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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. 

ParticularsLong-Term Capital GainShort-Term Capital Gain
Equities- Period of HoldingMore than 12 MonthsLess than 12 Months
Unlisted Shares- Period of HoldingMore than 24 MonthsLess than 24 Months
Debt Funds- Period of Holding (for investments made before March 31st 2023)*More than 36 MonthsLess than 36 Months
Other Assets- Period of HoldingMore than 36 MonthsLess than 36 Months
Equities – Tax Rate10%, On LTCG more than Rs 1 lakh15%, If STT is Paid
Other Assets – Tax Rate20%Applicable Tax Slab Rate
Tax ExemptionLTCG on equity is exempt up to Rs 1 LakhNo exemption
Indexation BenefitAvailable on Debt Funds and Other Assets. Not Applicable on Equity InvestmentNot Available
Set Off of LossesLong Term Capital Loss can be Set Off with Long Term Capital GainShort Term Capital Loss can be Set Off with Short Term Capital Gain and Long Term Capital Gain
Carry Forward of LossesUp To 8 Year, If ITR FiledUp 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.