Short Term Capital Gains Tax (STCG): Rates & Calculation

Short-term capital gains tax applies to profits from selling assets within a short holding period. This blog covers STCG tax rates, exemptions, time limits, and payment rules. Get clarity on how STCG affects your overall tax liability.

Short-Term Capital Gains Tax (STCG)

Short-Term Capital Gains (STCG) are gains from the sale of assets held for less than 24 months. For listed equity shares and mutual funds, this period is reduced to 24 months. When securities transaction tax (STT) applies, STCG is taxed at a rate of 15% to 20% under Section 111A of the Income Tax Act. This tax structure helps simplify the taxation process for investors in the stock market and mutual funds.

Short-Term Capital Gains Tax Rate for FY 2024-25

The short-term capital gains 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 tax on equity assets is a flat 20% if sold within 12 months. This rate applies regardless of income. For non-equity assets like debt mutual funds or gold, short-term gains are added to total income and taxed according to your income slab rate.

Short-Term Capital Gains Tax on Shares

Short-term capital gains tax on shares is 15% if the shares are sold within 12 months and the transaction is subject to Securities Transaction Tax (STT). This rate applies only to listed equity shares under Section 111A of the Income Tax Act.

Short-Term Capital Gains Tax on Property

Short-Term Capital Gains (STCG) tax on property applies when the property is sold within 24 months of purchase. The gains are added to the seller’s income and taxed according to their applicable income tax slab rate under the Income Tax Act.

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 the exemption under Section 54B and Section 54D, provided you fulfill certain conditions.

• Section 54B: Selling agricultural land that 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, mutual funds, properties, and such assets. Pertaining to the latest news about Budget 2025, the knowledge of the taxation rates, holding periods, and exemptions is 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. Tax knowledge 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 gains tax on shares?

Avoid short-term capital gains tax on shares by holding them for more than 12 months. Shares held longer qualify as long-term capital assets, making gains eligible for lower tax rates or exemptions up to ₹1 lakh under Section 112A of the Income Tax Act.

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?

No, short-term capital gains tax is not deducted automatically. Taxpayers must calculate and report these gains when filing their income tax returns. However, in some cases, brokers may deduct tax on behalf of non-resident investors under tax deduction at source (TDS) rules.

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.