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Budget 2023 Updates- An income from market linked debentures are taxable as short term capital gains at applicable rates.
What is Short Term Capital Gain Tax?
A capital gain arising from the sale of a short term capital asset is a short term capital gain or STCG. Such an STCG is subject to short term capital gain tax depending on the type of asset and tax rate. Hence, before selling any asset, a taxpayer must refer to tax compliance in order to plan their taxes and make wise decisions.
What is a Short Term Capital Asset?
A short term capital asset is an asset which is held by a taxpayer for less than 36 months from the date of purchase of such an asset. However, for a few assets, the period of holding is 12 months instead of 36 months. These assets are shares listed on the stock exchange, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, and equity mutual funds.
Period of Holding for Short Term Capital Gain Tax
| Capital Asset | Period of holding to qualify as short- term capital asset |
| Equity shares listed in a recognized stock exchange Listed securities like Debentures and Government securities Units of Zero Coupon Bonds Units of an equity-oriented fund Units of Unit Trust of India Market Linked Debentures | Less than 12 months |
| Unlisted equity shares | Less than 24 months |
| Units of Debt oriented Fund* Unlisted securities (other than shares) Other capital assets | Less than 36 months |
| Balanced Funds (equity-oriented) | Less than 12 months |
| Balanced Funds (debt-oriented)* | Less than 36 months |
| Hybrid Mutual (equity exposure more than 65% of total investment) | Less than 12 months |
| Hybrid Mutual (equity exposure less than 65% of total investment)* | Less than 36 months |
*Note: From April 1st 2023, capital gains arising from debt mutual funds are taxable as per the investor’s income tax slab rate, irrespective of the holding period.
Illustration on Calculation of Period of Holding
Mr Arun purchased gold on 23rd September 2021 for Rs 1,20,000. He sold it on 2nd July 2022 for Rs 1,37,000. Gold is a capital asset. Here the holding period of the gold is less than 12 months. Hence, it is a short term capital asset and is subject to STCG.
Mr Ravi purchased shares of XYZ Ltd on 1st July 2019. He sold the shares on 23rd September 2022. These shares are not listed on any stock exchange. Hence these are unlisted shares for which the period of holding is 36 months to qualify as a short term capital asset. From 1st July 2019 to 23rd September 2022, the period of holding is more than 36 months. Hence, it is a long term capital asset and not subject to STCG.
Short Term Capital Gain Tax Rate
For the purpose of calculating the tax payable, short term capital gains are divided into the following 2 parts:
- STCG is covered under section 111A
- STCG is not covered under section 111A
The entire tax rate depends on section 111A
STCG covered under section 111A
If the short term capital asset belongs to any of the following categories then section 111A is applicable:
- Equity shares listed in a recognized stock exchange which is chargeable to securities transaction tax (STT).
- Listed securities like Debentures and Government securities
- Units of Zero Coupon Bonds
- Units of an equity-oriented mutual fund sold through a recognised stock exchange which is chargeable to STT.
- Units of Unit Trust of India
- Income from Market Linked Debentures
- STCG arises on the sale of equity shares, units of equity oriented mutual funds or units of a business trust. The sale is made through a recognised stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if the transaction of the sale is not chargeable to STT.
STCG not covered under section 111A
- Unlisted equity shares
- Unit of Debt oriented Fund
- Unlisted securities (other than shares) like debentures, bonds and Government securities
- Assets other than shares/units like STCG on sale of immovable property, gold, silver, etc.
Tax Rate for STCG
| Type of STCG | Tax Rate |
| STCG covered under section 111A | 15% plus surcharge and cess |
| STCG NOT covered under section 111A | At Applicable slab rate depending on the total income for the year |
How To Calculate Short Term Capital Gain Tax?
| Particulars | Amount |
| Full value of consideration (i.e., Sales value of the asset) | XXX |
| Less: Expenditure incurred wholly and exclusively in connection with the transfer of capital asset (E.g., brokerage, commission, etc.). | XXX |
| Net Sale Value | XXX |
| Less: Cost of acquisition (i.e., the purchase price of the capital asset) | XXX |
| Less: Cost of improvement (i.e., post purchases capital expenses on the improvement of capital asset ) | XXX |
| Short-Term Capital Gain | XXX |
Transaction subject to section 111A
Miss. Puja purchased units of zero coupon bonds on 1st January 2022 For Rs 1,32,000. These units of zero coupon bonds are listed on NSE. She sold these units on 2nd June 2022 for Rs 1,47,000.
Since the units of zero coupon bonds are listed on NSE, the transaction is subject to section 111A. The applicable tax rate is 15% plus surcharge and cess.
| Particulars | Amount |
| Full value of consideration (i.e., Sales value of the asset) | Rs 1,47,000 |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset | Nil |
| Net Sale Value | Rs 1,47,000 |
| Less: Cost of acquisition (i.e., the purchase price of the capital asset) | Rs 1,32,000 |
| Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset ) | Nil |
| Short-Term Capital Gain | Rs 15,000 |
| Tax Payable = STCG * 15% | Rs 2,250 |
Transaction NOT subject to section 111A
Miss Radha purchased silver on 3rd April 2021 for Rs 1,26,000. She sold it for Rs 1,48,000 on 22nd February 2022. During the year she received a net taxable salary of Rs 14,00,000 and interest on a fixed deposit of Rs 3,000. She made an investment in ELSS for Rs 1,45,000.
| Particulars | Amount |
| Full value of consideration (i.e., Sales value of the asset) | Rs 1,48,000 |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset | Nil |
| Net Sale Value | Rs 1,48,000 |
| Less: Cost of acquisition (i.e., the purchase price of the capital asset) | Rs 1,26,000 |
| Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset ) | Nil |
| Short-Term Capital Gain | Rs 12,000 |
Computation of Total Tax Payable for the Financial Year 2020-2021
| Particulars | Amount |
| Total Taxable Salary Income | Rs 14,00,000 |
| Interest on Fixed Deposit | Rs 3,000 |
| Short Term Capital Gain | Rs 8,000 |
| Total Taxable Income | Rs 14,11,000 |
| Less Deduction Under Section 80C | Rs 1,45,000 |
| Net Taxable Income | Rs 12,66,000 |
| Up to Rs 2,50,000 Income | Nil |
| Rs 2.5 lakh to Rs 5 lakhs- 5% | Rs 12,500 |
| Rs 5 lakh to Rs 10 lakhs- 20% | Rs 1,00,000 |
| Rs 5 lakh to Rs 10 lakhs- 30% (Rs 12,66,000 – Rs Rs 10,00,000) * 30% | Rs 79800 |
| Total Tax Payable (Rs 12,500 + Rs 1,00,000 + Rs 79800) | Rs 1,92,300 |
Frequently Asked Questions
If STT is applicable on the asset then the STCG is taxable at a flat rate of 15% under section 111A. STCG arising from the sale of any other asset is subject to slab rate. Hence, if your net taxable income is below the basic exemption limit then STCG is tax free in India.
Yes, short term capital gain below 1 lakh is taxable. The exemption of Rs 1 lakh is applicable on long term capital gain arising from the sale of listed equity shares, units of an equity-oriented fund, and units of Unit Trust of India.
To avoid short term capital gains tax you have to plan your taxes in advance. Tax planning is an essential step which is crucial for every taxpayer. Before selling the assets you must calculate the tax payable on such a transaction. If you are selling listed equity shares, units of an equity-oriented fund, and units of Unit Trust of India then you can avoid tax by holding for more than 12 months. LTCG on such assets is exempt up to Rs 1 lakhs. Furthermore, if you are selling any other asset then such a sale will be taxable at slab rate. To avoid taxes you can make investments under section 80C or similar sections and claim deductions.
To declare short term capital gains in ITR you have to mention the sale value, expenses on transaction and purchase price. The resulting amount will be the taxable STCG. You have to mention these details under the head ‘Income under the Head Capital Gains’.
Yes. With effect from Budget 2023, any income from market linked debentures is taxable as STCG at applicable rates.
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