Long Term vs Short Term Capital Gain

Updated on 24 Oct, 2023

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Long term vs short term capital gain is a concept that is important for any taxpayer who is considering selling a capital asset. Once you understand the difference between LTCG and STCG, you will be able to make better decisions and plan your taxes. Early tax planning may lead to a lower tax liability, tax saving, and avoidance of interest on late payment of taxes.

What is Long Term Capital Gain?

Long-Term Capital Gain arises when a taxpayer sells a long term capital asset. Whether an asset is a long term or a short term capital asset depends on the period of holding. The period of holding for which a taxpayer holds the asset determines the tax rate. There are 3 different periods of holdings for an asset to be a long term asset. The benefit of long term capital gain is that it is eligible for an indexation benefit. The benefit of indexation increases the purchase cost and thereby reduces the capital gain and tax.

What is Short Term Capital Gain?

Similar to LTCG, a short term capital gain arises when a taxpayer sells a short term capital asset. Again, the short-term capital gain depends on the holding period and the asset type. A major disadvantage of a short term capital gain is that it is not eligible for indexation. Moreover, STCG attracts a higher tax rate for any equity share or mutual fund. Hence, before selling your assets you must calculate your taxes and plan your tax savings. You can use the capital gains calculator and calculate the tax payable on capital gains. Furthermore, the income tax calculator helps you estimate the taxes on the overall income for the year.

Long Term Vs Short Term Capital Gain

The following table of differences explains the aspect of long term vs short term capital gain for the purpose of taxation.

Particulars	Long-Term Capital Gain	Short-Term Capital Gain
Equities- Period of Holding	More than 12 Months	Less than 12 Months
Unlisted Shares- Period of Holding	More than 24 Months	Less than 24 Months
Debt Funds- Period of Holding (for investments made before March 31st 2023)*	More than 36 Months	Less than 36 Months
Other Assets- Period of Holding	More than 36 Months	Less than 36 Months
Equities – Tax Rate	10%, On LTCG more than Rs 1 lakh	15%, If STT is Paid
Other Assets – Tax Rate	20%	Applicable Tax Slab Rate
Tax Exemption	LTCG on equity is exempt up to Rs 1 Lakh	No exemption
Indexation Benefit	Available on Debt Funds and Other Assets. Not Applicable on Equity Investment	Not Available
Set Off of Losses	Long Term Capital Loss can be Set Off with Long Term Capital Gain	Short Term Capital Loss can be Set Off with Short Term Capital Gain and Long Term Capital Gain
Carry Forward of Losses	Up To 8 Year, If ITR Filed	Up To 8 Year If ITR Filed

*Note: From April 1st 2023, capital gains arising from debt mutual funds will be taxable as per the investor’s income tax slab rate. This is irrespective of the investment holding period. Furthermore, the indexation benefit is no longer available for debt mutual funds.

The above table will help you in understanding the different aspects of long term vs short term capital gain. Such aspects are period of holding, tax rates, type of assets, benefits, set off, and carry forward of losses.