Short-Term Capital Gains Tax: STCG on Shares, Mutual Fund and Property With Calculator 2024

As per the 2024 union budget, the tax rate for short-term capital gains is 20%. This has been increased from 15% to 20%. As citizens of India, we have to pay taxes. When you sell things like stocks or property and earn a profit, the government takes a part of that profit as tax. Understanding short-term capital gains tax helps you to know how much money you need to pay and how to plan your investments better.

While long-term capital gains are taxed differently, short-term capital gains tax applies to assets for a shorter period. This tax is calculated based on an individual’s ordinary income tax rate, and understanding its implications is essential for individuals and investors alike.

In this article, we’ll discuss the concept of short-term capital gains tax, its calculation methods, and its impact on taxpayers’ financial decisions.

What is Short-Term Capital Gains Tax?

Short-term capital gains are the profits received from the sale of an asset that has been held for less than three years. These proceeds are referred to as “capital gains.” The profits gained in the short-term capital gains are included in the individual’s tax return and taxed at the rate applicable to their income tax bracket if securities are subject to a transaction tax. A short-term capital gains tax calculator can be used to calculate the amount specified.

The short-term capital gain tax rate is generally more than that of long-term profits and can be 15% to 20% depending on the type of the asset. Individuals can take advantage of the short-term capital gain exemption on their short-term profits, thus reducing their tax obligation on such gains to a lesser extent. The STCG tax rate in India depends on the type of asset sold and STT application but can be as low as 15% for equity shares and equity-oriented mutual funds.

Impact of Short-Terms

The most direct impact is a reduction in net returns on investments. As the tax eats into profits, investors have less disposable income. Higher taxes can make investors more risk-averse as they seek to protect their principal. This can lead to a shift towards safer but potentially less profitable investments. The frequent changes in STCGT rates can increase volatility as investors adjust their portfolios.

What is a short-term capital asset?

A short-term capital asset (STCA) is a capital asset that is held for less than 36 months. Any capital asset held by the taxpayer for not more than 36 months immediately preceding the date of its transfer will be treated as a short-term capital asset.

For example, if you buy a house in January 2024 and sell it in December 2024, the house will be considered a short-term capital asset.

The gains or losses on the sale of a short-term capital asset are taxed as ordinary income. This means that the gains are taxed at your marginal tax rate, and the losses can be used to offset other capital gains.

Short-Term Capital Gains Tax Rates 2024

In India, the short-term capital gains tax (STCGT) is 20%. The higher tax for short-term gains encourages people to keep their investments for a longer time and not trade quickly just to make fast money. These tax rates are for certain financial assets, but other things might have different tax rates.

The STCGT rates in India have changed because of different economic and fiscal policies. Before the 1990s, the tax system was complicated with many tax rates and exemptions. It was usually taxed according to income tax rates. After the 1990s, India opened its economy, and the STCGT rates were made simpler and put into a specific tax bracket. There was stability in the 2000s STCGT rates, which gave investors a predictable tax environment. 

Short-Term Capital Gains Tax	Long-Term Capital Gains Tax
Assets are held for less than a year	Assets are held for more than a year
Equity-oriented mutual funds are 15%	Equity shares and equity-oriented mutual funds are 10% on gains exceeding one lakh rupees
Other assets are taxed as per your income tax slab.	Other assets are 20%, with indexation benefits available.

Short-Term Capital Gains Tax on Property 2024

Short-term capital gain tax on property refers to the tax imposed on the profit earned from selling a property within a relatively short period, typically one year or less. This tax is calculated by determining the difference between the purchase price and the selling price of the property.

The net profit derived from this calculation is then added to your total taxable income for the year, and you are required to pay tax on it according to your applicable income tax bracket. In many jurisdictions, including the United States, short-term capital gains tax is taxed at the same rate as ordinary income. It's an essential aspect for property buyers and sellers to consider, as it can significantly impact their financial decisions.

Short-Term Capital Gains Tax on Shares 2024

Short-term capital gains tax on shares in India is a key consideration for investors in the stock market. When you sell shares within a short period, typically one year or less, you're subject to this tax. The calculation is straightforward: you subtract the purchase price and associated expenses from the selling price to determine the net profit, which is then added to your taxable income. The tax rate for short-term capital gains on shares aligns with your income tax bracket.

In India, short-term capital gains tax rates for shares differ based on whether the gains are from listed securities or unlisted ones. For listed securities, the tax rate is usually 15%, while for unlisted ones, it aligns with the applicable income tax slab rates. Additionally, investors should be aware of the Securities Transaction Tax (STT), which is applicable to all transactions in the Indian stock market.

Investors can also benefit from certain exemptions and deductions. For instance, if you reinvest the gains from selling shares into specified assets like certain bonds or residential property within a stipulated timeframe, you may be eligible for tax exemptions under Section 54F of the Income Tax Act.

Short-Term Capital Gains Tax on Mutual Funds 2024

Equity-oriented mutual funds are held for less than 12 months. The tax rate is a flat 15%, no matter your income tax slab. The STCGT rates on equity-oriented mutual funds have increased from 15% to 20%. Non-equity mutual funds, like debt and hybrid funds, used to have different holding periods depending on the fund type. Non-equity mutual funds are considered short-term, no matter how long you hold them. 

Budget 2024 and Capital Gains Tax

The union budget 2024 made big changes to capital gains tax, starting from July 23, 2024. These changes are to encourage long-term investments and make taxes simpler. STCG on equity shares and equity-oriented mutual funds have increased to 20% from 15%. LTCG on financial and non-financial assets is 12.5%. The exemption limit for LTCG on listed financial is now 1.25 lakh rupees per year to one lakh rupees. 

The biggest change is the increase in the tax rate for short-term capital gains. Investors will pay more tax on profits from short-term equity investments. The higher tax rate may make people less likely to trade quickly and more likely to invest for a longer time. Investors might change their plans to save on taxes and consider holding equity investments for more than 12 months to get the lower LTCG rate.

Short-Term Capital Gains Tax Calculator 2024

If you want to calculate short-term capital gain tax on shares, you must understand the price of purchase for acquiring the asset, as well as the expenses that you may have incurred about the sale including any brokerages or any other expenses. Note that you can compute short-term capital gains by subtracting the below points from the overall sale value:

• Any brokerage or related expenditure you may have incurred during the asset’s sale
• The cost of purchasing the asset

Suppose you purchased 100 shares of XYZ Ltd. on 1st January 2024 for Rs. 100 per share. You sold these shares on 31st December 2024 for Rs. 120 per share.

In this case, you would have made a short-term capital gain of Rs. 20 per share, or Rs. 2000 in total (100 * 20).=

The tax on short-term capital gains in India is 15%. So, you would have to pay a tax of Rs. 300 (2000 * 15/100) on your short-term capital gain.

Here is the calculation of the short-term capital gain tax:

Short-term capital gain = Rs. 2000

Tax rate = 15%

Short-term capital gain tax = Rs. 300

Strategies to Minimise Short-Term Capital Gains Tax

To reduce short-term capital gains tax, you can use a few simple strategies. Here are some of the strategies to minimise STCGT rates in India:

How to Avoid Short-Term Capital Gains Tax

It can be hard to avoid short-term capital gains tax completely, but there are ways to reduce its impact. Here are some:

• The best way to lower LSTCT is to keep your investment for a long time. 
• Think about investing in accounts like retirement accounts or health savings accounts. These accounts let you reduce taxes, lowering your overall tax bill. 
• If you have losses from other investments, you can use these losses to offset your short-term capital gains. 

How to Save Tax on Short-Term Capital Gains

If you want to save on short-term capital gains, try these strategies:

• As mentioned above, using capital losses to offset short-term can help.
• Try to sell your investments when you can also harvest tax losses or when your total income is lower. 
• A tax advisor can help you create a tax-saving plan that fits your financial situation.  

Tax Benefits and Exemptions

There are no direct tax benefits, just for short-term capital gains, but here are some benefits:

• Knowing your tax bracket helps you make smart investment decisions. 
• Using all available tax deductions and credits can lower your total taxable income, which can further help reduce the impact of STCGT.

Special Rates And Exceptions – Capital Gains

You must understand that not all assets are treated the same, and as such, some assets get different treatments in terms of capital gains. For example, collectibles such as art, precious metals, coins, antiques, stamp collections, etc. are rated differently from say, a qualified business stock.

The Short Term Capital Gains Tax (STCG) rate depends on the type of asset you sold and whether Securities Transaction Tax (STT) was applied. Be sure to get complete clarity about your asset, all the associated exceptions from a trusted financial advisor, as well as the short-term capital gain tax rate in India. Or in the case of a real estate asset, be sure to consult your real estate advisor. The amount of the short-term capital gain tax you pay may depend on it. 

Short-Term Capital Gains Tax Exemption Program

Several capital gains exclusions have been established to preserve the revenue produced by selling capital assets while also reducing the total stock tax rate obligation connected with such investments. Individuals can take advantage of the short-term capital gain exemption, but to do so, they must first become familiar with the many exemptions available and the criteria that apply to each one.

A few fundamental exclusions from long-term capital gains taxes are listed below-

• Individuals living in the city under the age of 60 have an annual income of Rs. 2.5 lakh.
• Individuals who are 60 years or older and have a yearly income of Rs. 3 lakhs are eligible to apply
• Individuals who are 80 years or older and have an annual income of Rs. 5 lakhs are eligible to apply.
• Individuals who do not live in India yet have a yearly income of Rs. 2.5 lakh.
• Hindu Undivided Families are eligible for a maximum of Rs. 2.5 lakh per year.

Exemptions for Particular Cases Under the Capital Gains Tax

Individuals would benefit from a list of capital gain exemptions since it would provide them with a better understanding of these deductions and the criteria that apply to them.

Proceeds From the Sale of Specific Securities

Capital gains resulting from the transfer of long-term capital assets are excluded from taxation under this capital gains provision. Long-term capital gain exemptions are available to individuals who invest their profits in specified assets such as UTI units, government securities, targeted debentures, government bonds, and other similar instruments. However, for this to happen, the following criteria must be met:

• Individuals are required to reinvest in such new securities within six months of the date on which the capital assets were transferred to their possession.
• Suppose people elect to sell their new shares before the expiration of the 36-month holding period. In that case, the exemption provided will be subtracted from the cost of the securities to an annual calculation of the capital gains.
• It should also be noted that if a loan is obtained against new assets before 36 months, the loan will be regarded as a capital gain.

Section 111A: Taxation of Short-Term Capital Gains on Equity Shares, Equity-Oriented Mutual Funds, and Business Trust Units

Section 111A of the Income Tax Act, of 1961, deals with the taxation of short-term capital gains arising from the transfer of equity shares or units of equity-oriented mutual funds or units of business trusts.

The section applies to short-term capital gains arising from the transfer of these assets if the following conditions are met:

• The transfer is made on or after 1 October 2004.
• The transfer is made through a recognised stock exchange.
• The transfer is liable to the securities transaction tax.

If these conditions are met, the short-term capital gains will be taxed at a flat rate of 15%.

Section 111A has a few exceptions. For example, it does not apply to short-term capital gains from shares bought under an employee stock Option Scheme (ESOP).

There are a few exceptions to Section 111A. For example, the section does not apply to short-term capital gains arising from the transfer of shares acquired under an employee stock Option Scheme (ESOP).

Section 54ee – Profits Realised as a result of the Transfer of Investments

Capital gains arising from the transfer of long-term capital assets would be eligible for an exemption under the capital gains act, provided the following facts:

• Individuals are encouraged to reinvest their profits within six months of receiving the funds.
• If people sell their new shares before the expiration of the 36 months, the exemption provided will be deducted from the cost of the securities to compute capital gains.
• If a loan is taken out against new assets before the expiration of the 36-month holding period, the loan would be regarded as a capital gain.

It is recommended that such investments do not exceed Rs. 50 Lakh in both the current and subsequent financial years.

Section 54 – Profits Derived from the Sale of a Residential Housing Investment Property

Short term Capital gains tax on property earned via the sale of a residential property utilized for residential purposes are excluded from taxation under the following circumstances: –

• The Assessee is either a person or a Hindu Undivided Family (H.U.F).
• The home property has been in the same family for more than 36 months.
• A new property was bought either 12 months before or 24 months after the previous property sale in question.
• Within 36 months after the sale of the housing property in issue, a new property has been built. 
• The proceeds produced are less than the amount spent on the purchase of the new building.

Generally, if the number of capital gains exceeds the cost of the new property, the difference in total would be considered a short-term capital gain on the property and subject to taxes. The difference would be subject to tax at a rate of 20 percent, and it would be regarded as a long-term capital gain for the year in which the former residential property was sold rather than a short-term capital gain on the sale of the property.

Section 54F – Profits Derived from the Sale of Capital Assets Other Than Residential Real Estate Property

Even if capital gains earned via the sale of an asset other than real estate utilized for residential purposes were reinvested in residential property, they would be eligible for capital gains exemption under certain conditions which can enable the individual to avoid short-term capital gains tax. Exemptions of this kind can be obtained, if in these circumstances-

• This assessment is being conducted on a person or a Hindu Undivided Family (H.U.F).
• The new property was bought 12 months before or 24 months after the capital asset in issue was sold, or it was purchased 12 months before or 24 months after the capital asset in question was sold.
• A new property was built or purchased within 36 months of the date on which the capital asset in issue was transferred.

There is no way that the selling value of the asset in issue (exclusive of the cost of transfer) can be more than the purchase price of the new dwelling property.

In conclusion, understanding and managing short-term capital gains tax is crucial for maximizing your investment returns. Remember to consult a tax professional for personalized advice based on your specific circumstances. While navigating this aspect of taxation can be challenging, it's important to stay informed and compliant. 

NoBroker Legal Services is here to assist you every step of the way. With our experienced team and comprehensive knowledge, we are well-equipped to handle any potential pain points you may encounter. Don't hesitate to reach out to us for efficient and expedited problem resolution. Contact NoBroker today and experience hassle-free tax management.

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