When you hold your capitallike shares, bonds or units for only a few months before selling, you may incur what is called a short-term tax.
are profits you make on the sale of an . These profits are bucketed as short or long term and taxed accordingly. For shares which are listed on and for -oriented , short term is defined as a period fewer than 12 months.
Which means that if you buy shares orand sell them within 12 months, any profits you make will be considered as short-term gains. The tax applicable on this is a flat 15%.
What you need to know
Short termarising from -oriented are taxed differently than such gains if they come from in debt securities like bonds and debt mutual funds. The short-term holding period is also defined differently.
In case of the latter, short term gains arise if you sell a listed bond within 12 months but for unlisted bonds and debtschemes short term gains arise if you hold your for less than 36 months or 3 years.
Short termtax is applicable only if there are gains or profits. Which means your buy price has to be lower than your selling price. If that is not the case you will end up selling at a loss and have a short-term capital loss.
For tax purposes, this short-term loss can be written off against any other short- or long-termand you can carry it forward for eight years if you are not able to do so in the year you book the loss.
Tax deducted at source
There was an announcement made in Budget 2020 which suggested a withholding tax or tax to be deducted at source for income arising fromunits. This tax was to be deducted at a rate of 10% of the income or gains.
After the initial announcement, there was some debate on whether this is applicable onas well, but it was clarified that the pertained only to arising out of units and not on .
Hence, it remains that you don’t have to pay anyon short term .
Thisis calculated along with your income tax return and the tax amount added to your overall tax bill. If, however, you short term tax is more than Rs 10,000, you are liable to pay advance tax in the quarter that the gains are realised and the tax is due.
It’s important to ensure that you pay your taxes on time so that there is no penalty incurred on late payment. Short termin are not tax-efficient given the 15% tax rate and ideally, even as an , should be held for a few years before you decide to sell.