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- What is Short-Term Capital Gain on Shares?
- How to Calculate Short-Term Capital Gains Tax on Shares?
- Illustration on How to Calculate STCG on Shares
- What are The Tax Rates on Short-Term Capital Gains?
- What are the Tax Rates on Long Term Capital Gains?
- How to Calculate Long Term Capital Gain Tax on Shares?
- Illustration on LTCG on Shares
- What are the inclusions and exclusions covered under section 111A for the purpose of short-term capital gains?
- Frequently Asked Questions
A capital gain arising from the sale of a short-term capital asset is a short-term capital gain. The applicable tax on STCG is different for different assets. In the case of shares, a short-term capital gain arises when shares are sold within 12 or 24 months from the date of purchase. The resultant gain is taxed as short-term capital gains and is computed as below.
| Particulars | Amount |
| The full value of the consideration received on the sale of shares | XX |
| Less: expenditure incurred in connection with such sale (brokerage) | XX |
| Net sale consideration (A) | XX |
| Less: cost of acquisition (B) | XX |
| Short-term capital gains on the sale of shares(C=A-B) | XX |
Short-term capital gains can be calculated as per the below format:
| Particulars | Amount |
| The full value of the consideration received | XX |
| Less: expenditure incurred in connection with such sale (brokerage) | XX |
| Net sale consideration (A) | XX |
| Less: cost of acquisition (B) | XX |
| Short-term capital gain(C=A-B) | XX |
Aditi holds 1000 shares of Happy Private Limited which she had acquired in December 2020 at a cost of Rs. 1,00,000. She sold the shares in January 2021 at a price of Rs. 180 per share and incurred a cost of Rs. 12,000 as transaction charges paid to the broker. The short-term capital gains on the transaction will be calculated as below:
| Particulars | Amount (Rs) |
| The full value of the consideration received (1000 shares@180) | 1,80,000 |
| Less: expenditure incurred in connection with such sale (brokerage) | 12,000 |
| Net sale consideration (A) | 1,68,000 |
| Less: cost of acquisition(1000 shares @ 100) (B) | 1,00,000 |
| Short-term capital gain(C=A-B) | 68,000 |
In the above case, the holding period of the Aditi was 1 month and the capital gain calculated would be the short-term capital gain. The gain will be taxed at the rate of 15% and added to the total income of Aditi.
What are The Tax Rates on Short-Term Capital Gains?
| Capital Gain | On a sale of | Capital gains tax rate |
| Short Term Capital Gain Tax | On a transfer of:Listed equity sharesUnits equity-oriented fundsUnits of a business trust | Tax rate – 15% if STT is paid |
| Short Term Capital Gain Tax | Any asset other than mentioned above | The capital gain to be added to the gross total income and is taxed at a normal slab rate applicable to the assessee. |
Tax on mutual fund
| Fund | Short term capital gain tax | Long term capital gain tax |
| Equity-oriented funds | Tax rate- 15% | Capital gain < 1 lakh- Tax ExemptCapital gain > 1 lakh- Tax rate- 10% |
| Debt-oriented funds | Applicable tax income tax rates | 20% with indexation |
Let us understand the taxability of short-term capital gains with the help of an example. Let’s say Amit, who is a salaried employee, purchased shares of Avanti Feeds Limited for Rs. 8,00,000 in the month of November 2017 and sold the shares in the month of March 2018 for Rs. 12,00,000. What will be the short-term capital gain by Amit considering Amit paid Rs. 20,000 as brokerage?
We can calculate the short-term capital gains on the sale of shares as below:
| Particulars | Amount |
| The full value of the consideration received from the sale of shares | 12,00,000 |
| Less: expenditure incurred in connection with such sale (brokerage) | 20,000 |
| Net sale consideration (A) | 11,80,000 |
| Less: cost of acquisition of shares | 8,00,000 |
| Short-term capital gains on the sale of shares(C=A-B) | 3,80,000 |
The above short-term capital gain of Rs. 3,80,000 will be taxed as per the applicable slab rates in the hands of Amit.
What are the Tax Rates on Long Term Capital Gains?
Below is a table showing the long term capital gains tax applicable on various assets:
| Capital Asset | Tax rates applicable |
| Equity shares listed in a recognized stock exchangeUnits of an equity-oriented fundUnits of Unit Trust of India | 10% over and above Rs. 1,00,000 without indexation |
| Unlisted equity shares | 20% with indexation |
| Unit of Debt oriented FundUnlisted securities(other than shares)Other capital assets | 20% with indexation |
| Balanced Funds (equity-oriented) | 10% over and above Rs. 1,00,000 without indexation |
| Balanced Funds (debt-oriented) | 20% with indexation |
| Hybrid Mutual (equity exposure more than 65% of total investment) | 10% over and above Rs. 1,00,000 without indexation |
| Hybrid Mutual (equity exposure less than 65% of total investment) | 20% with indexation |
Long-term capital gain arising from the sale of shares can be calculated using the below table:
| Particulars | Amount |
| The full value of the consideration received from the sale of shares | XX |
| Less: expenditure incurred in connection with such sale (brokerage) | XX |
| Net sale consideration (A) | XX |
| Less: Indexed cost of acquisition (B) | XX |
| Long-term capital gain(C=A-B) | XX |
Indexed cost of acquisition is the price which is adjusted against rise in inflation.
Let us understand the calculation of long-term capital gains with the help of an example. Atul bought 500 shares of Shree Cements in January 2015 at Rs. 1000 per share. He sold all his holdings at Rs. 1500 per share in May 2018. In this case, the indexed cost of acquisition and the long-term capital gains arising from the sale of shares will be calculated as below:
Indexed cost of purchase of shares = Rs 5,00,000 X 280/240 = Rs 5,83,333
Calculation of long-term capital gains
| Particulars | Amount (Rs) |
| The full value of the consideration received from the sale of shares(500 shares @1500 per share) | 7,50,000 |
| Less: expenditure incurred in connection with such sale (brokerage) | Nil |
| Net sale consideration (A) | 7,50,000 |
| Less: Indexed cost of acquisition (B)[calculated above] | 5,83,333 |
| Long-term capital gain(C=A-B) | 1,66,667 |
What are the inclusions and exclusions covered under section 111A for the purpose of short-term capital gains?
Under section 111A, short term capital gains are taxed at a concessional rate of 15% on the transfer of below:
- An equity share in a company
- A unit of an equity-oriented fund
- A unit of a business trust
Below are the two conditions that need to be met in order to avail the benefit of the concessional rate:
- The transaction should be chargeable to Securities Transaction Tax
- The transaction should be entered into on or after 01.04.2004
Short-term capital gains arising on the sale of units of an equity-oriented mutual fund, units of a business trust, or an equity share on a recognised stock exchange located in an International Financial Service Centre (IFSC) would be taxable @15% even though the securities transaction tax is not leviable on such transactions.
The provisions of section 111A are not applicable on the below:
- Short-term capital gains arising on the transfer of bonds, debentures, etc.
- Gains arising on the transfer of immovable property.
- Short-term capital gains arising on the transfer of debt-oriented mutual funds.
- Gains arising on the transfer of shares that are not listed on any recognised stock exchange.
Frequently Asked Questions
No deduction under chapter VI-A can be availed in respect of short-term capital gains arising on the sale of equity shares or units of equity-oriented funds included in the total income of the assessee.
Indexation allows the taxpayer to adjust the cost of acquisition and improvement against the inflationary rise in the values. However, the benefit of indexation is allowed only in the case of long-term capital assets and not short-term capital assets. Thus the user cannot avail of the indexation benefit in the case of short-term capital gains.
Capital losses can be set off only against capital gains. Thus, in the case of short-term capital loss, the set-off can be done only against either short-term or long-term capital gains.
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