What Is Short Term Capital Gains Tax?
Short Term Capital Gains Tax (STCG) is a tax levied on profits earned from the sale of capital assets held for less than a specified period. The holding period varies by asset type: less than 1 year for equity shares and equity mutual funds, less than 2 years for real estate, and less than 3 years for debt mutual funds and gold. Short-term capital gains are typically taxed at higher rates than long-term capital gains, with no indexation benefits or significant exemptions, making them less tax-efficient for investors.
STCG Tax Rates by Asset Type
| Asset Type | Holding Period | Tax Rate | Notes |
|---|---|---|---|
| Equity Shares | Less than 1 year | 15% | Flat rate, no exemptions |
| Equity Mutual Funds | Less than 1 year | 15% | Flat rate, no exemptions |
| Debt Mutual Funds | Less than 3 years | As per tax slab | 5%, 20%, or 30% based on income |
| Real Estate | Less than 2 years | As per tax slab | 5%, 20%, or 30% based on income |
| Gold & Precious Metals | Less than 3 years | As per tax slab | 5%, 20%, or 30% based on income |
Key Characteristics of STCG
Higher Tax Rates
STCG is taxed at higher rates (15% for equity, income tax slab for others) compared to LTCG, making short-term trading less tax-efficient.
No Indexation
STCG does not benefit from indexation, meaning purchase price is not adjusted for inflation, resulting in higher taxable gains.
Limited Exemptions
Unlike LTCG, STCG generally has no exemptions (except specific cases like Section 54 for property reinvestment).
Added to Income
For non-equity assets, STCG is added to total income and taxed at applicable income tax slab rates, potentially pushing you into higher tax brackets.
How to Calculate STCG Tax
For Equity Shares & Equity Mutual Funds
STCG = Sale Price - Purchase Price
Tax = 15% Ć STCG
Example: If you sell shares for ā¹1,20,000 that you bought for ā¹1,00,000 within 1 year, STCG = ā¹20,000. Tax = 15% Ć ā¹20,000 = ā¹3,000.
For Debt Funds, Real Estate & Gold
STCG = Sale Price - Purchase Price
STCG is added to your total taxable income
Tax = STCG Ć Applicable tax slab rate (5%, 20%, or 30%)
STCG vs LTCG Comparison
| Aspect | Short Term (STCG) | Long Term (LTCG) |
|---|---|---|
| Equity Tax Rate | 15% | 10% (above ā¹1 lakh) |
| Debt/Real Estate Tax Rate | As per tax slab (up to 30%) | 20% (with indexation) |
| Exemptions | None (limited exceptions) | ā¹1 lakh (equity), reinvestment exemptions |
| Indexation | Not available | Available for debt/real estate |
| Tax Efficiency | Lower | Higher |
Final Thoughts
Short Term Capital Gains Tax is significantly higher than long-term capital gains tax, making short-term trading less tax-efficient. The 15% flat rate for equity STCG and income tax slab rates for other assets, combined with no indexation benefits and limited exemptions, results in higher tax liability. Investors should carefully consider the tax implications before selling assets within the short-term period. If possible, holding assets for the required period to qualify for long-term treatment can significantly reduce tax liability. However, tax should not be the only consideration - market conditions, investment goals, and risk management should also be factored into selling decisions.