What Is Short Term Capital Gain On Shares?
Short Term Capital Gain (STCG) on Shares refers to the profit earned from selling equity shares that have been held for less than 1 year. STCG on shares is taxed at a flat rate of 15% with no exemptions, making it less tax-efficient compared to long-term capital gains. Unlike long-term gains which enjoy a ā¹1 lakh annual exemption and 10% tax rate, short-term gains are fully taxable at 15%, which is why holding shares for at least 1 year is generally more beneficial from a tax perspective.
STCG vs LTCG Comparison
| Aspect | Short-term (STCG) | Long-term (LTCG) |
|---|---|---|
| Holding Period | Less than 1 year | 1 year or more |
| Tax Rate | 15% | 10% (above ā¹1 lakh) |
| Exemption | None | ā¹1 lakh per year |
| Tax Efficiency | Lower | Higher |
| Example: ā¹1 Lakh Gain | Tax: ā¹15,000 (15%) | Tax: ā¹0 (exempt) |
How to Calculate STCG on Shares
Calculation Formula
Step 1: Calculate STCG
STCG = Sale Price - (Purchase Price + Brokerage + Other Expenses)
Step 2: Calculate Tax
Tax = 15% Ć STCG
Example:
Bought shares for ā¹1,00,000 and sold for ā¹1,20,000 within 1 year.
STCG = ā¹1,20,000 - ā¹1,00,000 = ā¹20,000
Tax = 15% Ć ā¹20,000 = ā¹3,000
Why STCG is Less Tax-Efficient
Higher Tax Rate
STCG is taxed at 15% compared to LTCG's 10% rate, resulting in higher tax liability for the same gain amount.
No Exemptions
Unlike LTCG which has a ā¹1 lakh annual exemption, STCG has no exemptions, making the entire gain taxable.
Higher Trading Costs
Short-term trading involves more frequent transactions, leading to higher brokerage and transaction costs, reducing net returns.
Missed Compounding
Short-term trading prevents you from benefiting from long-term compounding returns, which can significantly increase wealth over time.
Final Thoughts
Short Term Capital Gain on Shares is taxed at 15% with no exemptions, making it less tax-efficient than long-term gains. The tax structure is designed to discourage short-term trading and encourage long-term investment. While there may be situations where short-term trading is necessary (liquidity needs, risk management, market timing), understanding the tax implications helps make informed decisions. Whenever possible, holding shares for at least 1 year to qualify for long-term treatment can significantly reduce tax liability and improve after-tax returns. The ā¹1 lakh exemption and 10% tax rate for long-term gains make it highly beneficial to hold shares for the long term.