What Is Short Term Capital Gain Tax On Shares?
Short Term Capital Gain Tax on Shares is the tax levied on profits earned from selling equity shares held for less than 1 year. The tax rate is a flat 15% with no exemptions, making it less tax-efficient compared to long-term capital gains which enjoy a ₹1 lakh annual exemption and 10% tax rate. This higher tax rate is designed to discourage short-term trading and encourage long-term investment, as long-term investments are considered more stable and beneficial for the economy.
STCG Tax Rate Details
| STCG Amount | Tax Rate | Tax Payable | After-tax Amount |
|---|---|---|---|
| ₹50,000 | 15% | ₹7,500 | ₹42,500 |
| ₹1,00,000 | 15% | ₹15,000 | ₹85,000 |
| ₹2,00,000 | 15% | ₹30,000 | ₹1,70,000 |
| ₹5,00,000 | 15% | ₹75,000 | ₹4,25,000 |
STCG Tax vs LTCG Tax Comparison
Short-term (STCG)
Tax Rate: 15%
Exemption: None
Example (₹1 lakh gain):
Tax: ₹15,000
After-tax: ₹85,000
Long-term (LTCG)
Tax Rate: 10% (above ₹1 lakh)
Exemption: ₹1 lakh per year
Example (₹1 lakh gain):
Tax: ₹0 (exempt)
After-tax: ₹1,00,000
Strategies to Minimize STCG Tax
Hold for Long Term
If possible, hold shares for at least 1 year to qualify for long-term treatment. This reduces tax from 15% to 10% and provides ₹1 lakh exemption.
Offset with Losses
Use capital losses (both short-term and long-term) to offset STCG, reducing your taxable gains and tax liability.
Plan Transactions
Plan your share transactions carefully. If you need to sell, consider whether waiting a few more days/months to cross the 1-year mark is feasible.
Maintain Records
Keep detailed records of all transactions, purchase prices, sale prices, and dates for accurate tax calculation and to support loss offset claims.
Final Thoughts
Short Term Capital Gain Tax on Shares at 15% with no exemptions makes short-term trading less tax-efficient than long-term investment. The tax structure is designed to encourage long-term investment by providing better tax treatment (₹1 lakh exemption and 10% rate) for shares held for 1+ years. While there may be valid reasons for short-term trading (liquidity needs, risk management, market timing), understanding the tax cost 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. Strategic planning, such as offsetting losses and timing transactions, can help minimize STCG tax when short-term trading is necessary.