Short-Term Capital Gains Tax for FY 2023-2024

Short Term Capital Gains Tax, also known as STCG Tax, or STCGT is a tax levied on the profits earned from the sale of certain assets held typically for a period that is less than 36 months. The short-term holding period for listed securities is 12 months, while 24 months for unlisted shares. Short Term Capital Gains Tax is applicable to various assets such as stocks, bonds, real estate, jewellery, and certain financial instruments.

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What is Short Term Capital Gains Tax?

Short-Term Capital Gains Tax (STCG) is a tax levied on the profit you earn from selling capital assets held for a short period.

All STCGs are added to your total income and taxed at the applicable income tax slab rates (plus surcharge and cess).

NOTE: Profits from selling depreciable assets are always treated as short-term capital gains for tax purposes.

Short-Term Capital Asset Holding Periods:

Holding Period of Short Term Capital Assets Capital Asset Type
12-Month
  • Listed shares (equity or preference) on recognized exchanges
  • Mutual funds
  • Debentures
  • Government Securities
  • UTI units
  • Zero Coupon Bonds
24-Month
  • Unlisted shares
  • Immovable property (land/building)
36- Month
  • Property owned by an individual, whether business-related or not.
  • Securities held by a Foreign Institutional Investor (FII), following SEBI Act regulations.
  • ULIP is not covered under Section 10(10D) of the Income Tax Act, 1961.
  • Jewellery, archaeological collections, drawings, paintings, sculptures, and certain works of art.
  • "Jewellery" includes precious metal ornaments or stones, worked or sewn into apparel.

Exclusions From Definition of Short Term Capital Assets:

The following capital assets are excluded from the “capital assets” meaning for the purpose of Short Term Capital Gains Tax:

  • Stock-in-trade (except specified securities), consumables, and raw materials for business.

  • Personal effects

  • Agricultural land in India (except specific exclusions based on population and distance criteria)

  • Excludes financial instruments:

    • 6½% Gold Bonds (1977)

    • 7% Gold Bonds (1980)

    • National Defence Gold Bonds (1980)

    • Special Bearer Bonds (1991)

    • Gold Deposit Bonds (1999)

    • Gold Monetisation Scheme (2015) certificates

Short Term Capital Gains Tax in FY 2023-24

Asset Class Holding Period (for STCG) Tax Rate Additional Points
Equity Shares & Equity Mutual Funds Up to 12 months 15% Applies to listed and unlisted shares.
Debt Mutual Funds Up to 36 months (as per recent amendment) Slab rates based on income Previously treated as long-term capital gains, now taxed at short-term rates.
Business Trust Units Up to 12 months 15% Similar to equity shares.
Gold ETFs Up to 36 months 15% Short-term gains taxed at 15%, long-term gains at 20% with indexation benefit.

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Calculation of Short Term Capital Gains (STCG)

The calculation of short-term capital gains from the sale of a short-term capital asset is done as follows:

Particulars Amount
Minus (-): Full value of the consideration (Sales value of the asset) XXXXX
Expenditure related to the transfer (e.g., brokerage, commission, etc.) XXXXX
Net Sale Consideration XXXXX
Minus (-): Cost of acquisition (Purchase price of the asset) XXXXX
Minus (-): Cost of improvement (Post-purchase capital expenses) XXXXX
Total: Short-Term Capital Gains XXXXX

Illustration of Short Term Capital Gains (STCG)

Suppose in December 2022, you purchase gold jewellery as per the following details:

  • Gold Purchase Price (December 2022): Rs. 8,40,000

  • Gold Selling Price (August 2023): Rs. 9,00,000

  • Brokerage Paid: Rs. 10,000

  • Holding Period: 8 months (less than 36 months)

Calculation of Short-Term Taxable Capital Gain:

Particulars Amount
Minus (-): Full value of consideration (Sales value of the asset) Rs. 9,00.000
Expenditure related to the transfer (e.g., brokerage, commission, etc.) (-) Rs. 10,000
Net Sale Consideration Rs. 8,90.000
Minus (-): Cost of acquisition (Purchase price of the asset) (-) Rs. 8,40.000
Minus (-): Cost of improvement (Post-purchase capital expenses) Nil
Total: Short-Term Capital Gains Rs. 50,000

Short Term Capital Gains under Section 111A of the Income Tax Act, 1961

The short term capital gains from the transfer of the following assets are covered under Section 111a of the Income Tax Act, 1961:

  • Transfer of equity shares

  • Transfer of units of equity-oriented mutual funds

  • Transfer of units of business trusts

NOTE: The transfer must occur on or after October 1, 2004, through a recognized stock exchange. Also, the transaction must be subject to Securities Transaction Tax (STT).

  1. Definition of Equity Oriented Mutual Fund under Section 111a of the IT Act:

    • These market-linked assets are defined as mutual funds specified under section 10(23D).

    • 65% of its investible funds must be in equity shares of domestic companies.

  2. Taxation on STCG under Section 111a of the Income Tax Act:

    • STCG covered under Section 111A is taxed at 15%, plus applicable surcharge and cess

    • Concessional 15% tax rate applies under Section 111A from Assessment Year (AY) 2017-18, plus applicable surcharge and cess

    • The concessional rate is applicable even if STT is not paid

  3. Conditions for Concessional STCG Tax Rate:

    You can avail of the concessional STCG tax rates on fulfilling the following conditions:

    • Transaction on a recognized stock exchange in an International Financial Service Centre.

    • Consideration paid or payable in foreign currency.

Short Term Capital Gains Not Covered under Section 111A of the Income Tax Act, 1961

The following Short Term Capital Gains from the following capital assets are exempted from Section 111A of the Income Tax Act, 1961:

  • Equity shares via unrecognized stock exchanges

  • Selling non-equity shares

  • Non-equity Mutual Funds

  • Selling bonds, government securities, and debentures

  • Selling immovable property, silver, gold, etc.

Taxation on STCG Not Covered under Section 111A of the Income Tax Act

The Short Term Capital Gains not covered under Section 111A of the Income Tax Act, 1961 are classified as normal short-term gains. These capital gains are taxed as per your income tax slabs as per your chosen Old vs. New Tax Regime for FY 2023-24 (AY 2024-25).

Tax Benefits on Short Term Capital Gains Tax (STCG Tax)

Let us understand the tax deductions allowed on Short Term Capital Gains Tax in India:

  • No deductions under Section 80C to 80U allowed for short-term capital gains under Section 111A of the IT Act.

  • Deductions under Section 80C to Section 80U are applicable for STCG not covered under Section 111A.

In Summary

Short-Term Capital Gains Tax is a tax levied on profits from the sale of assets held for a short duration. This tax is typically higher than long-term capital gains tax and serves as a mechanism to generate revenue for the government. Investors should be mindful of the implications of short-term capital gains tax when engaging in quick asset turnover, as it can impact overall returns on investment. Understanding and planning for these tax implications is crucial for making informed financial decisions in the short-term investment landscape.

FAQ's

  • How much short capital gain is tax-free?

    Unfortunately, there is no specific amount of short-term capital gain (STCG) that is completely tax-free in India. However, there are certain deductions that can help reduce your tax liability on STCG from real estate:
    • You can deduct the actual cost of purchasing the property (purchase price, stamp duty, registration charges, and other related expenses)

    • You can deduct the cost of any major improvements made to the property

    • If you held the property for more than two years but less than three years, you can adjust the cost of acquisition for inflation using the Cost Inflation Index (CII)

  • How is short term capital gains tax calculated?

    The calculation of short-term capital gains tax involves determining the profit earned from the sale of assets held for a short duration, typically one year or less. The short-term capital gains are calculated by subtracting the purchase price of the asset from its selling price. The formula for calculating short-term capital gains tax is:
    • Short-Term Capital Gains Tax = Short-Term Capital Gains × Tax Rate

  • What is an example of a short term capital gain?

    Here is an example of calculating short term capital gains tax:
    • You purchase a plot of land in January 2023 for Rs. 50 lakhs.

    • You make significant improvements to the land, like building a boundary wall and planting trees, spending an additional Rs. 10 lakhs.

    • In December 2023 (within 24 months of purchase), you sell the land for Rs. 75 lakhs.

    Calculation:

    • Selling Price: Rs. 75 lakhs

    • Purchase Price: Rs. 50 lakhs

    • Cost of Improvement: Rs. 10 lakhs

    • Capital Gain: Rs. 75 lakh (selling price) - Rs. 60 lakhs (purchase price + cost of improvement) = Rs. 15 lakhs

    Taxable Capital Gain:

    • Basic Exemption as per Old Tax Regime: Rs. 2,50,000

    • Cost of Acquisition and Improvement Deduction: Rs. 60 lakhs

    Taxable Capital Gain: Rs. 15 lakhs (total gain) - Rs. 62,50,000 (exemption + deduction) = Rs. 7,50,000

    STCG Tax: Apply the current STCG tax rate of 30% to the taxable capital gain: Rs. 7,50,000 * 30% = Rs. 2,25,000

  • How do I avoid capital gains tax on the sale of property?

    While completely avoiding capital gains tax on property sale might not be possible in all cases, there are certainly strategies you can employ to minimize your tax liability:
    • Reinvest the gains under the following:

      • Section 54 of the Income Tax Act

      • Capital Gains Account Scheme (CGAS)

      • Purchase a new under-construction house

    • Reduce the taxable capital gain by deducting the cost of acquisition

    • Index the cost of acquisition

    • Optimize your holding period by holding the property for more than 24 months

  • What if STCG is less than 1 lakh?

    If your short-term capital gains (STCG) are less than 1 lakh in India, you do not have to pay any tax on them. This is because the Income Tax Act, 1961 exempts STCG up to 1 lakh from taxation.
  • Do I have to pay STCG if my income is less than 5 lakhs?

    No, you do not have to pay STCG if your total income (including income from all sources like salary, rent, interest etc.) is less than Rs. 5 lakhs in India. This is because the Indian income tax law exempts individuals from paying income tax altogether if their total income is less than Rs. 5 lakhs under the Old Tax Regime and below Rs. 7 lakhs under the New Tax Regime.

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