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What is Short-Term Capital Gain on Shares?

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.

ParticularsAmount
The full value of the consideration received on the sale of sharesXX
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

How to Calculate Short-Term Capital Gains Tax on Shares?

Short-term capital gains can be calculated as per the below format:

ParticularsAmount
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

Illustration on How to Calculate STCG on Shares

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:

ParticularsAmount (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 GainOn a sale ofCapital gains tax rate
Short Term Capital Gain TaxOn a transfer of:Listed equity sharesUnits equity-oriented fundsUnits of a business trustTax rate – 15% if STT is paid
Short Term Capital Gain TaxAny asset other than mentioned aboveThe 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

FundShort term capital gain taxLong term capital gain tax
Equity-oriented fundsTax rate- 15%Capital gain < 1 lakh- Tax ExemptCapital gain > 1 lakh- Tax rate- 10%
Debt-oriented fundsApplicable tax income tax rates20% 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:

ParticularsAmount
The full value of the consideration received from the sale of shares12,00,000
Less: expenditure incurred in connection with such sale (brokerage)20,000
Net sale consideration (A)11,80,000
Less: cost of acquisition of shares8,00,000
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 AssetTax rates applicable
Equity shares listed in a recognized stock exchangeUnits of an equity-oriented fundUnits of Unit Trust of India10% over and above Rs. 1,00,000 without indexation
Unlisted equity shares20% with indexation
Unit of Debt oriented FundUnlisted securities(other than shares)Other capital assets20% 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

How to Calculate Long Term Capital Gain Tax on Shares?

Long-term capital gain arising from the sale of shares can be calculated using the below table:

ParticularsAmount
The full value of the consideration received from the sale of sharesXX
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. 

Illustration on LTCG on Shares

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

ParticularsAmount (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:

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.

Recommended Read: Capital Gain Bonds

Frequently Asked Questions

Can deductions under chapter VI-A be claimed against short-term capital gains covered under section 111A?

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.

Is the benefit of indexation available while computing the capital gains arising on the transfer to short-term capital assets?

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.

Can a short-term capital loss be set off against any other head of income?

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.