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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 AssetPeriod 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
Less than 12 months 
Unlisted equity sharesLess 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

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:

  1. STCG is covered under section 111A
  2. 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:

  1. Equity shares listed in a recognized stock exchange which is chargeable to securities transaction tax (STT)
  2. Listed securities like Debentures and Government securities
  3. Units of Zero Coupon Bonds
  4. Units of an equity-oriented mutual fund sold through a recognised stock exchange which is chargeable to STT. 
  5. Units of Unit Trust of India
  6. 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 STCGTax Rate
STCG covered under section 111A15% plus surcharge and cess 
STCG NOT covered under section 111AAt Applicable slab rate depending on the total income for the year

How To Calculate Short Term Capital Gain Tax?

ParticularsAmount
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 ValueXXX
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 GainXXX

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. 

ParticularsAmount
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 ValueRs 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 GainRs 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. 

ParticularsAmount
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 ValueRs 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 GainRs 12,000

Computation of Total Tax Payable for the Financial Year 2020-2021

ParticularsAmount
Total Taxable Salary IncomeRs 14,00,000
Interest on Fixed DepositRs 3,000
Short Term Capital GainRs 8,000
Total Taxable IncomeRs 14,11,000
Less Deduction Under Section 80CRs 1,45,000
Net Taxable IncomeRs 12,66,000
Up to Rs 2,50,000 IncomeNil
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

How much short term capital gain is tax free in India?

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.

Is short term capital gain below 1 lakh taxable?

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. 

How do I avoid short term capital gains tax?

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.  

How do I declare short term capital gains in ITR?

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’.