tax burden for taxpayers in certain circumstances.
Tips to Reduce Short-Term Capital Gains Tax
While reducing taxes is beneficial, it shouldn’t be the only factor in mutual fund investments. A strong investment plan that aligns with your financial goals and risk tolerance is essential. However, tax-efficient strategies can help maximize returns.
- Lower Tax Rate: Holding mutual fund units for over one year reduces tax outgo, since long-term capital gains on equity funds are taxed at a lower tax rate than short-term capital gains.
- Tax Benefits: Long-term investments in equity funds may receive exemptions or reduced tax rates depending on one’s unique scenario.
- Equity-Linked Savings Scheme (ELSS): Investment in ELSS funds provides deductions under Section 80C of the Income Tax Act, thereby reducing taxable income.
- Portfolio Diversification: ELSS funds can improve portfolio diversification and offer better risk-adjusted returns than traditional tax savings.
Conclusion
Short-term capital gains tax in every investor’s scheme since that affects the income from shares, and mutual funds, properties, and such assets. Pertaining to the latest news about Budget 2025, the knowledge of the taxation rates, holding periods, and exemptions are of great relevance to financial planning. Investment planning helps in minimising taxable income by availing certain exemptions under Sections 54B and 54D, either by referring to longer holding periods or in tax-saving instruments like ELSS. Knowledge about tax then allows for a good investment decision and maximum benefits. For expert assistance with tax planning and compliance, consult professionals who can guide you through the process.
FAQs:
How to avoid short-term capital gain tax on shares?
You can reduce STCG tax by holding shares for over 12 months to qualify for lower long-term capital gains tax. Investing in tax-saving instruments like ELSS can also help.
Is short-term capital gain taxable at 30%?
The STCG levy on listed equity shares is a flat 20% and other assets become taxable as per the applicable income slabs. The duty of 30% is applicable only when the income lies within that bracket completely.
How much short-term capital gain is tax-free?
There is no specific exemption for STCG on shares, but exemptions under Sections 54B and 54D may apply. Additionally, if your total income is below the basic exemption limit, no tax is payable.
What is the time period for short-term capital gains tax?
For listed shares and equity mutual funds, STCG applies where they have been sold within twelve months. In the cases of unlisted shares and some assets like property, the time span even extends to twenty-four months.
Is short-term capital gain tax deducted automatically?
STCG tax is not deducted at source for shares, but is instead included in a person's return for income tax. Securities Transaction Tax (STT) will, however, be levied by the brokerage companies upon the trades.
Do I need to pay both STCG and income tax?
STCG on equity will not be part of the income tax on regular income, the difference is that with non-equity assets STCG becomes part of your total income and tax slabs apply.
